If you have retirement accounts, you understand the importance of having enough funds to cover your retirement expenses. So, what if you pass away with funds still in these accounts? When you die, your family or other loved ones may inherit your retirement accounts.
Make a List
First, make a list of all of your retirement funds. Include your 401k, pension plan and IRAs. If you were self-employed, don’t forget to list your self-employed 401K, Keogh plan or other account. Next, include details for each account: statement locations, account numbers, financial institutions, account managers, and a description of benefits you are currently receiving.
You should also include information about what you have paid into social security. Some of your beneficiaries, such as children under eighteen or a spouse, may be able to collect on your social security record.
Retirement accounts allow you to name a beneficiary to receive those funds after you pass away. If you have a 401K or work pension plan, or you live a community property state, you may be required to designate your spouse unless he or she signs off on a different beneficiary.
By choosing a beneficiary, your account can pass to your heir outside of probate. Make sure to update account beneficiaries when they change.
Consider a Retirement Plan Trust
It is not a good idea to name your Revocable Living Trust as the beneficiary of a retirement account, as it will limit the access your heirs have to those funds. Since your account can already avoid probate if you have designated a beneficiary, you don’t need a Living Trust for this.
If you prefer a trust to provide protection against a beneficiary’s divorce or other creditors, or you have beneficiaries who are young or exhibit spendthrift behavior, you may wish to consider a Retirement Plan Trust. This is a trust specifically designed to meet the requirements of the tax laws to allow you to protect the death benefits of these accounts and to “stretch out” their tax benefits over the life expectancies of your beneficiaries. This allows for maximum protection of your retirement accounts after your death and provides for the greatest overall income tax deferral on these accounts.