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Naming Beneficiaries of Insurance Policies and Retirement Plans

Whether you’re wealthy or earn a modest income, there is one estate planning concern that is shared by people from all walks of life — the decision of who gets what when you’re gone. And while some individuals logically assume that a last will and testament is the only official forum to express such decisions, that’s not always the case. Often, an equally important issue in estate planning is whom to name as beneficiary on life insurance policies, pension plan accounts, and IRAs, since these assets are passed on regardless of what may be spelled out in a will.

It’s important to keep in mind that naming beneficiaries can be complicated and can present estate and income tax consequences to the beneficiary. For instance, no matter who you designate as beneficiary of a life insurance policy, he or she will receive the death benefit proceeds income tax free. On the other hand, tax laws require that a spouse be the primary beneficiary of a pension account unless he/she waives that right in writing. And both spousal beneficiaries and nonspousal beneficiaries can roll over the death proceeds of the IRA account into their own IRA.

As you formalize or update your estate plan and will, it is imperative to readjust all beneficiary designations so that your plan accurately reflects your intentions. Remember that outdated beneficiary designations (e.g., older parents) could misdirect the intended flow of an entire estate plan unless changed now.

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