Taxation & Estate Planning

Double Check all Beneficiary Designations

By Darrin Mish

[I'm very fortunate to have good friends who are lawyers all over the United States. This article is very interesting and comes from Mina N. Sirkin, a Los Angeles Family Wealth Lawyer and TV Legal Expert]

If you are married to a person who is a participant in a retirement account or plan, you have to protect yourself and your children by paying close attention to several things on this checklist. By "retirement account", I mean, 401k, 403b, 457, IRA, Roth IRA, Stock Option Plans, Stock Purchase Plans, Keogh and any other qualified plan under ERISA.

1. Check and verify beneficiary designations on the retirement account every 3-4 years. Request copies of the signed beneficiary designation forms from the plan or company. Keep a file for the beneficiary designation forms.

2. Be sure that the employee's spouse is the named primary beneficiary. If you don't name a beneficiary, the PLAN document governs who gets the benefits. This may not always be your Estate, and you certainly do not want the employer to have to litigate or interplead the funds in court which can cost a lot of money.

3. Be sure minors are not designated as alternate beneficiaries. Consult a local attorney who can guide you as to creating a trust for your minor children.

4. If you want to name a minor as a contingent beneficiary, be sure to name a trustee of a trust for the benefit of the minor. Never name a special needs child as a beneficiary or a contingent beneficiary of a retirement plan. If you want to benefit a special needs child, go to an attorney and create a special needs trust and then name the special needs trust as a beneficiary.

5. Never sign a beneficiary change form changing the primary beneficiary from the spouse to someone else BEFORE you get advice from a lawyer.

6. If you are divorcing, you MUST talk to your divorce lawyer about a Qualifed Domestic Relations Order (QDRO) and insert protective provisions which go beyond retirement and extend to death of the participant. If your spouse was previously divorced, you must review the prior divorce order, including any prior QDRO to insure that the current retirement benefits do not go to the former spouse. QDRO orders which do not name specific retirement plan options can lead to major litigation after death which can be avoided by amending the QDRO after a new marriage, for specific items.

7. Don't opt for the company life insurance. Company life insurances are generally NOT portable. If you change your employer, you will lose that life insurance. You would be better-off buying a private term life insurance policy which you can keep even after you leave your employer. If you are going to opt-in to the company's life insurance, you need to have a separate beneficiary form for this item.

Mina N. Sirkin is a Family Wealth Lawyer and a TV Legal Expert in Los Angeles, California. Ms. Sirkin is a Board Certified Specialist in Estate Planning, Probate and Trust Law by the State Bar of California. MSirkin@SirkinLaw.com and http://www.SirkinLaw.com. Financial blog at: http://www.MomsRules.com.

Copyright 2008 Mina N. Sirkin. All rights reserved.

Full post as published by IRS Problem Solver Blog on November 03, 2008 (boomark / email).