Addressing retirement savings during estate planning

On Behalf of | May 29, 2024 | Estate Planning |

Particularly valuable assets often become a focal point during the estate planning process. People worry about their houses and their businesses rather than personal property worth a negligible amount. They may also have financial resources that they need to include in their estate plans.

For many people, retirement savings accounts are the biggest financial resources they own. Many people aim for a seven-figure retirement savings account by the time they finish working, and there could be quite a bit of that account left at the time of someone’s death.

How can testators drafting or revising their estate plans manage the descent of their retirement resources?

By arranging for prompt account transfer

One of the most common solutions for retirement savings accounts in an estate plan is to include it in a will. Such arrangements can allow for specific beneficiaries to receive either the entirety of the account or for each of them to receive a certain portion of the account’s balance.

The problem with this approach is that the funds must pass through probate court. They could potentially increase the value of the estate to a point where estate taxes are possible. They could also be at risk of collection activity if someone has debts when they die.

Many people may seek to protect their retirement resources by adding a transfer on death designation to their retirement accounts. Common retirement savings accounts, including IRAs, 401(k) and even employer pensions, can transfer directly to a beneficiary if someone files paperwork with their bank, financial advisor or employer.

With a designation properly filed with the company managing the retirement resources, people can arrange to have a specific beneficiary take control of the account immediately after their death. That approach could be particularly useful if the beneficiary is someone’s spouse who relies on those retirement savings for cost of living expenses. There are other ways to address retirement accounts and other financial resources in an estate plan.

Creating appropriate plans for high-value assets can help people feel more comfortable about what their loved ones should receive when they die. Retirement resources are among the most valuable assets that people need to address in their estate plans, which makes addressing them with care necessary.