I see this happen and really believe it probably is not what Dad thought would happen. Dad worked hard all his life and had a sizable IRA. For ease, let’s say it was $500,000. Dad was married to Mom and had You, his only child. When Mom passed away, Dad was distraught. The nice ladies at church paid extra attention to him to help him through his grief. They were friends with your Mom and Dad and everyone felt the loss. In the course of this grieving process, Dad found that he could love again. He falls in love with a woman who had been both a friend of his and your Mom’s. They really are a lovely couple, and it is nice to see them find happiness together.
They decide to marry. His new love lost her husband sometime ago. She has kids of her own. They are grown ups, just like you.
Now that they are a couple, Dad wants his IRA to go to his New Wife. He used to have Mom listed as the primary beneficiary and You as the contingent beneficiary if she were deceased. He now wants his New Wife to get his IRA. He executes a new beneficiary designation form, naming New Wife as the 100% beneficiary of the policy. He again lists You as the contingent beneficiary, thinking that you are most important person to receive his life savings if she is not around to benefit from it,
Here is the kicker. He longer has control of the IRA assets. He passes away and New Wife rolls his IRA over to her own IRA. Her children from her first marriage are the beneficiary of that IRA. You are NOT!…….. WHOA! Not really what Dad wanted, is it?
Could Dad have allowed Mom to benefit from his IRA assets and yet not have lost control of them? Sure. It is called an IRA trust or IRAT. The IRA distributions are paid to the trust of which Mom is the beneficiary. When she passes away, You are the contingent beneficiary and begin to receive the distributions. How much control Dad allows you over that money is up to Dad.
There is a lot of counseling involved in the designation of IRA money. Choices effect how long the tax deferment can last. Choices can involve tax decisions. Choices can affect family dynamics. I would be happy to provide you legal counsel at Lisa Kurtz Keylon, PLC and can be reached at Lisa@AheadOfTheCurveLaw.com or by phone at 480-922-5552.