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Typical IRA mistakes that can hurt your estate planning

An IRA can be the cornerstone of an effective estate plan. It can guarantee income to one’s beneficiaries as well as protect the testator’s assets from excessive taxes. But, far too often, people make mistakes when initially filling out their IRA forms. These mistakes can then be forgotten until the testator’s assets go through probate. So, here are some common mistakes people make when filling out their IRA forms.

One typical mistake is forgetting to update the IRA beneficiary forms after a life event. This can become an issue especially when someone gets a divorce and then gets married again. If the testator fails to update their IRA beneficiary form, then the person whose name was initially put on the form will receive the IRA’s assets. This error can’t be changed once the testator has died and it’s important to remember that the name on the IRA beneficiary form will supersede what is in a person’s will.

Another mistake is when someone names their estate as the beneficiary of their IRA. If a non-spouse beneficiary is named in an IRA, that person or institution can choose to liquidate the assets and then pay taxes on them or extend the payments from the IRA over the course of their life. But, by naming their estate as their beneficiary, the heirs can’t extend the payments of the IRA. Also, the probate court would then consider the IRA as part of the testator’s estate, so it would be subject to any claims by creditors.

Failing to name a guardian for a minor child who will inherit an IRA is also a very common mistake. However, any Florida resident who wants to learn more about these kinds of errors may want to speak to an estate planning attorney to make sure their estate plan is in tip-top shape.

Source: bankrate.com, “5 IRA beneficiary form mistakes to avoid,” Shelly K. Schwartz, Accessed March 5, 2016

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