Naming the right beneficiary could result in years of tax-deferred savings

By Chris Berry

You will lose the spousal rollover option if you do not remarry. Previously this was an issue because distributions after your death would still be based on you and your deceased spouse’s life expectancies. However, today you can name a new beneficiary and the distributions will be based on the new beneficiary’s life expectancy.

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Some are curious whether there are any disadvantages of naming his or her spouse as beneficiary? Well, your spouse will assume full control of this money once you die and is without obligation to adhere to your wishes. Those with children from a previous marriage will most likely not want this. Also, if you believe that your spouse could be easily influenced by others once you have passed, it’s best to consider other options.

In the event that your spouse becomes incapacitated, control of this money could fall to the court. It could be lost to your spouse’s creditors. And, last, naming your spouse as beneficiary could result in high estate taxes for your family.

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There are a number of reasons to consider naming your children, grandchildren, or other individuals as beneficiary(ies). If your spouse will have a number of assets after you die, if you have reason to think your spouse will die before you, or if you are not married. Distributions can be paid over your beneficiary’s life expectancy after you die, as a result the tax-deferred growth can continue even without the spousal rollover.

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When naming an individual as beneficiary there is always a risk because you lose control. Once you died, your beneficiary has the freedom to use the money however he or she wants, including cashing out the entire account and bringing an end to your plan for long-term, tax-deferred growth.

Christopher J. Berry is a Michigan estate planning attorney and Medicaid planning lawyer dedicated to helping seniors, veterans and their families navigate the long-term care maze. To learn more visit http://www.theeldercarefirm.com/ or call 248.481.4000