Will Making an Estate Plan Affect Your Retirement Benefits?

If you are starting to make an estate plan – or thinking about it – then you might worry that the plan will affect your retirement benefits. In fact, many estate plans have little effect on traditional retirement benefit plans.

Why Don’t Estate Plans Affect Retirement Benefits?

Your estate plan may not affect your retirement benefits at all because the law treats different kinds of assets differently. Some assets will be part of your “probate estate”, while others will pass directly to designated beneficiaries. Assets in your probate estate include cash, stocks and bonds, real estate, and personal property like cars and jewelry. Assets that pass outside of probate include anything with a “beneficiary designation”, like life insurance, IRAs, 401(k)s, pensions, and other retirement accounts. Other assets that pass outside probate include property owned by joint tenancy and property held in trust.

In other words, retirement accounts are set up so that anything you say in your will does not affect them. They legally must pass directly to the named beneficiaries upon your death. However, relatives must inform the retirement account managers that an account holder has passed away so that the account can be transferred.

Beneficiary Designations

The one way that an estate plan could affect your retirement benefits is if you fail to make beneficiary designations or leave your benefits to your estate. Failing to make beneficiary designations means that your accounts will go to your probate estate. Designating the beneficiary of your accounts as your estate has the same effect. When retirement account proceeds get added to your estate, they can increase the value to the point that your executor must go to probate court and possibly have to pay estate taxes too.

It is easy to avoid this outcome. Ask the retirement account administrators about filling out a “Beneficiary Designation” form. If you have already made a designation to your estate or a different beneficiary, ask for a “Change of Beneficiary” form.

Want to start planning your estate and worried about benefits? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

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