The designated Beneficiary, may be the most overlooked, misunderstood and even neglected important retirement detail and we often see this given the least consideration in retirement planning. If you don’t plan right, it could cost thousands of dollars, it may hold up needed funds for a period, perhaps a long time, or may not reach your intended beneficiary at all. These problems have a resolve, they can be fixed. Perhaps, you are concerned about the enormous tax liability for wife, husband, or children? This is not an unsurmountable problem, check it out.
To protect your asset and more importantly, your loved one, the BENEFICIARY, is likely, the most important item in your retirement planning.
Regardless of how your TSP account was invested, your spouse’s, as your beneficiary, will be invested in the age-appropriate Lifecycle (L) Fund. It will be up to your spouse to manage her/his TSP account, subject to the same risk you experienced during your career.
- Children must remove the funds from TSP, by cashing in or transferring to their own IRA account. Depending on their age and competence, this could get interesting and perhaps dangerous.
- Children who are not yet adult, as beneficiary, will have to wait until they have reached majority.
- Children who may be special needs, spendthrift, or addicts, will receive funds to spend as they wish. TSP has no means to manage these funds as a trust.
You can pre-plan.
Now, let’s do a little disclaimer: I am not an attorney, so the following information must be discussed with your legal counsel. I think disclaimers are always written in fine print fonts, but let’s move on.
Trust, also Consider a Guardian or Custodian, which does not have the power and control of a trust.
This is a scary subject to many because it is such an unknown. In explanation, let me start with a WILL. The WILL will allow, through probate, property not designated as beneficiary in bank accounts, life insurance, annuities, and such instruments. The WILL is unconditional. We see in movies, “to my loving 3rd cousin, Sam $1M upon graduation from college” Well, this is a condition, and the WILL cannot enforce that condition. Sam gets his money now, regardless of the desired conditions. Now, if this is what one wants, then a TRUST could enforce conditions of age, competence or complete of college, perhaps a bonus sum if high grades? A trust is like a trusted friend that will see to the business of distribution of funds and assets as desired. I have just explained the upside of the trust, but, regarding your TSP / IRA / 401(k), 403(b) and such, transfer to a trust is a taxable event. This may be OK or not, it depends on how much control you wish to have after you pass away.
So, you want a trust, the next consideration is the trustee, the person or entity that will ensure all of your desires are accomplished. Consider also, your trusted brother or friend, may not want to be the trustee. It would be very important to have their acceptance of this position.
If your friend or relative will not be the trustee, or if they pass away or become incompetent, this firm, does have relationship with a trust company that will take modest trusts, as you find most banks and trust companies want a $3M or more, and your trust will be $500,000.00?
If this is a question you wish to explore, please feel free to reach out to me, anytime. We do have resources to help you find your local legal counsel to discuss your estate and all your essential documents.
