Many New Yorkers invest a sizeable portion of theirs assets into IRAs–retirement accounts to fund their golden years after their work life is over. Of course, no one knows exactly what their future holds, and so it is common for IRAs to contain significant funds upon one’s passing. Deciding who will receive those assets is a critical part of estate planning.
Unfortunately, as discussed in a recent Forbes article, sloppy planning on that front, which leaves designated beneficiaries in the dark, may ultimately cost those beneficiaries their inheritances.
Make Your Wishes Known
The financial lives of many New Yorkers are complicated. People have different bank accounts, work with various brokerage firms, and otherwise create a complex web of records for their diverse, scattered assets. It is hard enough for individuals to keep track of their own financial lives let alone that of a loved one after a passing.
But dealing with this problem following a sudden death without estate planning is more than just a paperwork nightmare–it can have very real financial consequences. For example, what happens if the designated beneficiary of an IRA does not know that they inherited the account?
Even a delay in knowledge about beneficiaries may be problematic. That is because non-spousal IRA beneficiaries are usually required to withdraw a minimum amount from the account each year. Failure to do so may result in a penalty, often 50% of the very amount that should have been withdrawn each year! This is not a small slap on the wrist. It is not necessarily uncommon for delays to drag on for years, with IRA beneficiaries having no idea that they are due money–the banks where these accounts are held are under no obligation to find the beneficiary.
On top of this, if the account holder eventually turned the funds over to the state as part of their abandoned property protocol, then an additional problems may arise–like income taxes. That is if the beneficiary ever finds out about the IRA at all.
All told, various nightmare scenarios can be worked out involving IRA beneficiaries who have no idea they are set to inherit, with subsequent complications resulting in the account assets being completely devoured by fees and taxes.
It is a bit cliche, but this situation is yet another reason to never let this planning go undone. Beneficiaries need to know what they are set to receive and the steps that must be taken to ensure their inheritance gets to them in full. Too many New Yorkers spend a lifetime acquiring assets and have the goal of leaving some to loved ones only to have that wish derailed by poor or non-existent estate planning.