Part of estate planning is making sure that, after your death, your loved ones know how to handle your affairs. That means knowing where to find your various assets and the important documents needed to handle your estate. A common question clients have is what happens to their retirement account after their death?
Maintain Records of Your Retirement Accounts
In order for your survivors to file claims for the outstanding benefits from your retirement accounts upon your death, they will need to have access to your retirement records. The same is true if you ever become incapacitated for any reason and your family needs to handle any aspect of your retirement. Whoever is in charge of managing your finances will need to manage your retirement accounts as well. One way to make it easier for your family to do so, you should keep a list of the essential information regarding your retirement accounts, pension plans, and Social Security benefits for easy access.
What Happens to Your Retirement Accounts After Your Death?
Both retirement accounts and pension plans name a beneficiary to receive any remaining benefits from those plans upon the death of the account owner. This is the appropriate method for handling the remaining benefits, as opposed to designating beneficiaries in your will. Any funds remaining in your retirement account or pension payments that are outstanding upon your death will able distributed directly to the named beneficiaries. This takes place with any additional transactions or the expense of probate supervision.
Naming a Living Trust as a Beneficiary of Your Retirement Account
It is not always a good idea to name your living trust as the beneficiary of your retirement account. Since your retirement funds are exempt from the probate process there is no real benefit if you allow your retirement benefits to transfer to a living trust. On the other hand, your loved ones will have less flexibility they would otherwise have with the retirement account.
Family Entitlement to Social Security Benefits
Upon your death, your loved ones may be entitled to survivor benefits under Social Security. If your family members are eligible, they may receive monthly payments equal to the full retirement amount you would have been paid during your lifetime. Your spouse is eligible if he or she is 60 years old or older, at least age 50 and disabled, or caring for a child under the age of 16 or disabled. Your unmarried children may also be entitled to survivor benefits if they are under the age of 18, between the ages of 18 and 19 and attending school full-time, or 18 or older and severely disabled before the age of 22. Your dependent parents, divorced spouse, stepchildren, and grandchildren may also be eligible for survivor benefits, depending on the circumstances. In addition to survivor benefits, your spouse and minor children may be eligible for a one-time payment of $255 upon your death.
What Information Regarding Your Retirement Accounts Do You Need?
Creating an accurate record of your retirement accounts is not difficult or time-consuming. So, if you take the time to create a list now you will save your loved ones a lot of trouble later on. The first step is to make a list of each retirement plan you have, regardless of whether it currently pays benefits, as long as you expect benefits in the future. Be sure to include your employer-sponsored plans or pensions, IRAs (traditional, Roth, SIMPLE, or SEP-IRAs), and Keogh, profit-sharing plans, or self-employed 401(k)s for small business owners. For all of those accounts, you need to include the following information:
- the name of the managing organization or financial institution
- the account or identification number
- contact information for your account manager or adviser (if any)
- whether or not you’re currently receiving benefits, and if so, how much, and
- the location of your plan statements.
It is also a good idea to list and describe your Social Security benefits, including those benefits that are based on your earnings or your disability, depending on your situation. This list needs to be reviewed and updated periodically. Specifically, if you acquired or terminated a retirement plan or if you modified the location where your retirement plan statements are filed, your list needs to be updated.
Be Sure to Keep Your Retirement Account Information Secure
Much of your retirement information, like any financial account information, needs to be protected. The best practice is to keep your retirement plan records in a secure location such as a locked cabinet, fireproof safe, or safe deposit box at a financial institution. You must tell your loved ones closest to you how to find and access this information upon your death or incapacitation. Likewise, the named executor of your estate and/or agent under a durable power of attorney also need to have access to this information.
Join us for a free seminar today! If you have questions regarding estate planning, trust contests, or any other trust administration issues, please contact the Schomer Law Group either online or by calling us in Los Angeles at (310) 337-7696, and in Orange County at (562) 346-3209.
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