Answer: You should carefully coordinate your retirement distribution objectives and your estate planning objectives.
One big decision is how to designate the primary beneficiary when you are married.
Should your spouse be the primary beneficiary?
Well, federal law (ERISA) settles that decision rather clearly when it comes to employer-sponsored retirement plans like your 401k.
This can create an estate planning dilemma, especially when your retirement funds constitute a significant portion of your overall estate ... and yours is a blended family.
The subject of retirement plan beneficiary designations was taken up in a recent article in The (Crystal Lake, IL) Northwest Herald titled "Rectifying the retirement minefield."
Through very carefully and strategic planning you may take care of your new spouse and your own children.
In my 30 years of experience, life insurance holds the key to making this work.
Designate your new spouse as the primary beneficiary of your retirement funds and a trust to be the primary beneficiary for your own children of the life insurance.
Do not reverse this process and leave the life insurance to your spouse and the retirement funds to a trust for your children!
Your spouse is the only person in the universe (and any other places, too) who can "rollover" your retirement funds into his or her own IRA and continue to defer "required minimum distributions" (RMDs) until age 70.5.
Your children, on the other hand, would be required to take RMDs immediately without such deferral.
As the original article cautions, never designate your "estate" as the beneficiary of any employer-sponsored retirement plans or a Traditional IRA.
In addition, only designate a trust designed to administer general estate assets (think real estate, non-qualified mutual funds, etc.) as a last resort because of some unique concern beyond tax planning.
For example, is yours a blended family situation, are there minor children who will be the beneficiaries, does a beneficiary have special needs or a history of substance abuse?
If you have any of these unique concerns, then consider using a "Stand-Alone IRA Beneficiary Trust" when planning for the retirement funds.
For example, if yours is a blended family, then this approach can be used to provide an immediate income stream to your new spouse (sans deferral to age 70.5) and thereafter for your own children.
Such an arrangement can make lemonade out of a lemon, so to speak.
If you have not reviewed all of the beneficiary designations on your employer-sponsored retirement plans and IRAs, then now is the time to get that done.
While you are at it, confirm (and correct, as needed) the beneficiary designations on your life insurance and annuities, too.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: The (Crystal Lake, IL) Northwest Herald (November 29, 2015) "Rectifying the retirement minefield"