Understanding Your Rights to Your Spouse’s Retirement Benefits

Posted by Yuki Ku | Dec 21, 2023 | 0 Comments

For those in blended families—married with children from previous marriages—extra considerations and planning are crucial for a smooth family life. From holiday schedules to family vacations, every detail matters. Yet, one aspect that might be overlooked is the impact of the law on your assets, especially retirement assets, if you don't have a plan in place.

In this article, we delve into the legal implications of retirement distributions for married couples. If you're part of a blended family, it's essential to carefully navigate your retirement planning to ensure your assets are distributed according to your wishes, avoiding potential financial consequences and long-term conflicts for your loved ones.

Understanding ERISA's Impact on 401(k) Distributions

For those who have remarried, updating beneficiary designations on retirement accounts is crucial, especially in blended family scenarios. However, it's essential to be aware of the complexities governed by the federal Employee Retirement Income Security Act (ERISA) when it comes to work-sponsored retirement accounts.

Despite naming children from a prior marriage as sole beneficiaries, if you're married at the time of your death, ERISA mandates that your spouse automatically receives 50 percent of the value of your employer-sponsored plan. This holds true even if your beneficiary designations suggest otherwise.

To deviate from this automatic distribution, your spouse must sign an official Spousal Waiver, explicitly waiving their right to half of the ERISA-governed retirement account. Alternatively, if the account beneficiary is a Trust where your spouse is a primary beneficiary, it provides an avenue for customization.

Differences in Rules Between IRAs and 401(k)s

To secure more than 50 percent of your work-sponsored retirement benefits for your children, especially when a Spousal Waiver is not feasible, consider the strategic move of rolling the account into a personal IRA.

Unlike 401(k)s governed by ERISA, IRAs fall under state law, eliminating the automatic entitlement of your spouse to any portion of the IRA. By transferring a 401(k) into an IRA, you gain the flexibility to designate any beneficiary of your choice, independent of your spouse's consent.

If you wish to ensure a 50 percent share for your spouse, designate them as a beneficiary or opt for a more comprehensive approach by directing your individual retirement account payout to a Trust. Utilizing a Trust allows you to:

  • Specify the exact portion of retirement funds for each loved one

  • Exercise control over when recipients receive the funds outright

  • Easily modify and update Trust terms without the need to update individual financial accounts continually.

Priority of Beneficiary Designations Over Wills

Whether managing a 401(k) from your employer or overseeing a self-managed IRA, understanding a crucial rule is paramount: beneficiary designations take precedence over your Will.

While a Will is a significant estate planning tool, many are unaware that the specific instructions in beneficiary designations override the Will's directives for a particular asset.

For instance, if your Will designates your brother as the heir to your retirement account, but the beneficiary designation indicates your preference for your sister, the account will pass to your sister, disregarding the Will's stipulation.

Consider the scenario of a divorce where your ex-spouse agrees to relinquish rights to your retirement fund in the divorce decree. However, if you overlook removing their name from the beneficiary designation post-divorce and pass away, your ex-spouse will inherit the retirement account.

Failure to update an ERISA-controlled account after remarriage could result in your current spouse receiving half, and your former spouse receiving the other half. Collaborating with an estate planning attorney becomes crucial to ensure correct beneficiary designations, aligning with your wishes and preventing unintended outcomes.

Partner with an Attorney for Tailored Estate Planning

Crafting a comprehensive estate plan requires more than legal expertise; it demands an attorney who delves into the intricacies of your family dynamics and assets. We go beyond conventional legal services, taking the time to comprehend your unique situation.

Our approach involves creating a detailed inventory of all your assets, ensuring that each one is considered and bequeathed according to your precise wishes. We prioritize a customized plan that aligns with your goals for both your assets and the legacy you leave behind.

Discover how our client-centric approach sets us apart.

Schedule a complimentary call to explore how our distinctive process can benefit your family's future.

Let's Chat

This article is a service of Roots + Wings Legal, a Personal Family Lawyer® Firm. We don't just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Life and Legacy Planning Session™, during which you will get more financially organized than you've ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life and Legacy Planning Session.

The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

About the Author

Yuki Ku

Yuki Ku Chief Attorney Roots and Wings Legal Get In Touch Welcome to Roots and Wings Legal, where we are committed to helping you secure your family's future and ensure a smooth transition for your business. My name is Yuki Ku, and I am an estate planning attorney based in the vibrant San F...

Comments

There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

Welcome to Roots and Legal

At Roots and Wings Legal, we understand that estate planning is a journey, not just a destination. Our personalized services are designed to grow with your family, ensuring peace of mind at every stage of life.

Schedule A Consultation

Contact Us Today

Roots and Wings Legal is committed to answering your questions about estate planning issues in California. We offer consultations and we'll gladly discuss your case with you at your convenience. Contact us today to schedule an appointment.

Menu