Understanding the Beneficiary Designation


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. Choosing a beneficiary to pass your hard-earned retirement plan savings to the person(s), non-profit organization, or Trust of your choice is essential. If you do not assign a beneficiary, local law decides who inherits your plan balance, which may not have been your wish. 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%. First, you need to determine the “primary beneficiaries” to receive your account after your death.  If you choose, you can also add “contingent beneficiaries” who will inherit your account if 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, you will require a Spousal Consent Form if you wish to assign anyone other than your spouse as the primary beneficiary. 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 safely, and provided to Vestwell upon the participant's death. We would recommend that you give 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?

Participants often list spouses and/or non-spouse beneficiaries (usually their children). When they complete the Beneficiary Designation Form, the participant may have yet to be 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 a local probate court to decide who should receive the account.  The spouse is often awarded the fund, and the other beneficiaries listed receive nothing. This outcome may be consistent with the participants' wishes but will also potentially cost the parties involved 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 current, 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. Suppose 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. In that case, 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 benefit your minor children may be worthwhile. Suppose you are unable or not financially prepared to engage an attorney. In that case, 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 a beneficiary with "FBO" (For the use 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 in a way consistent with your wishes. 

What happens if I don’t assign a beneficiary correctly?

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 without 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 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 critical life event.