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What is the difference b/w having or NOT having a beneficiary?
Old 06-10-2010, 06:52 PM   #1
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What is the difference b/w having or NOT having a beneficiary?

Currently, I have no one to leave my assets to, although I figure eventually I will. My mother is still around, and I have a sister with some children.

It seems that so long as I don't have a spouse or children, that I should not even bother putting in a beneficiary, and instead letting the default inheritance take place. But would there by any difference to do that way, except for a percent or two of probate fees?

BTW, I have just been discharged in Chapter 7 bankruptcy, so there would be no problem with debts.
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Old 06-10-2010, 07:15 PM   #2
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I always name my closest relative as beneficiary. I have no children so my mother is beneficiary. Some day it'll probably be changed to my brother. If I outlive him it'll go to whoever is next closest, maybe a cousin or second cousin.
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Old 06-10-2010, 07:25 PM   #3
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I don't know the legal or tax side of it, but if I thought I'd have a dollar left over, I would have a beneficiary on file. Seems to me it would make it easier on the ones left behind.
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Old 06-10-2010, 07:27 PM   #4
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My son (my only child) will be the main beneficiary of my estate according to my will. My sister is my contingent beneficiary even though she is almost 6 years older than I. I have listed my son as TOD (transfer on death) on almost all my accounts. I am leaving some money to three friends (unbeknownst to them) so hopefully if they survive me they can do something like take a bang-up trip. That is how it stands today. I might change things when I get older after I see how my son is doing and what this crazy life might bring to us all. If he is well off, I might designate a charity for a portion. My sister and I established an endowed scholarship at our parents alma mater already. I am betting that my resources won't be eaten up by LTC needs.
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Old 06-10-2010, 07:46 PM   #5
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Originally Posted by swampwiz View Post
Currently, I have no one to leave my assets to, although I figure eventually I will. My mother is still around, and I have a sister with some children.

It seems that so long as I don't have a spouse or children, that I should not even bother putting in a beneficiary, and instead letting the default inheritance take place. But would there by any difference to do that way, except for a percent or two of probate fees?

BTW, I have just been discharged in Chapter 7 bankruptcy, so there would be no problem with debts.
In the absence of a will or estate plan the state has a default plan that will in theory distribute your assets to relatives. If you don't care who gets your estate then you don't need an estate plan.

Many people in your situation pick a charity/university etc. to leave it all to.
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Old 06-10-2010, 11:56 PM   #6
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It seems that so long as I don't have a spouse or children, that I should not even bother putting in a beneficiary, and instead letting the default inheritance take place. But would there by any difference to do that way, except for a percent or two of probate fees?
If an IRA is properly bequeathed to a named beneficiary (a human, not a trust) then it can be drawn down over an extended period in accordance with the IRS' longevity tables. It could be stretched out for decades.

If an IRA is bequeathed to a trust or an estate then I think it has to be drawn down over the next five years, and it'll be taxed accordingly.

Not sure about a 401(k), but I bet you'll be pestered to name a beneficiary for that account too.
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Old 06-11-2010, 12:49 AM   #7
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If an IRA is properly bequeathed to a named beneficiary (a human, not a trust) then it can be drawn down over an extended period in accordance with the IRS' longevity tables. It could be stretched out for decades.

If an IRA is bequeathed to a trust or an estate then I think it has to be drawn down over the next five years, and it'll be taxed accordingly.

Not sure about a 401(k), but I bet you'll be pestered to name a beneficiary for that account too.
Also, a big IRA added to your estate could conceivably make it large enough to be subject to estate tax, whereas if the IRA passed to a beneficiary I don't think it would be included. And, if it's a big IRA and all goes to one person, it could increase the heir's taxable income to the point where a large chunk of the inheritance goes to enrich Uncle Sam instead of the person you leave it to in your will.

I also am single and have no children. I used to name my parents as beneficiaries, but now that they are getting up in years I am switching the accounts to name my three siblings as equal beneficiaries. When we're getting up in years I may change it again to my nieces, or even their children (assuming they have all had some by that time).

I think Ed Stott is the author who covers the topic of passing IRAs to future generations with minimum loss to taxes and maximum potential for the beneficiary to stretch the income out over a lifetime.
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Old 06-11-2010, 08:46 AM   #8
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Also, a big IRA added to your estate could conceivably make it large enough to be subject to estate tax, whereas if the IRA passed to a beneficiary I don't think it would be included.
Not sure if the last part is true unless the beneficiary were a spouse.
I think the IRA is part of your federal estate subject potentially to estate taxes.
It is not, however, part of your probate estate (provided you named a named beneficiary , not your estate, as beneficiary in your IRA) and so would not be subject to probate fees.

Going through probate might possibly take longer as well as costing more.
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Old 06-11-2010, 10:50 AM   #9
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Also, a big IRA added to your estate could conceivably make it large enough to be subject to estate tax, whereas if the IRA passed to a beneficiary I don't think it would be included. (snip)
Not sure if the last part is true unless the beneficiary were a spouse.
I think the IRA is part of your federal estate subject potentially to estate taxes.
It is not, however, part of your probate estate (provided you named a named beneficiary , not your estate, as beneficiary in your IRA) and so would not be subject to probate fees.

Going through probate might possibly take longer as well as costing more.
You may be right. I'm not certain of the exact rules, but I think it would be worth the OP's while to check and find out how to pass the IRA along in a way that doesn't incur a big tax burden.
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Old 06-11-2010, 10:55 AM   #10
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I inherited an IRA from my mother as part of an irrevocable trust 8 years ago and have been taking the required minimum distribution ever since. Even with the near economic meltdown the principal is greater than when I got it. I thank her for that every year on her birthday.
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Old 06-11-2010, 11:20 AM   #11
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Also, a big IRA added to your estate could conceivably make it large enough to be subject to estate tax, whereas if the IRA passed to a beneficiary I don't think it would be included.


Unless something has changed (and of course it could have in the last few decades)... everything is included in your estate tax return that you have control... everything... it does not mean everything will be taxed...

Probate is different...
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Old 06-11-2010, 11:23 AM   #12
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Originally Posted by swampwiz View Post
Currently, I have no one to leave my assets to, although I figure eventually I will. My mother is still around, and I have a sister with some children.

It seems that so long as I don't have a spouse or children, that I should not even bother putting in a beneficiary, and instead letting the default inheritance take place. But would there by any difference to do that way, except for a percent or two of probate fees?

BTW, I have just been discharged in Chapter 7 bankruptcy, so there would be no problem with debts.

It is ALLWAYS easier to handle if you have a will... letting the state decide who gets the money can be messy.. and expensive.. not just the one or two percent you mention.. think 5 to 10 percent.. or more if there is some fighting going on...


You can do a simple will... and change it anytime you want...
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Old 06-11-2010, 04:25 PM   #13
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My single brother named me as executor and sole beneficiary. It was easy to settle last summer when he passed. Why not? You sis is your blood relative.

Who is the executor for your estate?
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Old 06-15-2010, 12:55 AM   #14
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The intestate laws in general work by nearness of kinship, i.e. spouse, kids, parents siblings ...
Things get messy when say some siblings have children and have died etc. Of course as noted you could pick a favorite charity and make them happy. (In particular consider this with 401k/deductable IRA's. You will get hit by both estate tax (If estate tax is high enough) and income in respect of decedent tax. So if the Estate tax as proposed comes back you loose 45% plus your income tax rate on the remainder. If you give that to charity uncle gets nothing, the charity gets all. One possiblity if no other is to endow a scholarship at a local high school.
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Old 06-15-2010, 01:16 AM   #15
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If you don't care who gets your estate then you don't need an estate plan.
It is fairly complex. My brother recently died with a deficit estate. However, my other brother with whom the deceased was fairly close, was made beneficiary on his investment accounts and on his 403b, as well as on some defered compensaion plan.

So in spite of his entire estate being in deficit, my brother walked away with $x00,000- while Bank of YouKnow, St. Elswhere Hospital, American Supress and several others got left holding the bag. They got some of what they were owed from the sale of his house and furniture, but without the beneficiary appointment they would have walked away with the entire estate.

I thought it was pretty cool, though I would have preferred being the one to skate off with the loot.

Ha
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