Estate Planning 101: What about Retirement Funds?

By Cooley A. Arroyo

This blog has examined what happens to various assets upon death. Last week we considered joint bank accounts, and we previously discussed trust property, wills, and gifts. One key type of asset, however, is not included in any of these categories, and yet it is vitally important to countless individuals as they look forward to their golden years: retirement funds.

Many clients have 401k plans, pensions, and IRAs that they have been saving and funding for several years. These are contractual assets, meaning that the terms of an agreement—whether it’s a plan, agreement, or similar contract between the individual and an investment company—will determine the value and terms of the asset. 

Because these assets often gain value over time, they can represent a large portion of an individual’s wealth, and clients are often concerned about how these assets will be handled when they pass away. These assets require the holder to create a beneficiary form, which identifies who will receive the proceeds of the asset after death. These proceeds will pass to the beneficiary without probate administration.

Clients are encouraged to revisit their beneficiary designations from time to time to ensure that the designation continues to reflect their wishes. For example, some may name a parent who has since passed away or a former spouse. Others may wish to include children who were not born at the time the beneficiary form was first executed. Clients with trusts may benefit from naming the trust as the beneficiary of the proceeds, despite certain tax consequences, to ensure that all of a client’s assets will be managed and distributed in accordance with the terms of the trust. 

This is only a general explanation of how these assets might be treated. The method of distribution for the proceeds may have different tax implications for the recipient, so it may be necessary to learn more about estate plan solutions that might better suit your needs.

Please contact the estate planning attorneys at Cleveland, Waters and Bass to discuss your specific needs and how your retirement plan might impact your estate plan.

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