5

I have several accounts 401k, Roth IRA, etc. at a variety of different financial institutions (Fidelity, Vanguard, local Credit Union, etc). I want to set up my beneficiaries like the following:

  • I die -> everything goes to spouse
  • spouse and I die -> everything to children
  • spouse, I and kids die -> everything goes to my brother

How do I go about setting that up? Is a will the best method, or should I designate primary and contingent beneficiaries on every account?

  • 1
    Note that it is often better (simpler and easier to manage) to make the beneficiary "Estate of YourNameHere", and then direct the funds to their final recipient via your will. – keshlam Jan 25 '16 at 1:35
  • 1
    Sorry, bad idea. Leaving to ones estate doesn't avoids probate, and it loses any chance at the stretch Ira withdrawal provision. Designated beneficiaries on IRA and 401(k) are what's needed. – JoeTaxpayer Jan 25 '16 at 2:18
  • Hmmmm. Thanks, Joe, I trust you but I'll want to crosscheck that and adjust my own plans. – keshlam Jan 25 '16 at 2:26
  • To be clear, retirement accounts inherited via will have a five year maximum distribution time, those transferring via designated beneficiary have a payout based on the life expectancy of the beneficiary. For small accounts, the point may be moot, but much above $50K and the tax burden can be substantial . – JoeTaxpayer Jan 25 '16 at 3:20
3

I believe you want contingent beneficiaries. This makes sure the money moves without having to go through will execution / probate, which can be expensive and takes calendar time. A will needs to be executed, and depending on the size of the estate, gone through probate which both require interaction with gov't authorities. As such, the latter is a longer process than the former.

Also, you don't explicitly indicate if all your accounts are retirement (though your examples sound like it.) If some of them are insurance policies, using beneficiaries instead of your will has tax consequences. Most life insurance payouts are tax free if sent directly to beneficiaries, but if they become part of your estate, so directed through your will, they can incur tax on either the estate or heirs.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.