In this episode of Protecting and Preserving Wealth, we continue our discussion on estate and legacy planning, focusing on the critical role of beneficiary designations. Beneficiary forms take precedence over wills and trusts for certain assets, including retirement accounts like IRAs, 401(k)s, 403(b)s, life insurance policies, annuities, and pensions. Bank and brokerage accounts also allow for direct beneficiary designations through Pay on Death (POD) and Transfer on Death (TOD) forms. In Arizona, real estate can even have designated beneficiaries through Arizona beneficiary deeds.

We emphasize the importance of keeping these designations up to date. Failing to update them can lead to unintended outcomes, such as an ex-spouse inheriting an account despite a revised will or trust. Some exceptions exist, like certain IRA agreements that automatically replace an ex-spouse with a current spouse, but generally, financial institutions will follow the beneficiary form as written.

We also discuss cascading beneficiary designations, where assets flow through a primary, contingent, and tertiary beneficiary structure. This setup allows for flexibility, such as a surviving spouse disclaiming an inheritance in favor of children or grandchildren, ensuring assets go where they are most needed. This approach also allows for strategic tax planning, particularly when including charitable organizations. A charitable IRA, for example, enables tax-efficient giving by directing pre-tax retirement funds to a nonprofit, avoiding income taxes on those assets.

Additionally, we cover why individuals, rather than trusts, should generally be named as beneficiaries of retirement accounts. Trusts often force distributions on a shorter timeline, increasing tax burdens. However, naming a trust as a tertiary beneficiary can serve as a backup plan to prevent probate if all primary and contingent beneficiaries pass away simultaneously. This strategy avoids delays, public scrutiny, and creditor claims against the estate.

Finally, we stress the importance of working with knowledgeable advisors to structure beneficiary designations properly. Not all custodians or advisors offer the level of detail needed to maximize financial and tax benefits. To ensure proper planning, we encourage regular reviews of beneficiary designations and consultation with qualified professionals.

For those wanting more guidance, Hosler Wealth Management can be reached at hoslerwm.com or by phone at (928) 778-7666 in Prescott and (480) 994-7342 in Scottsdale.

For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management: Visit them online at https://www.hoslerwm.com/

Or call them in their Prescott office at (928) 778-7666 or their Scottsdale office at (480) 994-7342.

For more podcast episodes, visit our podcast website at https://hoslerwm.com/protectingwealthpodcast/

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