Designating a beneficiary on your IRA might seem like a simple process of just writing down the name of your spouse or child. However, as Morningstar points out in "How to Handle Beneficiary Designations" it should not be taken that lightly.
Beneficiary designations are an important part of the inheritances for your heirs and should be carefully considered.
The article offers some tips about how you should go about it:
The Basics – With very limited exceptions, you can name almost any person or entity as a beneficiary. The property will pass automatically to the beneficiary after you pass away without having to go through probate or your estate plan.
Keep Things Up to Date – Review your designations regularly to make sure they are still appropriate.
Taxes – Understand that inheriting the property could have tax consequences for the beneficiaries. It is a good idea to get professional advice about those consequences.
Be Specific – Do not rely on naming one person and allowing that person to distribute the assets to others. Write down specifically how assets are to be distributed.
Special Needs – If you have family members with special needs, speak to an attorney about how to name them as beneficiaries in a way that does not disqualify them from receiving government benefits.
Other Estate Planning – Designating beneficiaries should be done in accordance with how your other assets will be distributed in your estate.
In short, make sure you have the assistance of a qualified estate planning attorney when making these important decisions.
Reference: Morningstar (April 22, 2016) "How to Handle Beneficiary Designations"