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Personal Retirement Accounts and Family Beneficiaries

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What is a Personal Retirement Account and How Does it Affect Family Beneficiaries?

A Personal Retirement Account is an account associated with the benefits and payments a worker receives in connection with a retirement plan.  Despite its name, a “Personal” retirement account can often have effects on other people besides you.  In particular, your spouse, children, or close family members may be able to claim your retirement benefits on your behalf in the event of your death or incapacitation.

With most retirement accounts, you may have an option to name a beneficiary.  This is the person (usually a family member) who is entitled to receive any benefits that are left over in your retirement fund upon your death.  Thus, when a person passes away with funds still left in their retirement account, the family beneficiary may receive the funds, often without having to be approved through the probate process.

What Types of Retirement Accounts are There?

There are many different types of retirement accounts and retirement plans.  Some common kinds of retirement accounts and plans include:

  • 401(k)’s and pension-type plans
  • IRA’s (there are several sub-types of IRA’s)
  • Social Security benefits
  • Employer profit-sharing retirement plans (these may be different according to each individual employer)

What Does the Law Say About Personal Retirement Accounts and Family Beneficiaries?

Each kind of retirement account may be associated with various rules regarding family beneficiaries.  For example, some types of retirement accounts, such as 401(k)s, laws require that the person’s spouse be named as the beneficiary.  If the account holder wishes to name a different person, the spouse might need to sign a waiver and forfeit their rights as beneficiaries.

In other types of accounts, like IRA’s and profit-sharing retirement plans, the retiree can name any person they wish.  This is because most IRA’s and profit-sharing plans are worked out individually between the retired person and their employer.    

Thus, you may need to check your local laws in order to determine the eligibility of a particular family beneficiary.  This may require the assistance of a lawyer, who can research the specific rules for you. 

Generally speaking, you will be required under law to provide the following information:

  • The name and contact information of the beneficiary for the account;
  • The account number or other identifying information
  • What types of benefits you are currently receiving and the amount of payments;
  • The name of the institution managing the account (i.e., a bank or financial entity)

Should I Create a Living Trust for my Retirement Account to Avoid Probate?

Probate courts handle a person’s assets after death if they don’t have a will or other direction regarding their assets.  Since probate distributions, can often yield unfavorable results, many people seek to avoid probate with a revocable living trust.  A trust is where the assets or monies are transferred to a trustee, who will hold them until the time of distribution occurs.

However, with retirement accounts, there is usually no need to name a trust as the beneficiary.   This is because retirement funds are already exempt from probate laws in most cases.  In fact, naming a trust as the beneficiary for your retirement account may actually restrict the true beneficiary’s access to the funds. 

Do I Need a Lawyer for Help With Personal Retirement Accounts?

Personal retirement accounts are advantageous because of the fact that family members can benefit from them.  If you need help setting up a retirement account, or if you have any legal issues regarding one, you may wish to contact a lawyer in your area.  A qualified attorney will be able to assist you with the various requirements.  They can also provide you with counsel in the event of a legal dispute or lawsuit.   

Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 03-15-2012 12:03 PM PDT

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