Today’s Smart Money Question:

Costly mistakes in your estate plan, specifically the passing of your qualified retirement accounts, are avoidable. Learn how, and prevent a headache.

(Click the featured times below to jump forward in the episode)

Here Are Just A Handful Of Things You’ll Learn:

1:21 – The Situation. 

• We got a call from someone in a panic. A friend of this caller had passed away earlier in the summer. At the advice of counsel, the caller was told to finalize the estate as fast as possible. The deceased had a large amount of money in an old company 401(k) where their wife was listed as the beneficiary. The problem is that the deceased’s wife had died a couple of years earlier. Without talking to the custodian of the 401(k), the attorney/executor requested a check for more than a million dollars to be dispersed. The issue is the check was made payable to the estate, meaning there was no designated beneficiary outside of the already deceased spouse. As a result, the entire estate was going to be put through probate, and probate court is a nightmare. This could’ve been avoided had the friend simply updated their beneficiary forms.

4:53 – Life Happens. Plan Accordingly. Avoid Costly Mistakes. 

• We completely understand that life happens. Events don’t always unfold as we’d like. However, the world keeps spinning, so it’s important you prepare for these “life suddenly” moments. Avoid costly mistakes by simply updating the beneficiary forms on your financial accounts, and have your financial documents in order. In our particular scenario, we discovered as a result of poor planning, the government would tax these accounts twice. Our state has an inheritance tax, meaning the state taxes all accounts before dispersing them upon one’s death. The state then taxes the heirs of these accounts. In our particular situation, the heirs were set to pay almost $65,000 in taxes. While this all might sound a bit confusing, it’s ultimately important to note that proper estate planning and correctly designated beneficiary forms can rid you of a nightmare.

13:25 – Easy Changes. 

• When you experience a major life change, speak with your attorney, your advisor, and your bank. Taking the time to update your beneficiary forms can help you avoid probate fees, inheritance tax fees, and income tax fees. The IRS doesn’t care whether you understand the process, and they will come looking for their payment. It’s easier to avoid costly mistakes now than it is to clean up the mess in the future.

Other Smart Money Points: 

• 6:26 – Understand How Qualified Retirement Accounts Move.
• 9:09 – Understanding Spousal Inherited IRAs.
• 10:10 – Non-Spousal Inherited IRAs.
• 11:46 – As An Heir, You Can’t Co-Mingle Funds.

The Answer:

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The host: Matt Hausman – Contact – Resources – Call: 610-719-3003

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