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Commentary: Who inherits your retirement assets?

Do you think it’s a lot of work to create an estate plan? It certainly can be, however, it may only take a few minutes to create one for your retirement savings.

It can take just long enough for you to complete and sign the beneficiary designation form for your account. If you’re like many people, you probably don’t realize that your retirement savings will pass to the beneficiaries named on this form, not to the heirs named in your will or other estate-planning documents. Since your retirement nest egg may be one of your largest assets, it’s essential to take the time to review and possibly update your beneficiaries every few years. Below are some frequently asked questions and answers to guide you.

n I have a current will. Isn’t that all I need?

The beneficiaries named on retirement accounts override a will. Time may have passed, things may have changed and your designated beneficiaries may no longer reflect your current wishes. If you neglect to update your beneficiary forms, your hard-earned retirement money may not be passed along the way you want it to today. Depending on the circumstances, significant amounts of these savings also could be lost to taxes.

n Do I really need contingent beneficiaries?

Yes, you need to name a contingent beneficiary as well as a primary beneficiary. If a primary beneficiary dies and you haven’t named a contingent, the assets are distributed according to the default rules of your retirement plan after your death. Some plans will default to the spouse while others default directly to the estate.

n I’m thinking of naming my estate as beneficiary. Is this a good idea?

By naming your estate as beneficiary, your retirement assets will probably have to go through probate, a court process that is both time consuming and costly to your heirs. Further, depending on the situation, this could increase the tax bill and limit payout options for your heirs.

n Should I name my young children as primary or contingent beneficiaries?

Although minor children can’t legally control assets, parents can name guardians, custodians or trustees in advance to manage finances for them after their deaths. If this isn’t taken care of ahead of time, the court will need to name a guardian for the child and the assets. In addition, minor children can take control of the assets when they reach the age of majority -- possibly as early as age 18 in some states -- unless other arrangements are made.

n What are some common mistakes made when updating beneficiary forms?

Never naming contingent beneficiaries or not identifying a new heir after the death of a primary beneficiary.

Forgetting to remove an ex-spouse after divorce and/or remarriage.

Failing to update the form after the births or adoption of additional children.

Young, single adults naming their parents as beneficiaries and then forgetting to update the forms after they marry, have children and/or their parents die.

Naming the estate as beneficiary.

n Is there any other advice you would give me?

One of the most powerful financial legacies you can leave is ensuring that your beneficiaries have flexible options with respect to payouts of your retirement plan assets over their lifetimes, sometimes referred to as a “stretch” IRA. Be sure to ask your financial or estate adviser to review this powerful estate planning strategy with you.

Kris Flammang, co-founder of LPF Financial Advisors with offices in Lakewood Ranch, can be reached at (941) 907-0101 or