Keeping Your Wealth Transfer Plan Current

Keeping Your Wealth Transfer Plan Current

When was the last time you reviewed your legacy plan?

All too frequently, people establish planning vehicles for their estate such as life insurance policies and trusts, and promptly put it out of their minds. The end of the year offers an opportunity to review the plans you have in place, and determine whether any adjustments are in order.

Potential impact when wealth transfer plans become outdated.

For example, a former spouse could inherit a retirement account, even if a will exists that leaves everything to the current spouse. Or a child could receive the full proceeds of a life insurance policy at age 18, without any oversight about how he or she spends it. When it comes to IRAs and 401(k)s, there could be negative tax consequences for the heirs of those who fail to plan.

If the past year brought any of the following changes to your life and family, it’s time to take a fresh look:

  • Birth of a child or grandchild
  • Child or grandchild off to college
  • Marriage or divorce
  • Illness or disability
  • Career change or sale of a business
  • Real estate purchase or sale

This is just a partial list of potential triggers for a review of your wealth transfer plans. We can discuss other developments that may not appear to affect your plan, but could have unforeseen consequences.

In addition, any of these milestones could precipitate a change in your risk tolerance and target investment returns. Your portfolio holdings may need to be adjusted to reflect a new risk/reward relationship.

How current are your beneficiary designations?

Beneficiary designations are a critical – and often overlooked – component of wealth transfer planning. Every retirement account, life insurance policy and annuity contract should have a named beneficiary and contingent beneficiary. In addition, on non-retirement mutual fund accounts, you can name a Transfer on Death (TOD) beneficiary in order to pass securities that you own directly to another person or entity without the delays of probate. TOD registration is available for individual and joint mutual fund accounts (Joint Tennant with Rights of Survivorship or Tenants by Entirety) with a domestic address. Beneficiary designations override any instructions in a will, and thus may not enact your current wishes, if they are not up-to-date.

Don’t forget about contingent beneficiaries

Even if someone names a primary beneficiary when they open an account or purchase a life insurance policy, they may fail to name a contingent beneficiary. But if the primary beneficiary predeceases you, and you have no contingent beneficiary, it will be as if you had never named a beneficiary. All the negative consequences of probate and unnecessary taxation can still ensue.

Save taxes by naming a beneficiary for your IRA

The tax benefits of IRAs and other retirement accounts can evaporate without an up-to-date wealth transfer plan. If you do not have a current beneficiary, or your estate is the beneficiary, the entire account could become taxable immediately. The estate may have to pay taxes on the full amount, causing tens of thousands of dollars to bypass your heirs.

An estate may elect to take up to five years to withdraw the proceeds of the account, but the account becomes fully taxable at the time of distribution. This merely postpones the tax inefficiency.

Naming your current spouse as the beneficiary may be a potentially more effective strategy. He or she can roll the account into their own retirement fund. This gives them the ability to take yearly required minimum distributions (RMDs) based on their age, not yours.

If you designate someone other than your spouse as the beneficiary of your IRA or 401(k), they too have flexibility. Non-spousal beneficiaries can:

  • Choose to “stretch” the IRA by taking RMDs based on their own life expectancy. This leaves the funds invested in the account for as long as possible.
  • Liquidate the account within five years of the original owner’s death, and pay taxes on the proceeds.

Conduct a year-end review of your wealth transfer plans

Dreyfus offers a kit that includes useful tools and a clear roadmap for legacy planning. We can work together on strategies designed to secure your family’s future. The kit includes:

  • Estate Planning Overview
  • Vital Document Organizer
  • Valuation Worksheets
  • Guide to Common Errors & Oversights

If your life has seen changes this year, it’s important that your plan reflects those developments. Let me help you coordinate the review of your wealth transfer plan with your estate planning specialists and tax advisors.

My goal is to help ensure that your wishes are fulfilled. Please call me to schedule a review today.

All investments involve risk, including loss of principal. Certain investments involve greater or unique risk that should be considered along with the objectives, fees, and expenses before investing.

Views expressed are those of the advisor stated and do not reflect views of other managers of the firm overall. Views are current as of the date of this publication and subject to change. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express writted permission. Dreyfus Advisor Services is a division of MBSC Securities Corporation (MBSC), a registered investment adviser and broker-dealer and subsidiary of The Dreyfus Corporation (Dreyfus). MBSC and Dreyfus are BNY Mellon companies; BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation.

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