Charlotte, North Carolina Estate Planning Attorney

Have you checked your beneficiary designation for your retirement account recently? If not, you may find that your designated beneficiary is not who or what you think it should be, especially if you have divorced, remarried or had children since your retirement plan account was established.

There have been numerous cases of retirement-account owners who have been divorced and remarried but have neglected to update their beneficiary designations accordingly. This can be quite frustrating for their survivors, who must battle in court for a legal determination of the true beneficiary. The court’s decision, however, may not necessarily be what the deceased would have wanted.

A similar dilemma arises if children are named as beneficiaries but the document has not been updated to include those who were born after you set up your account. To prevent these situations, you should update your beneficiary designation periodically or even immediately after you experience a change in family status. Should you need to, you may submit a change-of-beneficiary form.

In the event your child predeceases you, a per stirpes beneficiary designation would allocate that share to the that child’s issue – your grandchildren.  If you don’t name them, they will be disinherited from taking the share of their parent.

Many spouses, expecting that one will predecease the other, name each other as their designated beneficiaries. The issue of simultaneous death is then addressed by state law, which will determine that one spouse died first, even though both deaths occurred at the same time. This determination is critical, especially if there are children from a previous marriage: will all the children be included? Or will children from a previous marriage be excluded? Proper documentation designating successor beneficiaries for normal and extenuating circumstances will ensure that the retirement-account owner decides who the successor beneficiary is.

If you feel you need to retain some degree of control over the disposition of the retirement assets after your death, you may consider designating a trust as your beneficiary. Designating the right type of trust as your beneficiary could offer these benefits:  allow you to provide financial support for your surviving spouse while ensuring that children from previous marriages are also provided for; helping to maximize your estate tax exclusions; and controlling distributions to the children you might think are not mature enough to handle a large IRA. Trusts require expertise to set up correctly, so please ask me for some assistance before you make any decisions regarding customized and/or trust beneficiary designations.

Check the default provisions of the document that governs your retirement account, as it may come into effect if your beneficiary predeceases you and you fail to make subsequent changes.

1. Look into the tax implications for the kind of beneficiary you choose, whether a particular person, such as a spouse or non-spouse, an entity, such as a charity, your estate or a type of trust.

2. Request a confirmation of receipt of the designation from your retirement account trustee, custodian or administrator. Documents do not always reach their intended recipient and/or may get lost in transit. Beneficiary designations are considered in effect only if they are received by the responsible party (e.g. trustee, custodian or administrator) before the retirement account owner dies.

3. If you prefer to use a customized beneficiary designation, make sure your trustee, custodian or administrator finds it acceptable. Not all financial institutions or qualified plans will accept customized beneficiary designations.

4. Check with your financial institution periodically to determine who your beneficiary is – you may need to make changes if you had a change in your family such as a birth, death, divorce or marriage.

Making a proper beneficiary designation is a very important part of your financial planning process.  I would will be happy to assist you in reviewing your current beneficiary designations to see if they are up to date and/or if you need to make changes.

Please contact Sabrina Winters, Attorney at Law, PLLC at (704) 843-1446.