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
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
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.