Prior planning ensures smooth transfer of assets to a beneficiary

On Behalf of | May 24, 2021 | Estate Planning

Life is full of changes and many occur unexpectedly. When it comes to estate planning, you will want to keep up with the goals you establish.

Advance planning will ensure that assets such as savings account or retirement account proceeds pass in a smooth and timely manner to your beneficiaries.

Proper designations

Among the most common estate planning errors is the failure to designate beneficiaries properly. This can happen when switching investment companies, setting up a retirement plan or even opening a savings account. Remember to change or add beneficiaries as you need to. For example, you can add a transfer on death or TOD designation to that savings account. Upon your death, the funds will bypass the probate process and pass directly to the beneficiary you name.

A minor as beneficiary

If you wish to make a minor child or grandchild a beneficiary, he or she will not be able to take control of an inheritance before reaching the age of majority. If you should die before that occurs, the court will establish a guardianship to manage the assets for the recipient. You can name the guardian you prefer in your will.

Retirement accounts and taxes

The non-spouse beneficiary of a retirement account such as a 401(k) is responsible for paying any taxes owed and must withdraw funds completely within 10 years. This counts as ordinary income with the associated tax consequences. One way to circumvent the tax issue for your heir is to convert some or all of your retirement funds into a Roth IRA. You pay the taxes at the current rate and at your death, the Roth IRA funds will pass tax-free to your beneficiary. This kind of advance planning helps you make a smooth and timely transfer of assets to those you love.