1324 W. Clairemont Ave., Suite 10
Eau Claire, Wisconsin 54701
715-835-6196
www.eclawyers.com
OFFICE HOURS Monday - Thursday 8:00 am to 5:00 pm Friday 8:00am to 12:00 pm
(Closed for lunch from noon to 1:00 pm)
Our office will be closed on September 2, in observance of Labor Day.
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Beneficiary Designations
Adding a beneficiary to a financial account (or even to real estate in Wisconsin) can be an easy way to transfer that asset to the next generation. However, there are some important things to consider before you add a beneficiary. Here are three things to consider.
- Does your designation coordinate with your overall plan? I routinely meet with clients who have added beneficiaries to accounts that will cause the account to go against their wishes at their death. The most common is to name one child and expect that child to take care of paying final expenses and then give some of the money to the other children. This use of a beneficiary designation not only goes against the client’s plan to treat the children equally, it opens the door to a number of things going awry: i) the child receiving the money may not share it with his/her siblings, ii) the child receiving the money may be incapable of receiving it due to incapacity or being in the middle of a divorce, or iii) the child receiving the money may die before they are able to carry out your wishes.
- Will your beneficiary be able to receive the assets? Using beneficiary designations assumes that the intended beneficiary will be able to receive the gift without any trouble. However, I have seen instances where the beneficiary became incapacitated, and the receipt of the gift caused hardship and stress because of its impact on benefits the beneficiary was receiving. I’ve also seen instances where the recipient was in the midst of a divorce and unable to receive the gift without it impacting the divorce proceedings. Sometimes an easy way to pass wealth is not easy for the recipient to receive that gift.
- Is this the most tax-efficient strategy? If you have charitable intent, naming a charity as the recipient of an IRA should be considered. If you leave an IRA to a child, that child will have to pay income tax on the distributions from the IRA. A charity, however, will not. This results in the full amount of the IRA left to charity to be used by the charity.
As you can see, naming a beneficiary may not always be best. Call us today to schedule a consultation to discuss how to incorporate beneficiary designations into your plan to help carry out your wishes.
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August 2024
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