Author Archives: LarsonFinancial

Key Thoughts on the Tax Cuts and Jobs Act

Debra Taylor, CPA/PFS, Esq

The Tax Cuts and Jobs Act has made major changes to the tax code. It’s important that you understand these changes to best plan your tax strategy going forward.

The Tax Cuts and Jobs Act has brought the biggest tax overhaul in 30 years and has left many with questions.It’s important that you understand how the elimination of deductions, compression of tax rates, and brand-new benefits for certain taxpayers will affect your tax strategy. According to the Tax Policy Center, four out of every five taxpayers can expect a reduction, but for many lower-income taxpayers, that tax cut will be so little it may hardly even be noticed. And if you live in a high-tax state or you rely heavily on deductions, you are likely to see a tax increase.

Every taxpayer will need to assess their individual situation. Here are some initial thoughts and areas tobe discussing with your financial advisor. Of course, any advice below is subject to your specific tax situation, with consideration to your state of residence and AMT, among other things.

Missing SALT

The SALT deduction previously allowed taxpayers to deduct state and local taxes to avoid being taxed on the same income twice. Reduction of the SALT deductions will be most acutely felt in the six states that accountfor half of the value of these deductions: California, Illinois, Maryland, Massachusetts, New Jersey, and New York, according to the Tax Foundation. If you live in one of these states, you should talk to your financial advisor about your overall financial plan, as the elimination could affect cash flow and the value of your home.

Previously, a typical couple with two homes in one of these high-tax states was able to lower their ultimate tax burden by 25%. Now, their tax burden has actually increased, and these folks may want to consider tax- friendly states such as Texas, Arizona, or Florida.

If you are committed to living in a high-tax state andare unable to move or declare residency anywhere else, there are a few tax-smart moves that could help your situation.Consider bunching deductions— take the standard deduction one year and itemize the next. By employing this tried-and-true strategy, you may be able to takethe most advantage of some of those lost itemized deductions. For instance, you may claim the standard deduction in one year, and then prepay your real estate taxes and mortgage payment and fund your charitable contributions the next year, which will enable you to take the full advantage of your deductions.

If you donate to charity

Charitable contributions are another area that will be impacted by the tax law changes. Due to the expansion of the standard deduction to $24,000 per couple, it is likely that fewer people will itemize deductions going forward. In the past, about 30% of taxpayers currently itemized, but it is estimated that fewer than 10% will itemize in the future as a result of the new Tax Act, particularly if you live in states with little to no income or real estate tax.

If you take the standard deduction rather than itemizing, you cannot take deductions for charitable contributions. What you can consider, however, is opening a donor-advised fund and prefunding it with several years of donations. Once you fund the account, you can then take one large up-front deduction, potentially itemize that year on your tax return, and then spread the distributions to the charities in future years when you are using the standard deduction. Essentially, it allows taxpayers to separate the act of donating from the actual year of deduction, which is
a newish concept but may make sense under the new law.

If you own a pass-through business entity (lucky you, I think)

Everyone who owns a small business and has pass- through income should be asking what they can do to take advantage of the new 20% deduction aimed at pass-through business owners. By taking advantage of the qualified business deduction, a couple with a small business that has less than $315,000 of income could pay almost $20,000 less in taxes. However, higher- earning doctors, lawyers, accountants and investment managers could have net tax increases despite lower tax rates, as they will lose most of their state and local tax deductions.

If you have large amounts of pass-through income, reconsider whether you should change your business entity to a C corporation to take advantage of the new 21% top tax rate. Service firms that are looking to expand or who have cash flow they don’t need to pay out should look hard at becoming a C corporation.

Careful with Roths (but we still love ’em)

Previously, if you made a Roth conversion you had the ability to undo the conversion by October 15th of the following year. This was done through a Roth recharacterization. The Tax Cuts and Jobs Act has eliminated the Roth recharacterization, meaning there will be no opportunity for a redo on Roth conversions going forward.

This means that if you perform conversions in the future, they will require additional thought. You should discuss a conversion with your financial advisor before
taking any action to make sure it is the best move.

Paying the tuition bills?

Beginning in 2019, the tax bill changes the treatment of alimony in one important way. Under the Tax Cuts and Jobs Act, alimony is no longer treated as deductible for the payor, nor is it treated as income for the payee. Due to this important change, divorcing spouses may consider property settlements over alimony in the future. In addition, the new Tax Act may decrease the transfer of payments or property from one spouse to another, if there is no income tax deduction available to the payor spouse. Obviously, the non-deductibility of alimony needs to be considered in all property settlements and divorce negotiations going forward..

Not so simple

Although the Tax Act was publicized as a way to simplify taxes, it will be anything but. You should talk with your financial advisor if any of the changes described above apply to your situation.


Debra Taylor, CPA/PFS, Esq., CDFA, writes on tax and retirement planning for Horsesmouth, an Independent organization provding unbiased insight into the critical issues facing financial advisors and their clients.

This article is an authorized reprint from Horsesmouth LLC. The opinions stated are strictly those of the author and are not to be considered a recommendation or advise of Larson Financial Group or Larson Financial Securities.

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

Planning Your Legacy: Where to Start

By Elaine Floyd, CFP ©

As a generation, baby boomers are starting to wonder how we can leave our mark upon the world. What, besides material possessions, can we hand down to the next generation? How do we capture and define the wisdom and values that we’ve cultivated over decades of experience? How do we pass these precious assets down to our children, grandchildren, and the world at large?

Anyone who’s lived a full, rich life has the potential
to leave a vast legacy in the form of stories, letters,
photographs, and teachings. But where do you start?
How do you begin to harness the knowledge and
experience of your life and arrange it in a form that will
live on after you’re gone?

What is legacy?

A person’s legacy can take many forms. It could be
as simple as a carefully crafted letter to loved ones
expressing the values and sentiments you hold
dear. It could be a series of scrapbooks containing
photographs, mementos, and handwritten notations.
It could be a collection of recipes, or a series of short
stories, or a video in which you talk about your life and
what you’ve learned.
You might start by asking what part of yourself your
family would want to hold onto after you’re gone.
Do you possess knowledge of your family’s heritage
that isn’t written down anywhere? Write it down. Do
you have a special skill, such as cooking, gardening,
woodworking, or sewing? Make a video or write out
instructions or, better yet, schedule a series of “classes”
in which you teach grandchildren how to perform one
of these valuable home arts. Did you learn important
lessons through adversity earlier in your life? Tell the
story of what happened and what you learned from it.
You have a wealth of knowledge and experience that
will someday be gone—unless you take steps now to
preserve it.

Start simple

If the idea of capturing the whole of your life and
making it accessible to future generations seems
overwhelming, start small. Start with the facts about
you and your family. Draw a family tree or list the
names of grandparents, great-grandparents, and other
ancestors as far back as you are able to go.
Write down key facts about your life, including when
and where you were born, where you went to college,
details of your first job, when you got married, and
other milestone events. Make a list of the important
people in your life and how they influenced you. This
information alone will be valuable to your family
members, but it can also serve as a framework for going
deeper into each event or relationship for the purpose
of crafting stories and identifying life lessons to be
shared with loved ones.

Go deep

Now choose an event and make some notes about
it. Don’t worry about perfect writing. You’ll polish it
later. Just get the content down. Start with the facts.
Then jot down your thoughts and feelings about what
happened. What did you learn from it? How did it shape
your life? What do you want others to know about your
experience? What can they learn from it? Once you open
the floodgates, the memories and thoughts will flow.
Do not edit them. Just get everything down. No one will
see this yet. Consider it raw material for your legacy.

Create your legacy

Your legacy might be one or more of the following:

  • A series of short stories or essays of 500-1000 words
    each in which you write about an event, a person,
    an idea, or a value you hold dear. Short stories may
    be easier for your loved ones to digest than one
    long, rambling memoir. Easier for you to write, too.
  • A video of you telling a story or imparting a piece of
    knowledge based on something you’ve learned or
    experienced in your life.
  • A letter or series of letters written to each child,
    grandchild, or other person close to you in which
    you recall shared experiences and express your
    feelings for that person.

Build new memories

In addition to the tangible items that capture a piece
of who you are on paper or video, your legacy also
includes the memories of you that your loved ones
hold onto. Going forward, build new memories by
spending more time with the people you are closest to
and work on making those experiences memorable. At
future family gatherings continue to recall stories from
your times together (“Remember when…”) in order to
reinforce those memories.

Building a legacy that lets loved ones know more about
who you are and how you lived is the closest thing
to being immortal. It’s the most valuable thing you
can leave behind because it’s almost like you’re not
leaving at all. By sharing the content of your life you
will continue to live on in the hearts and minds of your
loved ones long after you’ve left this earthly plane.



Elaine Floyd, CFP®, is the Director of Retirement and
Life Planning, Horsesmouth, LLC., where she focuses on
helping people understand the practical and technical
aspects of retirement income planning.
Devin Kropp is not affiliated with Larson Financial Group.
IMPORTANT NOTICE: This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.


Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.
Copyright © 2018 by Horsesmouth, LLC. All Rights Reserved

To Bit or Not to Bit: What should Investors Make of Bitcoin Mania?

Bitcoin and other cryptocurrencies are receiving intense media coverage, prompting many investors to wonder whether these new types of electronic money deserve a place in their portfolios.

Instead, cryptocurrencies are a form of code made by computers and stored in a digital wallet. In the case of bitcoin, there is a finite supply of 21 million,1 of which more than 16 million are in circulation.2 Transactions are recorded on a public ledger called blockchain.

People can earn bitcoins in several ways, including buying them using traditional fiat currencies3 or by “mining” them—receiving newly created bitcoins for the service of using powerful computers to compile recent transactions into new blocks of the transaction chain through solving a highly complex mathematical puzzle.

For much of the past decade, cryptocurrencies were the preserve of digital enthusiasts and people who believe the age of fiat currencies is coming to an end. This niche appeal is reflected in their market value. For example, at a market value of $16,000 per bitcoin,4 the total value of bitcoin in circulation is less than one tenth of 1% of the aggregate value of global stocks and bonds. Despite this, the sharp rise in the market value of bitcoins over the past weeks and months have contributed to intense media attention.

What are investors to make of all this media attention? What place, if any, should bitcoin play in a diversified portfolio? Recently, the value of bitcoin has risen sharply, but that is the past. What about its future value?

You can approach these questions in several ways. A good place to begin is by examining the roles that stocks, bonds, and cash play in your portfolio.

Expected Returns

Companies often seek external sources of capital to finance projects they believe will generate profits in the future. When a company issues stock, it offers investors a residual claim on its future profits. When a company issues a bond, it offers investors a promised stream of future cash flows, including the repayment of principal when the bond matures. The price of a stock or bond reflects the return investors demand to exchange their cash today for an uncertain but greater amount of expected cash in the future. One important role these securities play in a portfolio is to provide positive expected returns by allowing investors to share in the future profits earned by corporations globally. By investing in stocks and bonds today, you expect to grow your wealth and enable greater consumption tomorrow.

Government bonds often provide a more certain repayment of promised cash flows than corporate bonds. Thus, besides the potential for providing positive expected returns, another reason to hold government bonds is to reduce the uncertainty of future wealth. And inflation-linked government bonds reduce the uncertainty of future inflation-adjusted wealth.

Holding cash does not provide an expected stream of future cash flow. One US dollar in your wallet today does not entitle you to more dollars in the future. The same logic applies to holding other fiat currencies — and holding bitcoins in a digital wallet. So, we should not expect a positive return from holding cash in one or more currencies unless we can predict when one currency will appreciate or depreciate relative to others.

The academic literature overwhelmingly suggests that short-term currency movements are unpredictable, implying there is no reliable and systematic way to earn a positive return just by holding cash, regardless of its currency. So why should investors hold cash in one or more currencies? One reason is because it provides a store of value that can be used to manage near-term known expenditures in those currencies.

With this framework in mind, it might be argued that holding bitcoins is like holding cash; it can be used to pay for some goods and services. However, most goods and services are not priced in bitcoins.

Lots of volatility has occurred in the exchange rates between bitcoins and traditional currencies. That volatility implies uncertainty, even in the near term, in the amount of future goods and services your bitcoins can purchase. This uncertainty, combined with possibly high transaction costs to convert bitcoins into usable currency, suggests that the cryptocurrency currently falls short as a store of value to manage near-term known expenses. Of course, that may change in the future if it becomes common practice to pay for all goods and services using bitcoins.

If bitcoin is not currently practical as a substitute for cash, should we expect its value to appreciate?

Supply and Demand

The price of a bitcoin is tied to supply and demand. Although the supply of bitcoins is slowly rising, it may reach an upper limit, which might imply limited future supply. The future supply of cryptocurrencies, however, may be very flexible as new types are developed and innovation in technology makes many cryptocurrencies close substitutes for one another, implying the quantity of future supply might be unlimited.

Regarding future demand for bitcoins, there is a non‑zero probability5 that nothing will come of it (no future demand) and a non-zero probability that it will be widely adopted (high future demand).

Future regulation adds to this uncertainty. While recent media attention has ensured bitcoin is more widely discussed today than in years past, it is still largely unused by most financial institutions. It has also been the subject of scrutiny by regulators. For example, in a note to investors in 2014, the US Securities and Exchange Commission warned that any new investment appearing to be exciting and cutting-edge has the potential to give rise to fraud and false “guarantees” of high investment returns.6 Other entities around the world have issued similar warnings. It is unclear what impact future laws and regulations may have on bitcoin’s future supply and demand (or even its existence). This uncertainty is common with young investments.

All of these factors suggest that future supply and demand are highly uncertain. But the probabilities of high or low future supply or demand are an input in the price of bitcoins today. That price is fair, in that investors willingly transact at that price. One investor does not have an unfair advantage over another in determining if the true probability of future demand will be different from what is reflected in bitcoin’s price today.

What to Expect

So, should we expect the value of bitcoins to appreciate? Maybe. But just as with traditional currencies, there is no reliable way to predict by how much and when that appreciation will occur. We know, however, that we should not expect to receive more bitcoins in the future just by holding one bitcoin today. They don’t entitle holders to an expected stream of future bitcoins, and they don’t entitle the holder to a residual claim on the future profits of global corporations.

None of this is to deny the exciting potential of the underlying blockchain technology that enables the trading of bitcoins. It is an open, distributed ledger that can record transactions efficiently and in a verifiable and permanent way, which has significant implications for banking and other industries, although these effects may take some years to emerge.

When it comes to designing a portfolio, a good place to begin is with one’s goals. This approach, combined with an understanding of the characteristics of each eligible security type, provides a good framework to decide which securities deserve a place in a portfolio. For the securities that make the cut, their weight in the total market of all investable securities provides a baseline for deciding how much of a portfolio should be allocated to that security.

Unlike stocks or corporate bonds, it is not clear that bitcoins offer investors positive expected returns. Unlike government bonds, they don’t provide clarity about future wealth. And, unlike holding cash in fiat currencies, they don’t provide the means to plan for a wide range of near-term known expenditures. Because bitcoin does not help achieve these investment goals, we believe that it does not warrant a place in a portfolio designed to meet one or more of such goals.

If, however, one has a goal not contemplated herein, and you believe bitcoin is well suited to meet that goal, keep in mind the final piece of our asset allocation framework: What percentage of all eligible investments do the value of all bitcoins represent? When compared to global stocks, bonds, and traditional currency, their market value is tiny. So, if for some reason an investor decides bitcoins are a good investment, we believe their weight in a well-diversified portfolio should generally be tiny.7

Because bitcoin is being sold in some quarters as a paradigm shift in financial markets, this does not mean investors should rush to include it in their portfolios. When digesting the latest article on bitcoin, keep in mind that a goals-based approach based on stocks, bonds, and traditional currencies, as well as sensible and robust dimensions of expected returns, has been helping investors effectively pursue their goals for decades.

Have Questions?


  1. Source: Bitcoin.org.
  2. As of December 14, 2017. Source: Coinmarketcap.com.
  3. A currency declared by a government to be legal tender.
  4. Per Bloomberg, the end-of-day market value of a bitcoin exceeded $16,000 USD for the first time on December 7, 2017.
  5. Describes an outcome that is possible (or not impossible) to occur.
  6. “Investor Alert: Bitcoin and Other Virtual Currency-Related Investments,” SEC, 7 May 2014.
  7. Investors should discuss the risks and other attributes of any security or currency with their advisor prior to making any investment.

The opinions expressed are those of the author and are subject to change. The commentary above pertains to bitcoin cryptocurrency. Certain bitcoin
offerings may be considered a security and may have different attributes than those described in this paper. Dimensional does not offer bitcoin.
This material is not to be construed as investment advice or a recommendation to buy or sell any security or currency. Investing involves risks
including possible loss of principal. Stocks are subject to market fluctuation and other risks. Bonds are subject to increased risk of loss of principal
during periods of rising interest rates and other risks. There is no assurance that any investment strategy will be successful. Diversification does not
assure a profit or protect against loss. Dimensional Fund Advisors LP is a registered investment advisor with the Securities and Exchange Commission.

This article is for Informational purposes only and is an authorized reprint from Dimensional Fund Advisors LP (“DFA”). Material is believed current and accurate but is not guaranteed. Investments are subject to various market, political, currency, economic, and business risks, and may not always be profitable; further, neither Larson Financial Group nor Larson Financial Securities guarantee financial or investment results. This material is not to be construed as an offer to buy or sell securities or other products and services of Larson Financial Group or its affiliates. Before taking action on a financial plan, please review any offering documents available, including prospectus and consult an appropriate investment professional regarding your specific needs.

Copyright © 2017 by Dimensional Fund Advisors LP. All Rights Reserved

Protecting Your Identity from Increasingly Prevalent Security Threats

As you have likely heard in the news, credit reporting agency Equifax announced that hackers had potentially gained access to sensitive information for 143 million consumers, including Social Security numbers and driver’s license numbers. Sadly this is just the latest major breach to make headlines, as Target, Home Depot and Yahoo! have also seen their customers’ personal information exposed just to name a few recent examples.1

With cyber attacks becoming increasingly common with each passing year, it’s only human nature to react to these stories with a general sense of apathy. However, that would be a mistake. If anything, these incidents serve as a powerful reminder that we all need to be diligent with protecting our personal information. Whether you’re already a victim or just trying to avoid becoming one, the following tips have proven to be effective measures for boosting cybersecurity.

Healthcare Practice Management

Recovering Your Identity and Limiting the Damage

In response to their breach, Equifax is offering complimentary identity theft protection and credit file monitoring. While this is hardly a comprehensive solution, this can at least help prevent fraudulent activity and notify you in real-time if it does occur. You can learn if your sensitive information is at risk and enroll by going here: https://www.equifaxsecurity2017.com

If you’re already seeing suspicious activity with any of your accounts, it’s important to act quickly. Follow these steps to alert the proper authorities that your identity has been stolen:

  • Call your credit card companies immediately. Explain what happened, and ask where to send a copy of the police report.
  • File a police report and make several copies
  • Complete a Federal Trade Commission (FTC) Theft Affidavit and FTC report (call 1-887-ID-THEFT to request the forms).
  • Call your bank. They can place an alert on your Driver’s License number and Social Security Number, and freeze your account.
  • Call the fraud units of the three credit report agencies (Experian, Equifax and Transunion)

One final measure that can be effective in protecting your identity and preventing anyone from opening new accounts in your name is to place a “freeze” on your credit file with all 3 credit bureaus. Doing this prevents businesses from issuing any new credit in your name unless you’ve contacted the bureaus to authorize the release of your information. The primary downside is you may be required to pay a $5-10 fee each time you either place or remove the freeze with one of the bureaus. Equifax is currently waiving all fees for the next few months, but the other 2 bureaus are not.

Taking a Proactive Approach to Cybersecurity

While there’s nothing you can do to completely eliminate the risk of identity theft, there are some steps you can take to make it prohibitively difficult for criminals. This includes using two-factor authentication with banking and social media sites whenever possible. It’s also recommended that you change passwords frequently and avoid using the same password across multiple websites. Furthermore, you should avoid entering any sensitive information into Websites that do not encrypt your connection.

Another vigilant approach is to continuously monitor your accounts and bank statements for any suspicious activity. While credit monitoring services can alert you of any potential red flags, reviewing your purchases is more effective for quickly identifying fraudulent activity. And as a positive by-product, you can also become more aware of where your money goes each month and confirm your current budget is compatible with your long-term goals.

Finally, many homeowners are unaware that you can add an identity theft protection coverage endorsement to your existing home insurance policy. This coverage reimburses certain expenses associated with identity recovery and restoration such as stolen funds, lost wages and attorney fees. This is usually less expensive than a credit monitoring service, although it’s meant to compensate you after the fact and does nothing to proactively curb the threat of identity theft.

The Bottom Line

Breaches have become the norm as organizations have out of date systems that leave information vulnerable. Traditional defenses that worked in the past, such as firewalls and antivirus software, can now be exploited by hackers for potential security holes and entry points. Given the sheer number of recent data breaches, it’s likely that your personal information could already be at risk.

The best way to exercise caution is to continuously keep an eye on your credit. Consumers are allowed one free credit report from each of the credit reporting agencies every year. Be sure to take advantage of this law by regularly checking your credit reports for any discrepancies.

Have Questions?


  1. Josh Keller, K.K. Rebecca Lai, Nicole Perlroth “How Many Times Has Your Personal Information Been Exposed to Hackers?” (September 2017). https://www.nytimes.com/interactive/2015/07/29/technology/personaltech/what-parts-of-your-information-have-been-exposed-to-hackers-quiz.html

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

The Top 7 Questions for an Effective Beneficiary Audit

By Denise Appleby, APA, CISP, CRC, CRPS, CRSP

The question of who inherits your assets becomes more important as you age. A good beneficiary audit can reassure you that the right people will inherit the right accounts and that the applicable tax and investment issues are carefully considered.

When was the last time you did a beneficiary audit for your retirement accounts? If you don’t remember, have never done one, or haven’t done one in more than a year, now might be a good time.

A beneficiary audit is one of the most critical check-up processes for IRAs and other retirement accounts, as it ensures that people you want to inherit your retirement accounts actually do.

A good beneficiary audit can reassure you that your “designated beneficiaries” (i.e., individuals or qualified trusts named on the IRA agreement or employer plan document) avoid the limited distribution options available to “nondesignated” beneficiaries (i.e., non-person entities or beneficiaries not named on the form).

The effectiveness of a beneficiary audit largely depends on the questions that are posed to you – the account owner.

Ask the Right Questions

Sometimes it helps to use a Beneficiary Audit Form so you can easily identify your accounts and beneficiaries:

Medical School Loan Repayment

Source: Denise Appleby, APA, CISP, CRC, CRPS, CRSP

But identifying the accounts is only the beginning. This is also a good time to make any changes you’ve been considering. Ask yourself these questions:

1. Have you completed a beneficiary designation form for all of your retirement accounts?

Usually, you, as the account owner, would provide the beneficiary information when you established the IRA or retirement account.

But there are other factors to consider:

  • Some IRA owners do not complete the beneficiary designation section of the IRA agreement because they intend to complete a separate beneficiary designation form at a later date.
  • Some IRA owners mistakenly think that when they transfer an IRA to another IRA, the beneficiary designation carries over to the new IRA.
  • When it comes to employer-sponsored retirement plans (qualified plans, 403(b) plans, and governmental 457(b) plans), the beneficiary designation is not part of the plan establishment or account-opening process. Instead, participants are usually provided with a “benefits package,” which includes forms and instructions for designating the beneficiaries of their retirement accounts and insurance policies.

If a beneficiary designation form is not completed for a retirement account, the default provisions of the IRA agreement or employer plan document apply.

The default provisions might not be consistent with your objectives and could adversely affect your beneficiary’s distribution options.

2. When was the last time you reviewed/updated your beneficiary forms?

Beneficiary designation forms should be reviewed often. The ideal frequency will vary based on your needs. For some, an annual review may be necessary, while a review every three years could be enough for others.

You should also review your beneficiary forms whenever there is a life event that could affect your beneficiaries. This includes marriages, divorces, new family additions (births and adoptions), and deaths.

Important note about divorce: Some plan documents include provisions that automatically remove a former spouse from the status of beneficiary when the divorce is effective. Some do not.

A new beneficiary form should be completed regardless of whether you want your former spouse to remain as beneficiary of the account. Completing a new beneficiary form will ensure your wishes are clear, which could help prevent friction among your heirs.

3. Do all of your retirement accounts have designated beneficiaries?

While every designated beneficiary is a beneficiary, not every beneficiary is a designated beneficiary. This distinction is important for purposes of determining the life expectancy over which distributions from an inherited account can be stretched.

An account has a designated beneficiary if the primary beneficiary is a person or a qualified trust named on the form. This determination is made on Sept. 30 of the year that follows the year of your death.

If only individuals and/or qualified trusts are beneficiaries on the Sept. 30 deadline, the account is treated as having a designated beneficiary.

If a nonperson, such as an estate, charity, or nonqualified trust, remains as a primary beneficiary on the Sept. 30 deadline, the account is treated as not having a designated beneficiary.

If a retirement account does not have a designated beneficiary, it could shorten the period over which distributions from the retirement account can be stretched. The following is a summary of the distribution options available to the various types of beneficiaries:

Medical School Loan Repayment

Source: Denise Appleby, APA, CISP, CRC, CRPS, CRSP

An individual can be a designated beneficiary only if she is a beneficiary on record at the time of your death or becomes a beneficiary under the default provisions of the plan document.

4. Have you named contingent beneficiaries for all of your retirement accounts?

A contingent beneficiary steps into the role of primary beneficiary in the event the primary beneficiary dies before you do, or if the primary beneficiary properly disclaims the retirement account. If the primary beneficiary disclaims only a portion of the account, the contingent beneficiary becomes the primary beneficiary for that amount.

Generally, a contingent beneficiary becomes a primary beneficiary only if there are no remaining primary beneficiaries. If there are two primary beneficiaries and one dies before you or disclaims his share, the remaining primary beneficiary usually becomes the primary beneficiary for that share.

If a retirement account does not have a contingent beneficiary and the primary beneficiary predeceases the account or disclaims the account, the default provisions of the governing plan document apply.

5. Are the default beneficiary provisions for your retirement accounts consistent with your objectives?

Ideally, all retirement accounts would have primary and contingent beneficiaries when the account owners die.

But, in the real world, beneficiaries are often determined under the default provisions of retirement accounts. The default provision would also apply if all primary and contingent beneficiaries properly disclaim their share of the account. The default provisions should be considered as part of the beneficiary audit because they activate when “what if” scenarios become “what is.” For example:

  • What if you did not get around to replacing primary beneficiaries who died and you are not survived by any other named primary or contingent beneficiaries?
  • What if your account is part of a mass transfer, under which the new beneficiary’s forms are mailed to you, but you missed a line or forgot to return them to the custodian/plan sponsor?
  • What if the beneficiary designation form is determined to be invalid?

For these and other what-if scenarios, consider whether the default beneficiary provisions are acceptable. They include, but are not limited to:

  • Surviving spouse. If none, the surviving children
  • Per stirpes. If none, the decedent’s estate
  • Surviving spouse. If none, the surviving children; if none, the decedent’s estate
  • Surviving children. If none, the decedent’s estate
  • Decedent’s estate.

For IRA owners with multiple options, the default beneficiary provisions should be one of the factors that determine which IRA is chosen.

Because employer-sponsored retirement plans are governed by one plan document, there is no flexibility. It is even more critical, therefore, that beneficiary forms for these accounts are updated when needed.

6. If you named a trust as your beneficiary, is the trust qualified?

Generally, only an individual can be a designated beneficiary. An exception applies to a trust, if the trust is qualified. Under this exception, the life expectancy of the oldest beneficiary of the trust is used for required minimum distribution (RMD) purposes, including calculating RMD amounts for beneficiaries. The following is a list of the requirements:

    • The trust must be a valid trust under state law or one that would be valid if that there is no corpus.
    • The trust must be irrevocable or become irrevocable upon the death of the account owner.
    • The beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the retirement account are identifiable.
    • A copy of the trust instrument is provided to the administrator of the retirement plan (IRA custodian), and the trustee agrees that if the trust instrument is amended at any time in the future, the account owner will, in a reasonable time, give the IRA custodian a copy of each amendment. If certain requirements are met, a list of trust beneficiaries can be given instead

If the trust is not qualified, the account is treated as not having a designated beneficiary.

7. Does the beneficiary form include anything that could result in it being invalid?

A seemingly innocuous mistake can, at worst, invalidate a beneficiary designation form. At best, it can cause frustration for your beneficiaries and other involved parties. These mistakes include, but are not limited to:

      • Percentages do not add up to 100. Generally, the percentage allocated to each beneficiary must be indicated on the beneficiary form. Some documents default to a pro-rata share if no percentages are indicated. However, the matter gets complicated if percentages are provided and they do not equal 100.
      • The form is not signed.
      • Absence of spousal consent. Spousal consent is required if a married participant designates someone other or in addition to his spouse as primary beneficiary for a retirement account under certain employer-sponsored plans, and for some IRAs where the owner’s residence is in a community or marital property state.
      • A witness is a beneficiary.

Some beneficiary forms and governing plan documents include language to indicate whether and what type of mistakes will result in invalidation. Generally, an invalid beneficiary form will result in the default provisions of the IRA agreement being applied.

Ideally, the beneficiary form should be reviewed annually, with steps taken to ensure that your beneficiaries inherit what you intended. An annual beneficiary review with your financial advisor can ensure your heirs are taken care of as you had planned.

Denise Appleby runs a firm that provides a wide range of retirement products and services to financial, tax, and legal professionals. She also founded the consumer education website: retirementdictionary.com.

Denise Appleby is not affiliated with Larson Financial Group.

IMPORTANT NOTICE: This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.

The opinions expressed by featured authors are their own and may not accurately reflect those of Larson Financial Group. They do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-parties. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. This material is not to be construed as an offer to buy or sell securities or other products and services of Larson Financial Group or its affiliates. Before taking action on a financial plan, please review any offering documents available, including prospectus and consult an appropriate investment professional regarding your specific needs.

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