The ERISA consultants at the Learning Center Resource Desk, which is available through Columbia Threadneedle Investments, regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Maryland is representative of a common inquiry regarding beneficiaries. The advisor asked:
“How important is it to review my clients’ beneficiary designation forms?”
Highlights of Recommendations
• In a word, the answer is: very. As we all know, life’s circumstances change (e.g., marriage, death, divorce, births, adoptions, remarriage, etc.). As a result, beneficiary designations may quickly become outdated and/or may be incomplete (e.g., missing a signature or date).
• Many investors mistakenly believe an up-to-date will is sufficient to meet their legacy and estate planning needs across all their investments. That may not be the case.
• Generally, beneficiary designations for annuity or life insurance contracts, retirement plans, IRAs or brokerage accounts will override a person’s written will. And individuals may also elect to pass on brokerage assets by selecting the “Transfer on Death” registration on their account forms.
• Federal and state laws can come into play regarding who can be named as a beneficiary on retirement plan assets as well. Therefore, it is important to understand what rules apply for which accounts.
• For these reasons, as well as others, it is critical for you to regularly conduct beneficiary audits with your clients on their retirement plans, IRAs, annuity and life insurance policies, and brokerage accounts to ensure the beneficiaries they have chosen accurately reflect their current circumstances and legacy wishes.
• Properly executed beneficiary designations can help avoid probate of these assets, so funds and property can be transferred immediately. Regular beneficiary audits help to ensure the account owner has properly documented his or her legacy wishes; identified and resolved any taxation questions; and considered account consolidation opportunities.
• What’s more, by aligning certain types of accounts with the needs and tax situations of specific beneficiaries, your clients may be able to increase the value of their legacy and lessen the tax burden on the recipients.
• The Learning Center has beneficiary audit support materials in the form of a worksheet, Investor Perspective, white paper and audit form.
Conclusion
A beneficiary audit is recommended any time a client experiences a life change, but sometimes those life changes are overlooked. Committing to at least annually reviewing beneficiary forms with your clients is a step to ensuring they will remain up to date.
The Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC (RLC), a third-party industry consultant that is not affiliated with Columbia Threadneedle. Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Columbia Threadneedle does not provide tax or legal advice. Consumers consult with their tax advisor or attorney regarding their specific situation.
Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Columbia Threadneedle.
Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies.
©2015 Columbia Management Investment Advisers, LLC. Used with permission.
