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People as Beneficiaries

By Portage County Business Council

By LouAnn Schulfer, AWMA®, AIF®
Accredited Wealth Management AdvisorSM
Accredited Investment Fiduciary®

I have been helping two sets of clients recently who are brother and sister to each other.  They share as beneficiaries of a few different accounts, recently inherited from their mother.  We easily transferred their portions of a ROTH IRA and an IRA to new accounts, which are now titled as beneficiary accounts in their names.  This was straightforward and clear-cut, because the IRA and ROTH IRA listed each child of the mother, who was the original account owner, as equal beneficiaries.  There is also a non-retirement account owned by the siblings’ mother, but it is not so easy to transfer, because the beneficiary designation was not to each named child.  In fact, the beneficiary was not left to a person at all, it was left to an entity:  the estate.

Naming the estate opened up the probate process.  Now, a court must verify the funds and assets of the estate and validate the distribution to the correct beneficiaries.  Creditors may come forward with a claim to the money as part of the probate process.  Probate is lengthier than directly naming beneficiaries and involves attorney and probate fees that would not have been necessary if the account had people named as beneficiaries instead.  We also looked at the taxation that will be levied on the account, which will now be due at the estate level before the money is distributed to the children.  Estate level taxes are higher than the tax rates my clients pay individually, so ultimately with taxes and fees, less money from the account is inherited by the children than would have been had the beneficiaries been listed in their names.

Naming an estate as beneficiary can be part of a logical plan in some cases.  For example, if one intended and planned complex distribution arrangements as part of their will or trust, where the account owner did not want the beneficiaries to have full and immediate access to the money, naming the estate could be part of that plan.  Unfortunately, this did not seem to be the intention.  Rather it appears that in this case, the implications of naming the estate as beneficiary were not thoroughly examined, and the inconsistencies of the beneficiary designations across accounts indicate that there had not been an account review process for quite some time.

Investments are just one element of an account.  Understanding account titling, transferring and beneficiary designations are obviously important but often misunderstood or overlooked.  Mistakes can be costly and cumbersome.  Unique circumstances may apply to your situation:  consult the trusted, professional advisor who understands your circumstances for specific advice.  The simplest, most direct way to transfer your accounts upon your death is to name people as your beneficiaries.

LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Wealth Management and can be reached at (715) 343-9600 or

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC.