What actually are the seven deadly sins? The ones that are perhaps best known are: pride, envy, gluttony, lust, anger, greed and sloth. I got this idea while lying in a hammock in Belize, so I have the sloth one covered! Their antithesis would be humility, kindness, abstinence, chastity, patience, liberality and diligence. The religion-based answers are faith, hope, charity, fortitude, justice, temperance and prudence. While in the hammock \u201cslothing,\u201d I read an insightful book, \u201cThinking, Fast and Slow,\u201d by psychologist Daniel Kahneman, who won a Nobel Prize in economics. The basic premise is that decisions are often made quickly based on what seems obvious at first glance. He named this System #1. System #2 stops to consider all of the possibilities to disprove or confirm what seemed like a slam dunk conclusion. I think when System #2 kicks in the \u201cgood\u201d sins tend to overcome the \u201cbad\u201d sins, which are more commonly found when System #1 is in charge. My point here is that when making choices about beneficiary designations for retirement accounts or insurance, you need to slow down and let System #2 take over. Beneficiary Sin #1: Not updating beneficiary forms. Beneficiary designations take precedence over a will or a trust or any other legal document. A death, divorce or marriage, for example can result in an unplanned surprise. In the absence of a designated beneficiary, it should not be assumed that the spouse will receive the benefits. There could be a very old form on file that was not updated or its absence could be resolved in probate resulting in delays and expensive legal fees. Beneficiary Sin #2: Naming a revocable trust or your estate for your IRA. Here\u2019s an example: Dick and Jane each accumulated substantial sums in their IRAs naming each other as beneficiaries. When Dick passes away, Jane combines Dick\u2019s IRA into hers. Since she knows that her son and daughter might not make wise choices with her IRA upon her death, she designates a trust as beneficiary. The upshot is that now the funds must be withdrawn within five years instead of being \u201cstretched\u201d over the children\u2019s lifetime. The short withdrawal period will result in a likely higher tax bill upon withdrawal, and equally important is that the multi-year tax deferral is lost. The children might still make unwise decisions, but most unwise is not naming them directly as beneficiaries. Beneficiary Sin #3: Not structuring insurance correctly. Sometimes investors use life insurance to create a fund that will allow tax-free withdrawals for early retirement before 59\u00bd, to avoid IRA early withdrawal penalties. So far so good, except that Dick named Jane the owner, and a daughter from a previous marriage as beneficiary. The problem arises upon Dick\u2019s death. The event would cause the death benefit to be treated as a taxable gift for Jane rather than a tax-free benefit for the daughter. Dick should have been the owner avoiding the gift tax. Similar situations can occur with annuities. Beneficiary Sin #4: Not naming contingent beneficiaries. Dick and Jane leave their minor son at home with the grandparents. While on vacation, they have an unfortunate encounter with a semi-trailer truck, killing them both. No one was appointed guardian for Dick Jr. only 13 years old. While Dick Jr. was named as contingent beneficiary, the proceeds of insurance or retirement accounts cannot be paid directly to a minor. The issue will be decided in probate incurring delay and legal expenses as well as expenses for Dick Jr. assumed by the grandparents. A solution would be a trust for Dick Jr. where restrictions could govern usage of the funds perhaps naming the grandparents as trustees. Beneficiary Sin #5: Failing to include a contingent secondary beneficiary. If your primary beneficiary dies before either the owner of an insurance policy or a retirement account, and you forgot to name a new one, a court will decide. By all means name a contingent to be safe. If you change your mind either primary or secondary beneficiaries can be changed easily. Replace when either dies to be safe. Beneficiary Sin #6: Naming a child over a spouse as beneficiary. Dick takes a part of his IRA and names Dick Jr. as beneficiary since Jane has more than adequate retirement assets. When Dick dies, Dick Jr. now has to roll his portion into a beneficiary IRA. The result is that many potential years of deferral are lost vs. Jane as beneficiary, who could have used the spousal rollover. Further, Dick Jr. must now begin RMDs (required minimum distribution) which he doesn\u2019t need and must pay tax on them. Jane could have used the gift tax exemption and simply given Dick Jr. money from a non-tax deferred source. Beneficiary Sin #7: Forgetting your favorite charity. Naming a charity as sole or partial beneficiary is a good way to give what might have been taxed as income when withdrawn, tax free to the charity. You may also designate a charity to receive your RMD tax free as well. The best way to avoid the \u201cbad\u201d sins and experience more of the \u201cgood\u201d sins is to get system #2 in gear. Here\u2019s a passage from Kahneman\u2019s book that pretty well sums it up: \u201cAs we navigate our lives, we normally allow ourselves to be guided by impressions and feelings, and the confidence we have in our intuitional beliefs and preferences is usually justified. But not always. We are often confident even when we are wrong, and an objective observer is more likely to detect our errors than we are.\u201d Market update Stocks are a bit over-bought as this is written (Feb. 15, 2017) and could pull back for a while, but there are not any signs of a significant market top at this time. Please call if you would like a free 28-page Social Security reference guide. Questions may be answered by contacting Don Hutchinson at 203-301-0133. Donald Hutchinson lives in Milford. Safe Harbor Financial Management Securities offered through LPL Financial, member FINRA\/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial adviser before investing. Investing involves risks including the loss of principal. No strategy assures success or protects against loss. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax adviser.