Morningstar offers “Dos and Don’ts for Leaving IRA Assets to Your Loved Ones” to help people ensure that their hard work and estate planning efforts really benefit the people they care about.
Much, but not all of the advice, relates to how you designate your IRA beneficiaries. This involves preparation on your part but this diligence ahead of time can save your heirs a lot of grief later. Here are just a few of Morningstar‘s suggestions:
It seems very basic to say this but first you need to designate a beneficiary. If you haven’t actually named beneficiaries, start there. For some people, just getting to the part where you open an IRA takes a lot of effort so they don’t always remember to name a beneficiary.
Whether you do it annually or biannually or at another time interval, it may be best to just set up a time to review your estate planning. While we are advised to changed beneficiaries whenever we have a major life event, it might be better to commit to reviewing this information on a regular basis to ensure that it is up-to-date.
You should also talk with your spouse about the best way to handle inheriting your IRA. It is good to set one up; even better to make sure your spouse can inherit and make the best use of it. You can’t rely on your spouse to know or to be advised on whether or not to roll an inherited IRA into an IRA of his or her own.
When you name your estate as a beneficiary of your IRA, your heirs will have a time limit on when they must take distributions. Naming individuals on forms gives your heirs more options for collecting those funds.
Make sure you have all the appropriate legal documentation in place if you want to leave an IRA to a minor because: “If you don’t take pre-emptive steps to establish who will manage those assets prior to the child reaching the age of majority, the court will decide who will do it.”