Time Again to Check Beneficiary Designations

Posted By Jay Kaufman || 10-Aug-2011

For Clients, Advisors, Community

A recent published case emphasizes the importance of clients checking their beneficiary designations of their retirement plans including; profit sharing, 401(k) and pension — on a regular basis. The general rule is that if the participant is married, he or she must name his or her spouse as beneficiary (unless the spouse signs a waiver in the presence of a notary or a plan representative). This law is to protect the interest of spouses.

Here is a good example of where problems with unchecked beneficiary designation can occur: After his first wife passed away, the plan participant named his three adult children as his plan beneficiaries. Subsequently,
he remarried. He never changed the beneficiary on his plan accounts. His intent was that his three adult children become the beneficiaries of his retirement plan account. No spousal waiver was executed. Six weeks after he remarried, he died. His new wife and his three adult children both made claim for his 401(k) account balance.

The plan administrator filed suit asking the court for directions on who was the rightful beneficiary. The court awarded the account balance to his wife because no waiver had been signed. This was not the participant’s intention!

This litigation occurred in Federal District Court. These situations can be messy, cause family disharmony and are extremely expensive.

The lesson is clear: Double check your beneficiary designation on an annual basis. Make sure that it is properly coordinated with your estate plan and structured to defer income taxes as long as possible. This is a simple step. The retirement plan account is sometimes the largest asset in the estate.

We are increasingly finding the need to stay on top of these changing circumstances. So, it makes sense to pay attention and review the plan every year. We have developed a program which provides annual review and estate plan enhancement every that helps our clients ensure that these problems do not occur.

There are new techniques, particularly for larger plan benefits or IRAs which allow the family to “stretch” the benefits deferring taxes over an extended amount of time. We often discuss this topic with our clients during their annual estate plan enhancement meeting. For more information, call us.

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