The beginning of the year is a good time for people in Michigan to review their estate and ensure the right beneficiaries are named. Retirement accounts are often one of the biggest assets one can pass to an heir, and there can be costly tax-related mistakes if not done correctly.
According to the Michigan Bar Association, the first consideration relates to the type of retirement plan you have. For any private workplace plan, such as a 401k, the named beneficiary has to be the spouse unless they give written permission to name someone else. With other plans, such as an IRA, the beneficiary can be anyone the client chooses. In general, the spouse is the best choice, as this allows for the most flexibility. In some situations, naming the children or grandchildren may be a smart move as it stretches out the benefits according to the age of the beneficiary.
According to Forbes, the estate itself should never be named as the beneficiary as the funds are typically required to be withdrawn within five years. Naming a trust is also not recommended, although this may be advantageous in certain situations such as:
- Keeping creditors away from the money
- The beneficiaries are minors
- The need to control cash flow for spendthrifts
Choosing a trust as the beneficiary is complex, so it is wise to work with an attorney if this seems like the best decision for your situation. Other options for beneficiaries may include charitable organizations and friends. There should always be contingent beneficiaries named in the event the original one passes away before you do.