Our Weekly Tip: Designating Beneficiaries To Take Care Of Your Assets

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Our Tip of The Week: Most retirement plans, annuities and life insurance policies let you designate beneficiaries who will take control of your assets after you’re gone. By designating beneficiaries, your estate will not have to go through probate — the legal proceeding that “proves” a will in court — which can be an expensive process. Because your will cannot override your beneficiaries’ decisions, it’s important to make sure your beneficiary designations accurately represent your most current intentions.

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How-to Suggestion: Your assets will go to your primary beneficiary or beneficiaries first. In the event that your beneficiaries have died, your assets will go to any second beneficiaries you have identified. Your beneficiaries can include spouses, children, other relatives, friends, charities or institutions. 

Each of your accounts has its own corresponding form: For the federal retirement system, it’s Standard Form 2808 (CSRS) or 3102 (FERS). The Federal Employees’ Group Life Insurance form is Standard Form 2823. The Thrift Savings Plan is TSP-3. The Standard Forms can be downloaded from the U.S. Office of Personnel Management page. The Thrift Savings Plan form can be downloaded from the TSP website.   

One thing to note about naming children as life insurance beneficiaries is that insurers won’t pay life insurance benefits directly to minors. If you wish to designate a child as your beneficiary, set up a trust for the child and name the trust as the life insurance beneficiary, or designate an adult you trust as the guardian to administer the benefit. If you haven’t created a trust or designated a guardian, the court will appoint a guardian until the child turns either 18 or 21, depending on the state. 

A spouse inheriting an IRA can move the account into an inherited IRA to keep the tax shelter, or they can choose to roll the account into their own IRA. For an inheriting spouse who is younger than 59 1/2 and needs the money, remaining a named beneficiary makes the most sense. That way they can withdraw money from the account without penalty. To be a named beneficiary, the spouse needs to retitle the account as an inherited IRA. A surviving spouse who is younger than 70 1/2 and doesn’t need the money should roll the account into their own IRA.  They won’t need to take minimum distributions until they turn 70 1/2.