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When was the last time you check your beneficiaries?

When was the last time you check your beneficiaries?


Not designating beneficiaries for your 401(k)/403(b) plan can subject your heirs to a costly and time-consuming probate process. There are a couple of reasons why some employees may not assign a beneficiary to their retirement account.

1. Auto-enrollment has become a very popular feature for retirement plans. It is typically fast and easy for the employer to get all their employees registered in their 401k plan but in most situations, it fails to assign a beneficiary to the account unless the employee proactively takes action.

 2. Some 401(k)/403(b) plans have a quick registration. This feature is usually a quick way to get an employee enrolled in the retirement plan, but it also fails to collect enough information to set up beneficiaries.

 3. More and more plans have an electronic registration process, but we still have a few prehistoric plans out there. Some employees may have to complete a paper registration form and they may forget to complete the beneficiary information.

If you have named beneficiaries, it allows your 401(k)/403(b) plan to pass to the surviving beneficiary outside your estate’s probate process avoiding the added time and expense of dealing with the courts. The downside is that there is very little that the beneficiary could do if the deceased wishes changed prior to their death but failed to update their beneficiary information.

 A few federal laws to know:

  • If you are married, federal law says your spouse is automatically the beneficiary of your 401(k)/403(b) plan, period. If you want to name a beneficiary who is someone other than your spouse, your spouse must sign a waiver. The waiver MUST be in writing. For example, you might be separated from your spouse - not divorced - and want to name a new beneficiary. Even if your intended beneficiary is a domestic partner you've been with for 20 years, your spouse will have legal claim to your 401k if you die, unless he or she signs a waiver. 
  • If you are single when you die, your account will go to whomever you named as a beneficiary. 
  • Most plans will not transfer money directly to a minor and a court will have to appoint a trustee or guardian to receive the money which could take some time.

Do not forget the secondary (contingent) beneficiary, almost all plans allow a secondary beneficiary. A second (contingent) beneficiary or beneficiaries, is designated in the event that the primary beneficiary predeceases you.

 

While your beneficiary designations need not be reviewed every year, they should be reviewed as often as you have any significant life-changing events like marriage, divorce, birth, death or just simply decide to change your inheritance plan.

If you are unsure what beneficiaries are named in your account, talk to your human resource manager for help or register your named beneficiaries online. If you have further questions on what to do or you need assistance, we are here to help you.   

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Advisory Services offered through Capital Asset Advisory Services, LLC, a Registered Investment Advisor.

This material has been prepared for informational purposes and is not intended as legal advice. 

Please consult your situation with a professional about your individual situation.