What is a retirement plan beneficiary?
A beneficiary is a person(s) who receives the remaining vested balance of your retirement plan after your death. It’s essential to choose a beneficiary so that you pass your hard-earned retirement plan savings to the person(s), non-profit organization, or Trust of your choice. If you do not assign a beneficiary, local law makes the decision for you about who inherits your plan balance, which may not have been your wishes. Please note that beneficiary designations may override the contents of a will.
How do I name my beneficiary?
Setting up your beneficiary on our portal is easy! For simple instructions, see this article "How Do I Select and Manage My Beneficiaries" and/or watch this short video, "How to Designate Your Beneficiary."
Who can be a beneficiary of my retirement account? Can I name more than one?
You can name as many beneficiaries as you like, as long as the total percentage awarded amongst the beneficiaries adds up to 100%. You first need to determine the “primary beneficiaries,” which is who you want to receive your account after your death. If you so choose, you can also add “contingent beneficiaries” who will inherit your account in the event that all primary beneficiaries you identified predecease you. Your beneficiary can be a person, a non-profit organization, or a Trust.
What is Spousal Consent, and when do I need it?
By law, if you wish to assign anyone other than your spouse as the primary beneficiary, you will require a Spousal Consent Form. In this form, the spouse consents to waive their rights to the retirement account specifically for the alternative beneficiaries listed. This form must be notarized, stored in a safe place, and provided to Vestwell upon the participant's death. We recommend giving a copy to the executor of your estate. If the form cannot be located after your death, we will treat your account as though a form was never completed and distribute it according to the plan document and applicable law.
What circumstances might occur if there isn't a signed Spousal Consent form?
In many instances, participants list spouses and/or non-spouse beneficiaries (often their children). At the time they complete the Beneficiary Designation Form, the participant may not have been married, so they didn't complete or need to complete the spousal waiver. If the participant later marries but neglects to complete a spousal waiver, their retirement account will likely need to go through local probate court to decide who should receive the account. In many cases, the spouse is awarded the account, and the other beneficiaries listed receive nothing. Which is an outcome that may not only be inconsistent with the participant's wishes but will have also cost the parties involved potentially significant time and resources. This is one example of how a participant's failure to properly and fully complete the Beneficiary Designation Form can result in an unintended outcome. Therefore, we strongly encourage you to keep your beneficiary information up to date at all times, especially after a life event like a marriage, remarriage, or birth/adoption of a child.
May I designate my children as beneficiaries?
Yes, you can but you may not want to. Minors may not inherit your account directly. If a minor is named as a beneficiary to a retirement account, and the child is a minor at the time of the participant's death, the account may need to go through probate proceedings with a legal guardian appointed to represent the minor. That guardian may also be awarded financial control over all assets for the minor(s). The appointed guardian may or may not be someone you would have selected, and it may be someone appointed by the court who you don't even know. Working with an estate attorney to establish a trust, planned guardianship of your dependant minor(s), and/or financial guardian for assets to be used for the benefit of your minor children may be worthwhile. If you are unable or not financially prepared to engage an attorney, you may list a trusted individual, such as a sibling or parent as the beneficiary, with the verbal and/or written understanding that the assets will only be used for the legitimate benefit of the minor(s). You may list the person on your Beneficiary Designation Form as beneficiary with "FBO" (For the benefit of) and list the children. This may not offer the same control as a trust, but it is one way to increase the likelihood that your retirement plan account will pass to your children consistent with your wishes.
What happens if I don’t assign a beneficiary properly?
If you do not assign a beneficiary on your portal or through a Spousal Consent Form, we will treat your account as if you did not designate anyone. However, sometimes the plan document spells out who inherits your account in the absence of a completed form, in which case we will follow the Plan Administrator’s directions.
Usually, the plan document requires accounts to be distributed first to a surviving spouse. This could go against your wishes, for example, if you are separated but not yet officially divorced at the time of your death. A “common law” spouse, stepchildren, foster children, and adopted children can likewise present complications when distributing your account. You can take the emotion and complexity out of the process by thoughtfully assigning a beneficiary and updating it promptly after any important life event.