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  3. I Love My Kids - But Do I Really Want Them Cashing Out My IRA to Buy a Tesla?

I Love My Kids - But Do I Really Want Them Cashing Out My IRA to Buy a Tesla?

Submitted by S. F. Ehrlich Associates, Inc. on January 3rd, 2018
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December 31, 2017

By: John Zeltmann

Meet Abby and Ben.  Abby is our 2-year-old daughter.  Readers of this newsletter have already met Ben (5 years old) in a recent article espousing the benefits of teaching personal finance to children at an early age. While Abby and Ben are great kids, there’s at least one thing I’m not ready to hoist upon them should my wife and I meet a premature demise: our retirement plan balances and life insurance proceeds.

Should the unthinkable happen, just imagine a house filled with every Lego structure on the market and multiple walk-in closets (previously bedrooms) filled with American Girl doll outfits.  Or worse, fast forward a few years, and now the kids have the means to land a self-driving (flying?) Tesla.  That’s the risk we’re talking about here, folks.

How can you prevent such outcomes?  It all begins with a conversation with your estate planning attorney to make sure your assets are set up to flow appropriately upon your death (i.e., to the right person/entity in the most tax-efficient manner).  A big part of that process is driven by beneficiary designations on your retirement accounts (e.g., IRAs, 401(k)s, Roth IRAs) and life insurance products (e.g., death benefits, annuities). 

Generally speaking, we’ll defer to your estate planning attorney to direct how best to set up beneficiaries for the retirement accounts we manage. The typical beneficiary setup is for a married individual to list a spouse as primary beneficiary and children as contingent beneficiaries.  If you’re not married, it’s common to designate a sibling, charity, or close friend as primary/contingent beneficiaries. 

If the children are minors at the time of drafting the designation, consider either incorporating a trust for the benefit of the minor children or deferring to a court-appointed guardian of the minor’s estate.  The former is costly upfront because it requires inclusion in your overall estate plan while the latter can be costly and add delays to the winding down of your estate.  There’s a strategy that fits your needs, and we’re here to work with you and your estate planning attorney towards fitting it into your overall financial plan.

This year, I was so busy reminding clients to make sure their beneficiary designations were up-to-date that I failed to stay on top of my own.  While everything listed my wife as the primary beneficiary, a few designations listed our children as contingent beneficiaries. One even completely omitted our younger child because I hadn’t updated that account since she was born.

We’ve spent considerable time reviewing beneficiary designations to make sure they’re current.  In many instances, we’ve uncovered issues, including beneficiary designations listing former spouses, deceased parents and minor children. 

Consider adding beneficiary designations to your 2018 to-do list.  While your kids (or grandkids) might be disappointed when they learn they’ve lost the potential for a spending spree, it might be just what you need to rest more comfortably in the New Year.

 

 

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by S.F. Ehrlich Associates, Inc. (“SFEA”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from SFEA.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  SFEA is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of SFEA’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a SFEA client, please remember to contact SFEA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing, evaluating, or revising our previous recommendations and/or services.
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