Finance & Investment Get Your Beneficiary Designation in Order
If you designated your Will as your beneficiary, including stating "As per my Will" or "Will" on your designation form, you should consider updating the designation so that it makes specific reference as to the identity of your beneficiaries. Most IRA custodians and plan administrators will not accept designations of "My Will" or "As per my Will". Further, even if the beneficiary form was received and placed on file, this does not mean that it meets the custodian/administrator's requirements, as some documents do ‘fall through' the quality-control cracks. The issue would then become apparent only when the beneficiary comes forward to claim the assets, resulting in frustration for everyone involved.
Because assets in your IRA, qualified plan, 403(b) arrangement or 457(b) plan are not considered probate assets, they are not usually subject to the terms of your Will. Instead, the beneficiaries of these assets are determined by the beneficiary designation form that you complete or the default-provisions of the plan document. Should you include stipulations in your Will that contradicts your beneficiary designation form, and/or the terms of the retirement account's plan document, it is very likely that provisions in the Will would not be honored by your custodian/trustee. Should your beneficiaries choose to pursue having the terms of your Will apply to your retirement account; it may mean legal fees to hire an attorney, and the matter being referred to court. Unless the Will makes specific reference to the retirement account, and provide explicit instructions as to who is the beneficiary of these assets, the judge may find it difficult to have it apply to your retirement account. And even if it does include specific and explicit instructions, there is still no guarantee that the judge would make a ruling to have it apply to your retirement account.
Consider A Customized Designation Instead
If you want to make a beneficiary designation for which a ‘fill-in-the blank' form does not suffice, check with your custodian or administrator to determine if they will accept a customized beneficiary designation which would allow you to include contingency provisions. An increasing number of custodians and plan administrators are accepting these customized beneficiary designations, as they come to realize that with retirement accounts being the largest asset for many individuals, sophisticated designations are becoming a necessity.
Be Aware of Default Beneficiary Provisions
Retirement plan documents usually include default beneficiary provisions that apply in the event the retirement account owner fails to designate a beneficiary, or if the designated beneficiary predeceases the retirement account owner. For qualified plans and 403(b) arrangements, the spouse is usually the default beneficiary for married participants and their estates for unmarried participants. For IRAs, the default beneficiary differs among custodians. The more estate planning-friendly documents include default provisions, such as the following: ? The spouse is the default beneficiary ? If there is no surviving spouse, then the children of the decedent is the beneficiary. Here, some also include Per Stirpes or Per Capita provisions ? If there is no surviving spouse and no surviving children, then the estate is the beneficiary. On the other hand, there are some IRA documents for which the estate is the only default beneficiary.
Regardless of whether the document includes a favorable default beneficiary provision, you should provide a written designation, for the following reasons:
? The default provisions may not be consistent with your preference ? The default provisions may have changed since you established the account, and the new document could provide that either of the default provisions (before or after the change) apply to accounts where the owners fail to affirmatively designated beneficiaries ? If you divorce and remarry, and the account was established during your previous marriage, there could be confusion as to whether the beneficiary is your former or surviving spouse
Your written beneficiary designation will help to avoid any confusion, and make it easier for your survivors to determine the beneficiary(ies) of your retirement account/s.
Update Your Beneficiary Designation for Relationship Changes If you or your beneficiaries experience changes in your relationships, and these changes affect your beneficiary designation, consider updating the designation to reinforce or change your wishes accordingly. The following are some examples:
You Get Married, Remarried, or Divorced
If you get married, remarried or divorced, check your beneficiary designation to ensure that the right person is designated. There have been many instances where former spouses and surviving spouses have had to spend time and money in court to have a determination made as to whether the former or surviving spouse is the beneficiary of a decedent's retirement account. If your former spouse was the designated beneficiary and you want him/her to remain as the beneficiary, you should complete a new form to reinforce your intent. This is necessary as some documents and some state laws provide that divorce results in an automatic revocation of your beneficiary designation. Completing a new form also serve to remove any doubts as to your intent. If you do not want your former spouse to remain as the beneficiary, you need to complete a new form, so as to demonstrate to the former spouse that he/she has no claim on the assets. Your Beneficiary Predecease You
If your primary beneficiary predeceases you, most documents provide that your contingent beneficiary will move up to the status of primary beneficiary. Also, if you had multiple beneficiaries and one predeceases you, the plan document may provide that that person's share is split pro-ratably among the other primary beneficiaries. However, you may prefer that the deceased beneficiary's share go to his/her children. The key is to update the designation so as to avoid these uncertainties.
Avoid Ambiguous Terms
When you complete your beneficiary designation form, be as specific as possible. For instance you probably do not want to use a term as ‘all my children' if you have stepchildren or children from a previous marriage as this may lead to uncertainty as to which ‘children' your designation applies. It may seem clear to you, but becomes a different issue with the custodian/trustee handling your designation, or even create reason for your children to argue about which of them are the beneficiaries. State law may prevail. For instance, State law may provide that your stepchildren are not your children for purposes of determining ‘who is your beneficiary'- but being clear helps to prevent disputes. Therefore, list all your children by name, or be as specific as possible.
Spousal Consent May be Required
If you are married and name someone other than, or in addition to your spouse, as your primary beneficiary, you may be required to obtain the written consent of your spouse to do so. This is usually the case for qualified plans and ERISA 403(b) arrangements. For IRAs and Non-ERISA 403(b) accounts, spousal consent may be required if you reside in a community or marital property state. Some custodians require the consent, while others just strongly recommend that it is provided. To be sure, check with your custodian.
Obtain Written Confirmation of Receipt
Unfortunately, beneficiary designation forms do get lost in the mail or misplaced by financial institutions. In most cases, this is not realized until the beneficiary has submitted a claim for the assets. To prevent this from occurring with your retirement account, request a written confirmation of receipt from your custodian or plan administrator. Be sure to request that the confirmation identifies the form by account number and date, so that there is no confusion as to which version the confirmation applies, and retain a copy for your records.
Conclusion
Your beneficiary designation form provides important estate planning for what may be one of your most valuable financial asset. Be sure that you have one completed for all of your retirement accounts, and ensure that it is reviewed and if necessary, updated at least once per year and whenever you experience life changing events that affect your beneficiaries. If your beneficiary is a charity or other non-person, check to make sure it is still in existence and in good standing.
Custodians and plan administrators usually want to do the right thing, and presenting your beneficiary form in a manner that is consistent with their operational requirements, and policies and procedures will help them to do just that. Bear in mind that the individuals handling your designation forms are usually customer service associates with no legal background. Therefore, where possible, make the designation as straightforward as possible. For your more sophisticated designations, request that it be submitted to the firm's legal department for review and approval.
Related Tags: retirement, ira, beneficiary
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