A costly mistake New York residents may make when planning their estate is not designating the correct beneficiary for their IRA. This can result in hefty expenses and frustration for surviving family members.
It is not unusual for people who have IRA to leave the beneficiary designation blank or fail to update their beneficiaries. If a beneficiary is not designated, the IRA is automatically transferred to the decedent’s estate, which can result in an expensive tax assessment.
If the beneficiary designations are not reviewed and updated periodically, it can result in the name of a deceased person listed as the beneficiary to the IRA. The IRA is not likely to go the heirs of the deceased beneficiary as intended by the IRA owner if the beneficiary list was not set up to allow it.
Individuals should discuss their IRA beneficiary designations with their family and their estate planning lawyer. Not having a beneficiary naming strategy can jeopardize their legacy, with the assets going to an unintended party.
One question that should be asked when a devising beneficiary name plan for an IRA is whether the money is intended to remain in the family. If there is no desire to keep the money in the family, individuals can list their favorite charity as the beneficiary of their IRA and allow the executor of their estate to take care of the rest.
However, if the IRA is to remain in the family, there are more issues to consider. One is how the IRA should be treated if the account owner is married.
An estate planning attorney may assist clients with determining which legal documents should be in place to ensure that certain types of assets, such as IRAs, make it to the intended parties. The attorney may advise of tax implications of certain estate planning strategies.