The Hazards of Naming Different Beneficiaries for Different Accounts

It is quite common in my practice for clients to say they want one particular account to go to one beneficiary and a different account to another beneficiary. The accounts might reflect the relative proportionate value that the client wants each of the different beneficiaries to receive, but I think this can turn into a nightmare.

• You will have a terrible time trying to keep track of the different
distribution schedules.

• As the different investments go up or down, the amount going to the different heirs would also go up and down, which is probably not the intent.

• A beneficiary designation may say, “ I leave my Vanguard account to beneficiary B and my Schwab account to beneficiary A. ” If during your lifetime you switch or transfer money from Vanguard to Schwab, you have, in effect, changed who is going to get what, and that may not be your intention.

In general, I prefer one master beneficiary designation for all IRAs, retirement plans, 403(b)s, 401(k)s, and the like. In it I describe distributions as I would in a will or irrevocable or revocable trust. That way, we can avoid mistakes and simplify estate administration after the retirement plan owner dies.

I recognize that, for investment purposes, people use different accounts for different beneficiaries. For example, you might treat the investments of a grandchild beneficiary differently from those of a child or spouse. Under those circumstances I would be willing to bend and accept different beneficiaries for different accounts.

The one area where it might make sense to direct certain money to particular beneficiaries is FDIC insured deposits. At press time, the amount that the FDIC would insure rose from $ 100,000 to $ 250,000 through 2009. Assuming the money is outside the IRA (there are different protections for IRAs) one way to get more FDIC insurance is to have different beneficiaries with different paid on death designations. If you are a parent with four kids and you have four $ 250,000 CDs, you can do a pod account for each child and have the entire amount federally guaranteed. If the money was in an IRA, you are also insured up to $ 250,000 but you can ’ t get additional coverage by naming additional beneficiaries.

Retire Secure! Pay Taxes Later – The Key to Making Your Money Last, 2nd Edition, James Lange, page. 271-272