Properly Naming Beneficiaries of Retirement Accounts Critical to New York Estate Planning

As part of our ongoing series on Avoiding Probate in New York, we examine the issue of retirement accounts and beneficiaries.

As always, we preface the discussion by saying that avoiding probate does not mean you do not need a New York City probate lawyer. In fact, investing in professional estate planning services in New York is the best way to ensure your assets are protected, and that your estate is distributed in accordance with your wishes after your passing.Previously on our New York Probate Lawyer Blog, we reported on why avoiding probate in New York might not be for you, as well as the complications that may arise from bypassing probate in New York.

One of the most common issues — and certainly the most easily corrected– is the failure of a decedent to properly name beneficiaries on retirement accounts. When we say easily corrected, we are of course speaking about corrections made prior to death. After death, the naming of an incorrect beneficiary on a retirement account is much more complicated. Still, ex-wives and ex-husbands routinely remain on retirement accounts, which are often the most valuable asset of a deceased. This is particularly true in cases of sudden death in middle age.

As a general rule, however, properly naming a beneficiary on a retirement account can bypass the probate process in many cases. Even after the market meltdown, 401 (k) plans and similar retirement vehicles held a total of $14 trillion in 2008. A potential complication of such inheritance is income tax, which may be due on withdraws made even after a person dies.

Properly naming the beneficiary is critical, particularly in divorce situations as we have already discussed. In cases where a current spouse inherits, he or she may have more flexibility (including leaving the money in the account) than in those instances where someone else is the named beneficiary. Typically, unless a spouse inherits, the beneficiary will be required to begin withdrawing money and will therefore incur the associated tax consequences.

Additional considerations should be made when naming a minor child. A large inheritance to a minor child could result in court supervision. Another common complication is the naming of more than one beneficiary, which can result in a spouse’s forfeiture of the ability to leave the money in the account and will result in mandatory withdraws based on the age of the oldest beneficiary.

We see there are many benefits to properly naming beneficiaries to a retirement account. And, of course, a few complications. But with a little diligence and planning, significant assets can be left to the beneficiary of a retirement account without the intrusion inherent in the probate court process.

New York City Probate Attorney Jules Martin Haas handles all types of probate cases, including Wills, estate planning, estate settlement, advanced directives and guardianship matters. Please call me at (212) 355-2575 for a free consultation to discuss your rights.

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