Then, if they too are deceased, as Contingent Beneficiary, divide the funds between the children. If you had a really attentive agent or representative, it would indicate whether this was “per capita” or “per stirpes” each resulting in quite different distribution results. Basically, with incorrect wording here, you would be unintentionally disinheriting your beloved grandchildren of a deceased child, something you never planned to do.

Finally, a few policies with really attentive agents or Representatives will have set up a third tier of distribution in the event all the Primary and Contingent Beneficiaries were also deceased at essentially the same time to avoid having the account be paid to and then distributed from the estate of the deceased.  Even if it is a remote chance, list somebody it could go to such as your brother, best friend, the Boy Scouts or the local Humane Shelter.

Is the above typical spouse and children method the “best way”, right or wrong to distribute deferred taxation accounts?

The correct answer is yes, maybe, or definitely not depending on your unique estate distribution needs and preferences.

Here are a few ideas and alternatives you may not have had the opportunity to previously consider that should be discussed with a qualified Financial Professional.

Instead of leaving the house to your church, and the IRA’s to the children, it could multiply your gift all the way around if you switched the distribution at death of these assets. Why? The church will not pay any income tax on the IRA distribution, your children will at prevailing tax rates losing easily 30-40% of the account value instantly. The house would receive a step up in basis if given to the children, and if desired, it could be sold with little or no capital gain tax results. Only the IRS loses money in this scenario, a lot of it.

Instead of leaving the status quo as is that could give IRA proceeds directly to young minor age children, financially irresponsible adult children who will blow it quickly on who knows what, or directly to struggling adult children who may be prone to divorce in the future access to all the money at once, paying the 30-40% income tax load in lump sum upon receipt, why not consider doing a pre-determined distribution  plan you design while living that will pay them a set percentage of the account balance over their lifetimes that will never cease?

Maybe you want them to have access to only 20% percent of the account balance initially, and then a lifetime income stream on the remainder.

Maybe you feel it is best that the income stream should not start until they are age 55 and nearing retirement themselves.

You decide what your preference on each beneficiary is and then you design the terms that will be in place at the time of your death beneficiaries cannot alter. Anytime desired you can change the distribution terms as family circumstances warrant. Yes it can be done easily if you know how.

In the above scenario, you can treat each beneficiary differently to compliment their fiscal responsibility, maturity and money handling capabilities.

Another advantage to this particular distribution strategy is the ability to allow the managed account balances to continue to grow tax deferred, stretch out the tax liability over many years, and see increases in annual distributions as a result of continued account growth over a lifetime.

Have you left the money in your old 401(k) and did not roll it over to an IRA outside of the plan? Well, the structured beneficiary distribution mentioned above will not be available due to account titling and your distribution options in this structure are very limited.

Is the estate listed as beneficiary? Unless there is an unusual compelling reason, the estate is often the worst primary beneficiary to list. Why? Time needed to process the estate through probate, settlement fees, and claims against estate assets, income and potential estate taxation bills to name a few pitfalls that will cause unneeded shrinkage of an asset you worked hard to build over your lifetime.

There are several other ideas being used for distribution of these modest and large estate assets. Visit with an experienced estate distribution professional to explore what other beneficiary strategies may be best suited for your assets that are coordinated with your preferences and goals to plan your legacy when you don’t need it anymore.