Be sure to update retirement account data for beneficiaries' sake.
Q: My husband of 20 years passed away earlier this year. Even though we updated our wills just before his passing, his ex-wife now claims she owns all the assets in his IRAs and 401(k)s, totaling $3 million. Is that legal?
A: Yes. Many people, when updating their estate planning documents, overlook one of the most important-the beneficiary designation form for their IRAs, 401(k)s, and other retirement accounts.
Contingent beneficiaries are the second in line to receive your retirement account assets if none of your primary beneficiaries survives you, or if your primary beneficiaries disclaim the assets. Designate clearly what percentage each beneficiary is to receive.
Per stirpes, in which each branch of a family receives an equal share of the estate, allows even greater detail regarding the next generation if a beneficiary predeceases you. For example, say you name your two children to each receive 50 percent of your assets, with per stirpes, and one of your children passes away. If the deceased child has five children of his or her own, 50 percent of your assets would go to your surviving child, and 50 percent would go to your five grandchildren, 10 percent each.
Review your beneficiary designations annually and during important changes in your life. These might include the adoption or birth of a child, divorce, the transition in status of a beneficiary from a minor to majority, marriage, inheritance, or death of a beneficiary. Your financial adviser and estate planner can help structure your will so that it realizes your intentions.
In the May 21, 2010, Money Management Q&A column, the question regarding Social Security tax exemptions should have referred to employers, not employees. The answer was correct.
Send your money management questions to email@example.com(please include your regular postal address). Answers to our readers' questions were provided by Aaron Skloff, AIF, CFA, MBA. He is chief executive officer of Skloff Financial Group, a registered investment advisory firm based in Berkeley Heights, New Jersey.