Broker Check

Market Commentary: 1st Quarter 2018

Qualified Beneficiary Reviews

During the first quarter, all our clients will review their beneficiary designations. This process is crucial for ensuring that dispositive wishes will be carried out. Here is why.
Items we look for include:

• Has a beneficiary been properly named and identified? If not, the custodian’s default policy will apply. Note: Will designations or even a court order do not change this. If a beneficiary is not named or cannot be located, the IRA will be treated as having no beneficiary and the default policy of the custodian holding the assets will apply. IRA assets to your estate go to probate! Do you need to make sure your beneficiary designations are up to date?

• What is the custodian’s default policy? Sometimes custodians will transfer first to the spouse then the estate. Other custodians will pass assets directly to the estate, while some will transfer assets directly to the owner’s children. However, an estate beneficiary means probate! Why not get a free review to make sure your intended beneficiary is not stuck in probate with no access to IRA funds?

• Is your spouse the “sole beneficiary?” If a charity, trust or other person is also a beneficiary, the spouse will be treated as a non-spouse beneficiary for distribution purposes. Only if the spouse is the sole beneficiary can he or she make the inherited IRA his or her “own.” That means, the spouse can roll the assets into their own IRA and begin Required Minimum Distributions (RMDs) at their own age 70½ . Otherwise, RMDs begin at the original owners beginning date. What does your beneficiary form say?

• Are there Contingent Beneficiaries? What happens if the primary beneficiaries(y) are/is deceased or cannot be located?  The custodian’s default policy will apply. Every beneficiary form should name one or more contingent beneficiaries. Who are your contingent beneficiaries?

• What happens if your estate becomes the beneficiary by choice or by default? Estate IRA assets become part of the estate probate proceedings. In that case, assets are subject to the claims of creditors and are not available to spouse or family until the probate process is completed. That may take years and assets to support minor children or school costs or maintenance of former friends or loved ones are generally unavailable. What can you do to avoid probate of your IRA?

• Other questions and contingencies such as “disclaiming,” “cashing out,” trust administration and charitable issues also need to be explored. What hidden problems await your intended beneficiaries?

Take Action

It is crucial to review your beneficiary designations annually. As a service to our clients and friends, we make ourselves available at no cost to review beneficiary designations. You may request a review even if you are not a client. Just make an appointment. There is no obligation. IRA’s are often one of the biggest inherited assets.

Unfortunately, mistakes on beneficiary designation forms and changes in circumstances are often ignored until the owner has passed. By that time, many problems become irrevocable. While some issues can be tweaked within 9 months of death or by September 30 of the year following the year of death, it is far better to take a few minutes and make sure your beneficiaries are properly designated. Also, it’s important to make sure you understand what you have on paper because what you may wish, or what the family understands does not matter.

If you think you need a review, call us today. Then when you have it right, you can rest assured. This review is important and we are here to help.

David L. Harris, PhD, ChFC, CFP®
Wealth Advisor

(310) 318-3700

[If you would like a confidential review of your portfolio, call for an appointment, or book your meeting on-line at It is free and without obligation for investors with portfolios of $500,000 or more.]