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 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 remains. You must tell your heirs these documents exist.
That does not mean sharing all the details. If you have decided that some of your heirs would inherit more than others, you can keep quiet about this during your life. However, you do need to share essential details regarding your estate plan. They should know that you have an estate plan, and they should understand that you have named beneficiaries for your retirement accounts, your insurance policies, and any other beneficiary-designated assets.
Over time, you must review your beneficiary decisions. 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 review your beneficiary forms. 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 plans are governed by the Employee Retirement Income Security Act (ERISA). Under ERISA, if the deceased accountholder was married, the surviving spouse is entitled to at least 50% of the account assets. This 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 waive his or her right to 50% of the account through a Spousal Waiver form. A spouse usually must be over 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
ERISA 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 plans remarries, the new spouse is entitled to 50% of those assets at death. This occurs even if the new spouse is not named on the beneficiary form (unless the new spouse waives her rights).1
IRAs. Unlike an employer-sponsored retirement plan, a spouse is not automatically entitled to any interest in an IRA. This 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, so the beneficiary needs to know that the policy exists.
Recently, 60 Minutes did an exposé 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 beneficiaries about the policies or misplaced the copies and the paperwork. Their beneficiaries did not know (or know how) to claim the money. As a result, the insurance proceeds went 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.
To learn more about your beneficiaries, accounts and policies, contact Brendan Lacy at 952.893.3806 or email@example.com.
Investment Advisory Services offered through Boulay Financial Advisors, LLC a SEC Registered Investment Advisor. Certain Third Party Money Management offered through ValMark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Suite 300 Akron Ohio 44333-2431* 1-800-765-5201
Boulay PLLP and Boulay Financial Advisors, LLC are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc. Prime Global is not affiliated with ValMark Securities, Inc. and ValMark Advisers, Inc.
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.
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]
File Download: Tell Your Beneficiaries About Your Accounts and Policies and How They Will Receive Assets and Benefits