Thursday, May 28, 2009

RETIREMENT ACCOUNTS, LIFE INSURANCE & ANNUITIES - Part 1

THE ROLE OF RETIREMENT ACCOUNTS, LIFE INSURANCE, AND ANNUITIES IN THE ESTATE PLANNING PROCESS:

The general rule in estate planning when setting up a living trust is to title all of the assets in the name of the trust. The reason for this is to avoid going into probate.


There are 3 EXCEPTIONS to this rule:

1. Retirement accounts;

2. Life Insurance; and

3. Annuities.

All of the above automatically avoid probate because they allow for the designation of death beneficiaries on those accounts; and the payment of the death benefit occurs as a matter of contract.

Therefore, estate planning attorneys, such as myself, are not concerned about ownership of these accounts as much as we are with the question: Who gets the money when the client passes away.?

Retirement Accounts:

There are two (2) kinds of retirement accounts, qualified plans and other types of retirement.

Qualified plans include IRA, Roth IRA, SEP-IRA, Keough, 401(k), 403(b), and other accounts which qualify under the Internal Revenue Code. All qualified plans allow the account owner (the employee) to name or designate primary beneficiaries and secondary or contingent beneficiaries.

When I work with clients in establishing an estate plan, one of the important assets to look at is the retirement accounts of the clients, and if they are a qualified plan, review the beneficiary designations. Frequently clients set up retirement accounts but did not follow through with naming a beneficiary or beneficiaries. Or circumstances have changed since they first named the beneficiaries and changes are now in order.

Looking at the beneficiary designations on qualified retirement plans and making sure they are up to date is extremely important in estate planning.

The other kind of retirement account is one that I would generally characterize as the traditional "pension". Pensions often terminate when either the employee/retiree passes away, or they only provide benefits to the surviving spouse. But, when both the employee and spouse are deceased, there is no further succession right to the pension by the family.

In the next blog, I will discuss the life insurance and annuity roles in estate planning.

DWIGHT EDWARD TOMPKINS, Attorney at Law

http://www.tompkins-law.com/

This blog is intended for information purposes only, and does not constitute legal advice. Readers should consult with a qualified attorney in their jurisdiction.

Copyright 2009 Dwight Edward Tompkins All Rights Reserved

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