Do Not Forget to Update Your Retirement Account Beneficiaries

Reviewing your estate plan and updating the beneficiaries on your retirement accounts is important anytime you have a major life change. A last will and testament does not generally cover who will receive the benefits from your retirement accounts when you pass away, which makes review and revision all the more important when necessary.

Some of the most important times to update your retirement accounts include after a divorce, remarriage, and having children. Other examples of when you will need to revise the beneficiaries on your retirement account could be if you have designated a charity to receive your benefits and it is no longer solvent. In either case, it can be especially difficult for heirs to challenge the designation in court and recover what should be theirs.

Should you fail to designate a beneficiary altogether or that individual passes away before you do, your beneficiary may be determined by state law or the provision that governs your account. Federal regulations govern profit-sharing plans, 401(k)s, and money purchase pension plans and will automatically go to your spouse if you are married. Unless your spouse signs and notarize a document stating otherwise, no one else may be designated as a beneficiary for these types of accounts.

Wisconsin state law, on the other hand, governs IRAs and like federal law, requires a written and notarized document from the spouse to pass the benefits on to another heir. IRAs also predesignate another beneficiary should the primary one predecease the policyholder so these documents should be reviewed and updated whenever life changes occur.

Most spouses name each other as the primary beneficiaries of their retirement accounts assuming one will pass away before the other, but do not always consider catastrophic cases of simultaneous death. In these cases, state law may decide one spouse became deceased before the other and create issues should the couple have children from separate marriages.

When reviewing and updating the beneficiaries to your retirement accounts, some of the important aspects to consider are the default provisions of the document governing your retirement account, tax implications, and making sure to request a confirmation of receipt of the designation from your retirement account trustee. By periodically taking time to review and revise estate planning documents, we can ensure that our intentions are carried out as we intended them and not left to probate courts that may have to make decisions contrary to what we would have expected.

Frankly, we feel the best solution is the creation of a Retirement Plan Trust.  To understand the possibilities protection and pitfalls improper administration it is well worth your time to learn about why we have created this incredible tool.

Madison Trust and Estate Lawyers

The estate lawyers of Krause Donovan Estate Law Partners, LLC practice law in the areas of Probate, Wills, Estate Planning, and Trusts. We assist clients in and around Madison, Wisconsin with all matters related to estate planning, trusts, and probate matters. Our dedicated attorneys will even make house calls if you are unable to come to our office.

Contact our office by calling (608) 268-5751 to schedule a consultation or use our online contact form.