Baby Boomers Beware!
I have found over the years that many of my baby boomer estate planning clients share the same common facts: (1) their IRAs, 401(k)s, or other qualified retirement accounts are typically their largest asset; and (2) they increasingly have blended families – meaning, they are in their second or third marriage and have children from prior relationships. Since most baby boomers’ largest assets are their IRAs, they need to be careful when designating their beneficiaries for these accounts. This becomes especially important when the account owner has a blended family. Failing to properly plan their IRA beneficiary designations can result in the accidental disinheritance of a child, create unnecessary legal fees, and trigger significant income tax consequences for their family. Unfortunately, most IRA account owners are unaware of the complicated rules surrounding beneficiary designations and so the estate plan they thought was in place does not become a reality. This article will address common pitfalls for IRA beneficiary designations for blended families.
Pitfall 1: The Account Owner Names His or Her Spouse as Beneficiary
Most commonly, an IRA account owner will designate his or her spouse as beneficiary. In some situations, this designation works just fine, but other times, and especially for those in blended families, naming the spouse as beneficiary will make their estate plan inconsistent with their overall estate planning goals.