When it comes to estate planning, creating wills and avoiding probate as much as possible top the to-do lists in Connecticut. Even so, many people who try to DIY this may forget to add beneficiaries to some of their most important accounts. These may include high-yield savings accounts, investment accounts and IRA accounts.
Forbes notes that this is one of the biggest mistakes people make when it comes to their IRAs. The main reason many people do this is that they believe they can take care of it later. Unfortunately, death is often unexpected, so leaving it up to chance is ill-advised. When there is no beneficiary added, the IRA is included in the estate and may go through probate. This could create a large tax liability for the deceased’s heirs.
Then, there are people who choose beneficiaries but fail to update them after someone dies. Revisiting the documentation may seem like a final removal of them from intended plans. However, it is necessary to ensure their heirs receive what is intended for them. If there are no other beneficiaries named, then the IRA account may get roped into the estate as explained above. If other beneficiaries are on the list, the balance may only get divided among them.
According to a financial adviser writing for MarketWatch, there are additional downsides to the IRA getting added to the estate due to not having a valid beneficiary. For starters, beneficiaries lose some privacy as anyone can look up this information. Probate records are public. Secondly, with a proper beneficiary added, the person may inherit that IRA account within days, whereas it may take months for them to do so through probate.
Some people prefer to neglect a will in favor of only adding beneficiaries to their accounts. However, it is important to keep these beneficiary lists updated. In contrast, some people may rely only on wills and prefer all assets to pass through probate. Both options have their pros and cons but most professionals agree that they may work better together.