Effectively getting your property to the beneficiary of your selection requires a little know-how and attention. Most of the time, pension plans, pension funds and other qualified plans go to their designated beneficiaries immediately at your death; they do not need to be probated. But you've got to be on the ball about who's chosen as a beneficiary and where you make that selection.
Suppose you write down a will or trust where you designate your beneficiaries for your belongings and assets. This will have no impact on who gets your pension funds or any retirement savings. It is the plan document that rules, not your will or living trust. So if pensions accounts or retirement accounts are a noticeable portion of your estate, you best check how you have designated your beneficiaries right away.
Case 1: missing successor designation on your pension funds
Let's assume that you have not listed a beneficiary on your pension funds because you thought your will or trust would handle it. When you pass away, your estate becomes the 'first' beneficiary of your 'missing beneficiary' pension plans. Sadly, that defeats most of the tax-sheltering benefits the pensions could give the beneficiary. Your plan suffers two undesirable scenarios:
1.Your own pension plan assets will go through probate and be subject to probate costs. After which
2.Your own beneficiaries (not including your spouse) must disperse your pension funds, pension plans or other qualified programs within five years of your death rather than enjoy a lengthier deferral period over which to spread tax payments
The initial circumstance may tie up use of your pension funds in the probate process and add more charges. If your estate is sufficiently large, estate taxes could rob some if its assets in addition.
The second item listed above forces distribution of your pension funds at regular income tax rates to your non-spouse beneficiary. This avoids the tax-sheltering of 'stretch years' based on the beneficiary's remaining life span.
Case two: A non-authorized change in successor on your pension plan
In case your wife is assigned as beneficiary of your pension funds, you cannot change to a new successor with out her permission. She should sign a written waiver or the change will not apply (this pertains to qualified plans like pensions, not to IRA accounts).
Are all of your beneficiary designations on your pension funds, pension plans, qualified plans and IRAs consistent with your present wishes? Here's a way to make sure you don't get messed up having the retirement assets get less-than-optimal treatment.
Case three: A non-updated bin your pension plan
You've pensions you initially assigned to a beneficiary who no longer is your option. If you have re-married and don't modify your beneficiary, then the original beneficiary will inherit your pension funds. is that what you desire?
If you have a number of plans, you are able to setup a special trust to be successor of all of your tax-sheltered possessions. Then, when your life situation changes (marriage, divorce, new kids, grand-kids, etc), you only have to change the one document, the trust which handle your retirement accounts. At death, all of your pension funds, pension plans and other retirement plan assets will 'pour' into the trust and then get allocated as you have specified there.
Note that the above-mentioned trust is NOT your living trust but a special trust for the purpose of handling the distribution of sheltered retirement accounts.
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