Retirement Plans: The Benefit of Beneficiaries
Many believe that retirement plans pass to an heir under a last will and testament, but these assets are unique in that they name a beneficiary and pass outside of a will.
Many people believe that a will distributes all assets of an individual upon their passing, but there are several types of property that are not addressed within a will, and these assets do not enter probate, which is the process of administering the estate of the deceased. These assets use another method, such as a beneficiary designation form, to designate the distribution of the asset. These assets include retirement accounts and life insurance policies.
When you begin a retirement account, you are asked to name a beneficiary, normally by completing a beneficiary designation form. If you are married, federal law states that your spouse is automatically the beneficiary of your 401k or other pension plan – period. You still need to complete the beneficiary form with your spouse’s name, for the record. If you wish to name a beneficiary other than your spouse, your spouse must sign a waiver, which usually requires a notary public as a witness.
The advantage of having a beneficiary named is that the beneficiary of the plan should be able to access the money even while the rest of the estate is in probate, which can take months to years. The payout is addressed separately, and a will or trust does not override your beneficiary designation form.
It is important to keep beneficiary designations up to date, since if no named beneficiary survives you, your probate estate may end up as the beneficiary by default. If your estate receives your retirement benefits, the opportunity to maximize tax savings may be lost. In addition, probate can mean paying fees and delaying the distribution of benefits.
There are tax implications to consider when naming a beneficiary of a retirement account, so it’s important to look at the entire picture of your estate. For instance, having a spouse as the beneficiary will increase the size of your spouse’s estate for the estate tax calculation when that spouse dies. That’s because at your death, your spouse can inherit an unlimited amount of assets and defer federal estate taxes until both of you are deceased. However, this may result in a large tax burden for children on the death of the second spouse.
An estate plan takes a comprehensive approach to retirement accounts and their relationship with other aspects of the estate plan, looking at the implications of all scenarios and accounting for life changes while reducing the financial burden on survivors.
Our firm is dedicated to providing you with quality estate planning resources, so you can become familiar with all of the existing options. When you visit or call our office, we want you to feel comfortable discussing such an important issue concerning both you and your family. We want to arm you with the information you need to make an informed decision about your family’s future.The Alpern Law Firm is a leading provider of expert estate planning guidance in Warren, OH. For more information on retirement plans and other estate planning services, visit our website.