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224 Don’t Make Me Say I Told You So

Here are some mistakes that can happen when naming
beneficiaries:

► Naming minors as beneficiaries – When a minor is

named as a beneficiary, the court will normally appoint
someone to look after the funds. This may prevent the
transfer of assets in a timely fashion or may lead to

unnecessary expenses. Additionally, in some states,

minors can inherit only a limited amount of money until
the minor turns 18 or 21, depending on the laws of that
state. You also need to think about someone who turns

18 in a year or so getting their hands on $500,000 in a

bank account. I don’t think I need to list the things that
could go south in a big hurry there.

► Naming your estate as beneficiary of retirement

plans – If you name your estate as the beneficiary
of your retirement plan, instead of an individual,

the amounts in those plans must be paid out within
five years. That means that the ability of individual

beneficiaries to keep those accounts intact and stretch
out the distributions over years or decades (frequently

referred to as a “stretch IRA”) would be lost.

The taxes on those distributions over five years means a loss

of the “time value” of that money over coming years or decades.

Chapter 5: Things That Can Wreck Your Retirement