Guzman Law Group


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Naming Beneficiaries on Your Retirement Plans

We are often asked whether one should name individuals or their Trust as the designated beneficiary on their retirement plans.  There is no one answer to this question.  In other words, it depends!   Here are some considerations when naming beneficiaries on your retirement plans:

Do you and your spouse have different heirs? Naming your spouse, individually, as the beneficiary does not insure that your retirement plan will be passed to your beneficiaries upon your spouse’s death later on.

Do your retirement assets make up a significant part of your estate? If so, then leaving them individually to your beneficiaries may use up your estate tax exemption and reduce the amount available to fund your credit shelter or bypass trust.

How much control do you want to give to your beneficiaries? In naming a beneficiary individually, he will have full control over the assets (and can spend frivolously).

When will your spouse need to take distributions? In naming your spouse individually, you preserve the option for your spouse to “roll-over” the retirement account, and defer distributions (as well as its tax consequences) for a later day.  However, if you name your Trust, your spouse may be required to take distributions immediately after your death (and therefore pay taxes too).

Everyone should review their beneficiary designations frequently to make sure you have made the proper designation.  Work with your estate planning attorney to make sure you have made the proper designation which will accomplish your goals.