
<div style="text-align: right;"><a target="_blank" href="pdfs/featured_posts/2012.1.27-beneficiary-designation-planning.pdf">Download PDF</a><a href="pdfs/featured_posts/2012.1.27-beneficiary-designation-planning.pdf"><img src="images/stories/pdf-icon.png" alt="pdf-icon" height="15" width="15" /></a></div>
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<p style="text-align: justify;">Without careful consideration of the many complex factors involved in beneficiary designation planning, the value of a retirement account can be drastically reduced or even destroyed upon the death of the account owner.</p>
<p style="text-align: justify;">For example, if the owner of an IRA or SEP fails to designate a beneficiary, the estate of the account owner automatically becomes the beneficiary.  Regardless of the size of the account, the owner’s estate will be forced to draw down the entire value of the account over no less than five years, and then distribute the net proceeds of the account to the heirs of the owner’s estate.  Estate’s are not able to “stretch-out” the receipt of retirement account distributions.  Since all distributions from IRAs and SEPs are taxable as ordinary income, and estates generally pay a 35% federal income tax, the net value of the account is likely to be only 60% of its original value the day the owner passed.</p>
<p style="text-align: justify;">Even if the retirement account owner does designate an individual beneficiary, that beneficiary may not be capable of handling the assets.  Since the beneficiary is free to withdraw the assets of the retirement account as he or she chooses, negative personal circumstances such as creditor issues, poor spending habits, substance abuse issues, or dysfunctional personal relationships may cause the individual beneficiary to expedite the withdrawal of inherited retirement account assets.  Not only would we expect the beneficiary to pay more income tax than necessary, he or she would lose the benefit of continued tax-deferred growth, and may even squander the entire account on frivolous purchases or in attempting to solve personal problems.</p>
<p style="text-align: justify;">These are just a few simple examples of the inherent problems associated with beneficiary designation planning for retirement accounts.  Since there are so many factors to consider, there is no one size fits all solution.  Each account owner has different goals and priorities, and external forces such as income taxes, creditors, and spendthrift beneficiaries influence the planning process.  Considering the multitude of distribution possibilities and potential negative consequences for failing to properly plan, do not neglect this important area of your estate plan.</p>
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