Beneficiary Case Study

The Pitti Group Wealth Management |

As financial advisors, we often assist our clients with managing the assets of loved ones that have recently passed away. We want to share a particular case with you that we believe highlights the importance of working with your advisor to ensure that your estate is in good order. Jill lost her brother a few months back unexpectedly. He was divorced and did not have any children. Jill was the sole inheritor of his assets, based on his will, and also the executor of his estate. Unfortunately, her brother never updated his beneficiaries on his investment accounts since his previous marriage had ended a few years back. He had a Roth IRA that was left to his ex-wife and a traditional IRA that did not have any beneficiaries named. In most cases, an IRA will pass to the estate if no beneficiaries are named and there is no spouse or children in the picture.

It is very important to remember that a beneficiary designation on an investment account like an IRA will ALWAYS trump what is written in a will. So even though Jill was the sole inheritor of her brother’s investment accounts according to his will, she was not named as the beneficiary on the accounts. Ultimately, his Roth IRA was transferred to his ex-wife and his IRA was liquidated and dispersed to his estate. Because Jill is the executor of the estate, she will eventually inherit the IRA monies once the estate has settled all of its debts. The unfortunate circumstance is however, that there will be a hefty income tax levied against the estate. This is because the estate income tax bracket is generally higher than an individual’s income tax bracket. Had he updated his beneficiaries after his divorce, Jill would have inherited both accounts, tax-free, and without them going through the lengthy probate process.

We offer this case as an example of why it is so important to disclose everything to your advisor so that they can ensure that your assets pass to your loved ones as they’re intended to. If you would like to learn more about estate planning essentials, feel free to contact us!

The Pitti Group Wealth Management is not a legal or tax advisor. Be sure to consult your own tax advisor and investment professional before taking any action that may involve tax consequences. This case study is hypothetical and for discussion purposes only. It is not intended to represent any specific return, yield or investment. Individual experiences referenced above may not reflect the future experience of any one client. The planning process discussed may not be suitable for your personal situation, even if it is similar to the example presented. Past performance is no guarantee of future results. Investing involves risk including the possible loss of principal.