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Get the beneficiary thing right on your IRAs



By Dian Vujovich

Inheriting money isn’t always a smooth deal. In addition to dealing with the often very personal loss of the person who has bequeath you a gift comes possible tax consequences, time before the gift is received and then deciding what precisely to do with the new found money.

Christine Benz, director of personal finance at Morningstar, looked at the issues surrounding inheriting IRAs. Like most things money related, the subject is a complicated one.

Below are three of the “must-knows” Benz included in a recent column:

• When there’s no named beneficiary

If an IRA doesn’t have a beneficiary, it is the account’s custodian’s rules that rule the roost. A custodian is the bank or financial institution where the IRA is held like T.Rowe Price, for instance.

Benz writes: “Some firms pass remaining IRA assets to a surviving spouse and, if there is no surviving spouse, to the deceased person’s estate. Other firms pass the assets directly to the estate.”

Given that there is no one rule that all institutions follow, I suggest making it a point each year to check all of your IRAs to see if the beneficiary you’ve chosen is/are still a fit.

• When a charity is your beneficiary

Leaving the proceeds from an IRA to one, or any number, of your favorite charities can be a great idea. It’s also one that comes with a couple of tax benefits.

“Qualified charities will not owe any taxes on gifts they receive, essentially negating the tax liability attached to those traditions IRA assets,” writes Benz.

In addition to your thoughtful generosity, your estate gets an estate-tax deduction on the estate-tax return filed.

•Don’t name a child the beneficiary

While the idea might initially sound like a good one, it’s not. Reason being: minor children can’t own assets outright. If you do decide to name a child as beneficiary, keep in mind that after your death a court-appointed guardian will be named who will then play an integral part in how the child’s monies are managed.

Benz’s advice: “If you’d like to leave IRA assets to a minor, check with an estate-planning attorney about setting up a trust of UTMA/UGMA account. ”

Please take the time to read Benz’s column in full, it’s full of good info. You’ll find it at: http://tinyurl.com/4mp7f9e .


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