When crafting their estate plans, some people neglect to pay much attention to how best handle their retirement accounts.
And that lack of attention to detail can create potential problems–such as higher estate and income taxes–for their heirs.
Many people often assume an estate plan is as simple as naming a beneficiary. In fact, it can include a trust to protect spendthrift kids or a spouse. Or a well-developed plan may have provisions to get a tax advantage by giving an account to charity.
Financial advisers are careful to review retirement accounts because they are so often ignored, even when they comprise a large share of an estate–sometimes the biggest portion it. A surprising number of clients, for example, forget to even name a beneficiary or change the names after a divorce.
"We’re always asking clients about these accounts and they look like deer in the headlights," said Karen Altfest, principal adviser at Altfest Personal Wealth Management in New York, which manages around $1 billion.
Last week, one of her clients, a single woman with an account worth around $500,000, chose her nieces as beneficiaries after Ms. Altfest discovered she hadn’t named anyone yet.
This year, changes to the federal estate tax add a new twist. Spouses need to review whether to name each other as beneficiaries now that they can share their estate-tax exemptions.