How To Avoid Disinheriting Your Beneficiaries After Remarrying
Are you recently divorced or widowed?
Did you know that if you name your children as beneficiaries on your employer’s retirement plan and remarry, you could risk accidentally disinheriting them?
The Employee Retirement Income Security Act of 1974, better known as ERISA, is a federal law which sets standards for most voluntarily established health and retirement plans. It establishes rules and rights for retirement plans and their participants, most of which are well-known.
However, there is an obscure rule that could prevent your intended beneficiaries from receiving their share of your 401(k). We urge our clients to consider this prior to remarrying or marrying for the first time with significant retirement assets.
Most people who are newly widowed or divorced, will update their employer retirement account beneficiaries to their children. Logically, your chosen beneficiaries should receive the percentage of your account that you indicated, but people who remarry should be wary of accidentally disinheriting their own children from their 401(k)s.
If your new spouse outlives you, they will receive all of your company retirement plan funds, rather than your children—even if you have named your children as the intended beneficiaries.
The rule is intended to stop one member of the married couple from giving survivor benefits to someone else, rather than the surviving spouse. This rule has good intentions but can lead to elder abuse and legal disputes for your children.
The only way to get around this rule while being married to your new spouse is to have them sign a spousal waiver, giving up their rights and allowing you to name anyone as beneficiary. The institution administering the plan will generally provide the spousal waiver form, just ask!
Another way around this rule, if you are already retired, is to rollover your employer’s 401k to an IRA before the marriage takes place. IRAs are not subject to the ERISA rule, and you can name anyone as your beneficiary.
Consider this before tying the knot and be sure to contact your financial advisor to avoid unnecessary stress and resentment. We are here to help!