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Beneficiary Information

DESIGNATION OF BENEFICIARY

Shortly before each Employee satisfies the eligibility requirements of the Plan, the employee should execute a Beneficiary form that includes both primary beneficiary(s) and contingent beneficiary(s).  With plans that have the 401(k) feature, the beneficiary election is typically selected on the record keeper’s enrollment form or Beneficiary election form.  The form properly executed, ensures that the Participant makes their desired death benefit beneficiary designations. 

If there is not a valid beneficiary designation, the legal plan documents that govern the plan will make that determination.  In circumstances where the plan does not make the entire determination, state and/or federal law would govern.  It would be unfortunate if that determination did not match the participant’s wishes.  Improper or incomplete beneficiary designations can result in excessive time and cost in the event of a participant death.

Some information that may help:

A married Participant's death benefit will be paid to the surviving spouse, unless the spouse agrees in writing that another beneficiary can be elected.  A beneficiary election not including a surviving spouse will require a notarized signature and possibly a separate form.

The beneficiary designation may be invalid if a Participant's marital status changes. If the Administrator is aware of a change in marital status, then a new Beneficiary form should be provided to the Participant, along with any additional forms.

Many participants name their children as contingent beneficiaries – these are beneficiaries in the event that the primary beneficiary also dies while the account is still open.  If a minor child is named as the beneficiary, the participant should seek legal and financial counsel to ensure that this designation is worded appropriately.  Typically, minors are not permitted to directly inherit assets from retirement accounts.  Steps should be taken to arrange for a trust for the minor child, designate a custodian under the Uniform Gift to Minors Act, or direct that such payment is made to an individual authorized under state law to receive such a payment.

An unmarried Participant always should name a beneficiary.

If a participant wishes to name their estate, they should consult with a professional tax advisor to ensure that this is the appropriate election.

If a participant wishes to designate a trust, the name of the trustee and trust will need to be listed in this manner:  “To X Bank as Trustee, or its successor Trustee, of the Bruce E. Roberts Trust dated the 26th day of May, 2000, including any amendments to the Trust.”  Again, the participant should consult with a professional tax advisor. 

If a participant names more than one beneficiary, whether primary or contingent, the allocation of assets must be designated in whole percentages. Below are the most common examples when participants name more than one beneficiary:

  • Three or more beneficiaries: “James O. Smith, brother; Peter I. Smith, brother; and Martha N. Smith, sister”
  • Unnamed children:  “My children living at my death”
  • One contingent beneficiary:  “Lois P. Smith, wife, if living; otherwise, Herbert I. Smith, son”
  • More than one contingent beneficiary: “Lois P. Smith, wife, if living; otherwise, Herbert I. Smith, son; Alice B. Smith, daughter; and Ann Y. Smith, daughter”
  • Unnamed children as contingent beneficiaries:  “Lois P. Smith, wife, if living; otherwise, my children living at my death”

Contingent beneficiaries only receive benefits if all named primary beneficiaries predecease the participant. If a primary beneficiary survives the participant, but dies prior to receiving his or her share of the death benefit, that primary beneficiary's estate will receive the death benefit unless the Designation of Beneficiary form provides otherwise.

It is generally not advisable to name a beneficiary who is a permanent resident of a foreign country. If a person who is a permanent resident of a foreign country is named, the participant must furnish that person's full address, including country.  That information will need to be updated as needed.   There could be processing delays when foreign beneficiaries are named.

If a beneficiary is a member of a religious order it should be listed in this manner:  “Mary L. Jones, niece, known in religious life as Sister Mary Agnes.”

If none of the above is suitable, the participant should include as much information as possible.  In this instance, it is a good idea for the participant to consult an estate attorney.

Unless a participant provides otherwise, all sums payable to more than one beneficiary will be paid equally to all beneficiaries.

Best Practice:  At least annually, remind all employees with balances in the plan of the importance of maintaining updated beneficiary designations.   The Designation of Beneficiary form itself or location of the form should be provided with the reminder.