When it comes to estate planning, this part of the application is just as important as having a will.
Retirement benefits are the type of property that are disposed of by contract (the application), and are not subject to probate administration. The reason why this property does not pass through probate is because title to these assets is not actually held by the decedent. Instead, the title is held by the bank, pension fund etc. Usually the title will be something like this:” First Bank Corp Custodian IRA FBO John Smith”. The bank has agreed to transfer title directly to the named beneficiary at the death of John Smith. They will pay the named beneficiary in accordance with the payout option that John Smith has selected.
Careful attention should be given to filling in all pertinent information. Most forms require that you include the beneficiary name, address, social security number, relationship to you, and percentage of benefits to be received. Whether you are naming one person, or numerous people, the percentage of benefits must always total to 100%. You may divide the percentages equally, or designate specific percentages to specific persons.
Usually the form will have a section for “primary” and “contingent” beneficiaries. Primary beneficiaries are the people you would name such as a spouse, children, sibling, friend, etc. who you would like to receive your benefits. Contingent beneficiaries, are a sort of “backup”, designated to receive your benefits in the event that the primary beneficiaries cannot receive them.
Just as it is important to update your will if your circumstances have changed, it is important to update your beneficiary information. In the event that you divorce, become a widow/widower, etc, updating your beneficiaries becomes a necessary task, so that your upon your death, your retirement proceeds pass to the person to which you intended.
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