Q: My husband of 20 years passed away earlier this year. Even though we updated our wills just before his passing, his ex-wife
now claims she owns all the assets in his IRAs and 401(k)s, totaling $3 million. Is that legal?
A: Yes. Many people, when updating their estate planning documents, overlook one of the most important—the beneficiary designation
form for their IRAs, 401(k)s, and other retirement accounts.
Aaron Skloff
|
Unlike most assets, where beneficiaries are determined by your will, retirement account beneficiaries are determined by that
specific account's beneficiary designation form. Regardless of your intentions, such as seeing the assets distributed to your
current spouse and children, custodians of retirement accounts must follow the directions of the beneficiary designation form—even
if that means $3 million of the assets legally go to an ex-wife from 20 years ago.
Avoid this situation by being diligent about designating beneficiaries. Upon establishing or transferring a retirement account,
name your primary and contingent beneficiaries. If you don't specify what percentage each beneficiary should receive, many
retirement account custodians will evenly distribute your assets between all the primary beneficiaries—even if your intent
was for the first of two beneficiaries to receive 75 percent and the second to receive 25 percent. Some retirement account
custodians will simply distribute 100 percent of the assets to the first beneficiary listed, ignoring the others. Contingent beneficiaries are the second in line to receive your retirement account assets if none of your primary beneficiaries
survives you, or if your primary beneficiaries disclaim the assets. Designate clearly what percentage each beneficiary is
to receive.
Per stirpes, in which each branch of a family receives an equal share of the estate, allows even greater detail regarding
the next generation if a beneficiary predeceases you. For example, say you name your two children to each receive 50 percent
of your assets, with per stirpes, and one of your children passes away. If the deceased child has five children of his or
her own, 50 percent of your assets would go to your surviving child, and 50 percent would go to your five grandchildren, 10
percent each.
Review your beneficiary designations annually and during important changes in your life. These might include the adoption
or birth of a child, divorce, the transition in status of a beneficiary from a minor to majority, marriage, inheritance, or
death of a beneficiary. Your financial adviser and estate planner can help structure your will so that it realizes your intentions.
CORRECTION
In the May 21, 2010, Money Management Q&A column, the question regarding Social Security tax exemptions should have referred
to employers, not employees. The answer was correct.
Send your money management questions to medec@advanstar.com
(please include your regular postal address). Answers to our readers' questions were provided by Aaron Skloff, AIF, CFA, MBA.
He is chief executive officer of Skloff Financial Group, a registered investment advisory firm based in Berkeley Heights,
New Jersey.
E-mail Alerts
RSS Feeds
Practice Tools
