Restricted Beneficiary

The main estate planning document for IRAs and Annuities is the Beneficiary Form. It is basically the Will for your IRA and Annuity accounts. You name primary and contingent beneficiaries and after your death the account passes to your primary or contingent beneficiary without the expense and delay of Probate.

Some situations call for use of the “Restricted Beneficiary” designation, which enables you to specifically designate how your death benefit will be distributed to a particular beneficiary. You may choose the restricted beneficiary designation in situations where your beneficiary is disabled and receiving Social Security or other benefits that you would not want impacted by an inheritance. For example, an investor names their chronically ill adult child as a beneficiary. Using the Restricted Beneficiary option allows this investor to specify exactly how the death benefit will be distributed to that beneficiary so that the death benefit does not reduce the benefit they receive from Social Security. The restricted beneficiary receives income payments systematically as directed and the payout is as predetermined by you.

In addition, major life changes, including: marriage, divorce and death of one of your loved ones, are all events that call for a review of your beneficiary designations. Consider Kari Kennedy’s experience. “My father expressly did not want my mother to have another red cent after their divorce was final.” However, the United States Supreme Court ruled that Kari Kennedy gets nothing and her deceased father’s $402,000 company plan balance goes to his ex-spouse because she was named on the beneficiary form that he never changed after the divorce.

Also review all of the life insurance, pension, 401k, 403b, etc. plans that you have at work to ensure your beneficiaries are designated properly. It is important to name both primary and contingent beneficiaries to protect your assets for your loved ones.