Should I be listing my brokerage firm as a primary beneficiary?
My broker had me designate his firm as the primary beneficiary to my variable annuity account. I was told that upon death, a payment would be made to an IRA account that my spouse is the primary beneficiary of, as opposed to a direct payment to her. The firm is claiming that this is necessary because they are the custodians of my account. Everything I have read says to never list your brokerage house as the primary beneficiary for anything. Is my broker correct and is this a normal practice? Or should I be looking for another broker?
Hello....thank you for writing to us. I concur with the thoughts of my colleagues who are saying that this is not standard practice. I wanted to add that the first thing to do before you take any of the actions listed is to go in electronically if possible or in person if necessary and change the beneficiary to your own loved ones. Please do today or as soon as possible. Then print out the change or have the broker hand you the print out and read it to make sure that the beneficiary has indeed be changed. Then you can start on the actions recommended here. The first item of business, though, is to get that changed in case something happens to you. Please let us know what happens if you have a chance...I know we are all worried about this. Best wishes to you.
OMG RUN this is a huge red flag!!!!!!!! You should be leaving your broker- look a for a Fidiciary Fee-Only Certified Financial Planner to avoid obvious conflict of interest.
To put this in perspective I was the advisor and partial beneficiary on one of my parents accounts. They had to sign several additional forms, and disclosure. AND we had to get special approval and oversight by my firm and the investment firm where the account was held.
Live for Today, Plan For Tomorrow.
You should run as fast as you can away from this broker and his firm. A brokerage firm should never be your beneficiary; nor is it proper for the agent/broker to suggest this. I would cancel purchase of annuity and find a reputable firm to deal with. Your beneficiary should be your spouse or other person of your choice.
I am not familiar with this strategy. In our client base, we have clients name their spouse as their primary beneficiary since most annuity companies allow for spousal continuation. This allows the spouse to take ownership of the policy as if you were still living. At that point, she can choose to transfer into her brokerage account. Prior to having your spouse take ownership of the contact you may want to review the pros/cons of this strategy. If she is older, Required Minimum Distributions (RMDs) could be larger than if she maintained the account in you name. Also, if there is a death benefit, she would not be able to claim if she selected spousal continuation. Assuming your goal is to have the funds transferred into her name, I would consider naming her as the primary beneficiary, complete the death paperwork at your passing to take ownership of the policy, and then move into her brokerage account. You may want to follow up with your estate planning attorney to confirm this is in line with your goals.
Your instinct is correct. I am going to assume you own the variable annuity contract inside of your IRA. Your broker may be acting as the custodian of your IRA but that does not mean that you should list them as the primary beneficiary. Your wife should be listed as the primary beneficiary of your IRA. Upon your death, your wife can choose to continue to hold the value of the policy in an IRA, now titled in her name, or take the funds. Taking a lump sum distribution would be tax inefficient as the entire value of the account would be tax as ordinary income. Naming a brokerage firm as the primary beneficiary of an IRA is not a normal practice. I would also say that owning a variable annuity inside of an IRA is normally extremely expensive and redundant from an income tax perspective.