When it comes to planning your estate and ensuring that your loved ones and cherished causes are taken care of, one of the most important steps you can take is listing your beneficiaries accurately and strategically. This process often involves more than simply filling in names — it’s about thoughtful stewardship and aligning your financial legacy with your faith and values.
Here are four helpful tips to consider when listing your beneficiaries on retirement accounts and life insurance policies:
1. List Charities on Taxable Accounts like IRAs
If you plan to include your church or other charitable organizations in your estate planning, it’s often most beneficial to designate them as beneficiaries of your tax-deferred accounts, such as your IRA or 401(k). These accounts typically have not yet been taxed, meaning your heirs would have to pay income taxes upon inheriting them.
However, charitable organizations — like your church — are tax-exempt. This means if they inherit part or all of your IRA, they receive the full amount tax-free. This approach not only blesses the ministry or cause you support but also helps reduce the potential tax burden on your family.
2. Leave Life Insurance to Individuals
In contrast, the death benefit from a life insurance policy is passed to beneficiaries tax-free. Because of this, it’s generally more effective to leave life insurance proceeds to individuals, such as your children or other family members.
Here’s a simple example:
Let’s say a widowed mother has one child and wants to leave a tithe (10%) of her $1 million estate to her church — $500,000 in an IRA and $500,000 in life insurance. Instead of splitting that tithe evenly from both accounts, she could list her church as 20% beneficiary of the IRA, resulting in a $100,000 tax-free gift to the church. Then, her child could receive the full $500,000 life insurance payout — also tax-free. This strategy honors her charitable intent while minimizing the tax impact on her family.
3. Understand “Rights of Survivorship” vs. “Per Stirpes”
When naming multiple beneficiaries, you’ll often have to choose between “rights of survivorship” and “per stirpes.”
- Rights of survivorship means if one of your listed beneficiaries (say, one of your three children) passes away before you do, their share is redistributed among the remaining living beneficiaries.
- Per stirpes, however, ensures that the deceased beneficiary’s share is passed down to their heirs — typically their children.
This distinction can significantly impact how your assets are ultimately distributed and may be worth reviewing with an advisor to ensure your wishes are honored.
4. Keep Names Updated
Finally, always double-check the names listed on your beneficiary forms. Name changes due to marriage or divorce can create unnecessary delays during the claims process. If the name listed doesn’t match legal documents, the institution may require a marriage certificate or divorce decree to verify the beneficiary’s identity, potentially holding up much-needed funds during a difficult time.
Good stewardship includes preparing well and reviewing your estate planning documents regularly. These four simple tips can help ensure your financial legacy is passed on in a way that reflects your heart, honors your family, and supports the causes you love.
If you’re uncertain about your beneficiary designations or would like guidance on how to align your financial legacy with biblical stewardship, we invite you to schedule a conversation with a CCI advisor.
Securities offered through LPL Financial, Member FINRA/SIPC.
This material is for general informational purposes only and is not intended to provide specific investment advice. Investing involves risk, including potential loss of principal.
