Let them know how they will receive retirement assets and insurance benefits.
Will your heirs receive a fair share of
your wealth? Will your invested
assets go where you want them to when you die?
If you have a proper will or estate plan in place, you will likely
answer “yes” to both of those questions. The beneficiary forms you filled out
years ago for your IRA, your workplace retirement plan, and your life insurance
policy may give you even more confidence about the eventual transfer of your
wealth.
One concern still remains, though. You have to tell your heirs that
these documents exist.
That does not mean sharing all the details. If you have decided that
some of your heirs will one day get more of your wealth than others, you can
keep quiet about that decision as long as you live. You do want to tell your heirs the essential details; they should know
that you have a will and/or an estate plan, and they should understand that you
have named beneficiaries for your retirement accounts, your investment
accounts, and your insurance policies.
Over time, you must review your
beneficiary decisions. In fact, you may
want to revisit them. As an example, say you opened an IRA in 1997. Your life
has probably changed quite a bit since 1997. Were you single then, and are you
married now? Were you married then, and are you single now? Have you become a
parent since then? If you can answer “yes” to any of those three questions,
then you need to look at that IRA beneficiary form now. Your choices may need
to change.
Here is a quick look at how beneficiary decisions play out for a few of
the most popular retirement accounts.
Employer-sponsored retirement plans. These are
governed by the Employee Retirement Income Security Act (ERISA), which rules
that if the late accountholder was married, the surviving spouse is entitled to
at least 50% of the account assets. That applies even if another person has
been designated as the primary beneficiary. In such a case, the spouse and the
primary beneficiary may split the assets 50/50. (The spouse can actually waive
his or her right to that 50% of the invested assets through a Spousal Waiver
form. A spouse usually has to be older than 35 for this to be allowed.) These
rules also apply for other types of ERISA-governed retirement assets, such as
pension plan accounts and corporate-owned life insurance.1,2
The Supreme Court has decided that these rules take priority over state
laws (Egelhoff v. Egelhoff, 2001; Hillman
v. Maretta, 2013) and divorce agreements (Kennedy Estate v. Plan Administrator for the DuPont Saving and
Investment Plan, 2008).3,4
If a participant in one of these retirement accounts remarries, the new
husband or wife is entitled to 50% of those assets at death. While a plan
participant may name a child as the beneficiary of a retirement account after a
divorce, remarriage will leave only 50% of those assets with that child when
the accountholder dies, rather than 100%, unless the new spouse waives his or
her right to receiving 50% of the assets. The new spouse will be in line to
receive that 50% of the account even if unnamed on the beneficiary form.1
IRAs. Unlike an employer-sponsored retirement plan, a spouse does not have
automatic beneficiary rights with an IRA. That is because IRAs are governed
under state laws rather than ERISA. One interesting estate planning aspect of
an IRA rollover is that the owner of the new IRA has the freedom to name anyone
as the primary beneficiary.1
Life insurance policies. The death proceeds go to the named beneficiary; occasionally,
a beneficiary may not know a policy exists.
Recently, 60 Minutes did an
expose on the insurance industry. Major insurers had withheld more than $7.5
billion in life insurance death proceeds from beneficiaries. They had a
contractual reason for doing so: the beneficiaries had never stepped forward to
file claims.5
While many of the policies involved were valued at $10,000 or less,
others were worth over $1 million. The deceased policyholders had either failed
to tell their heirs about the policies or misplaced the copies and the
paperwork. Their heirs did not know (or know how) to claim the money. As a
result, the insurance proceeds lay unclaimed for years, and the insurers only
now feel pressure to pay out the benefits.5
Update your beneficiaries; let your
heirs know how vital these forms are.
Make sure that your beneficiary decisions on retirement, brokerage and bank
accounts, college savings plans, and life insurance policies suit your wealth
transfer objectives.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - 401khelpcenter.com/401k_education/connor_beneficiary_designations.html
[4/21/16]
2 - nolo.com/legal-encyclopedia/claim-payable-on-death-assets-32436.html
[4/21/16]
3 - marketwatch.com/story/check-your-beneficiary-designations-now-2013-09-17/
[9/17/13]
4 -
forbes.com/sites/deborahljacobs/2013/06/03/supreme-court-favors-ex-wife-over-widow-in-battle-for-life-insurance-proceeds/
[6/3/13]
5 -
cbsnews.com/news/60-minutes-life-insurance-investigation-lesley-stahl/
[4/17/16]
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