The Connecticut Estate Planning Blog

Check Those Beneficiaries!

OK, let's start the year out right and invest some time in making sure that the beneficiaries that are listed for your assets make sense in light of your current circumstances.  I'm talking about any financial asset that has a "designated beneficiary", such as life insurance, qualified retirement accounts (IRA's, 401K's, etc.) annuities and any bank account that has been established as a "POD" (payable on death) account. 

If you remember nothing else from this post remember this: Your will or living trust does not control the distribution of the assets listed above.  If an asset has a designated beneficiary, then upon your death the remaining funds are going to that beneficiary (or beneficiaries) and no one else.  The company in charge of the account doesn't give a hoot about what your will or living trust says.

One perfect example of when this can cause an enormous problem is when there is a divorce.  If you don't update your beneficiary designation after the divorce then your ex could end up with the proceeds upon your death.  Wow.

Please look at that list in the first paragraph again and note that we're not talking about small change here.  If you're like most of the population then your retirement accounts are probably the largest assets you have with the possible exception of your house.  Also, the pay-out of your life insurance may represent the largest percentage of your estate.  So it's worth it to sit down with your estate planning attorney and make sure that you get your beneficiaries right.

The Fed's Pull an About-Face on RMD Suspensions!

There has been some discussion for a while about a plan to help out seniors who are forced to take "required minimum distributions", known as RMD's, out of their IRA's (as well as 401K's and other retirement accounts,which have the same RMD requirement) and suffer the income tax consequences of doing so. 

RMD's are a specific amount of money, based on your life expectancy and the balance in the account, that must be taken as taxable income each year starting at the age of 70 1/2.  Technically, the deadline for your first RMD is April 1st of the year following the year in which you turn 70 1/2. 

Anyway, the tax code wields a pretty big stick for those who decide to ignore this requirement.  The penalty, which is 50% of the amount that was supposed to be withdrawn, is usually more than enough motivation for an IRA owner to fully comply. 

But in light of the decimation of everyone's IRA's the thought was that it seemed cruel to accelerate the decimation by continuing the obligation to take RMD's.  In fact, Congress apparently reached a bipartisan proposal for suspending RMD's for 2008 & 2009, and many retirement owners have been delaying the withdrawal of their '08 RMD in light of the plans.

Well, the Treasury Department has pulled the plug on such plans and there will be no suspension of the RMD requirement this year or next year.  Lovely.

So, if you've been putting off the RMD this year, it's time to get moving... and fast!  You should contact your account sponsor and find out the quickest way to withdraw the RMD before the end of the year, which is only eight days away!