401(k) Beneficiary Form is Trumped by Spouse; Disinherting Children | Ed Slott and Company, LLC

401(k) Beneficiary Form is Trumped by Spouse; Disinherting Children

By Jeffery Levine, IRA Technical Expert  
Follow Me on Twitter
: @IRAGuru4EdSlott

In a recent case, the US District Court for the Middle District of Louisiana ruled that despite having previously named his three children as beneficiaries of his 401(k) plan, Leonard Kidder's 401(k) balance would pass to his new wife. The Court determined that under the terms of the participant's plan, a spouse's right to plan assets is immediately vested upon marriage and, since no spousal waiver had been obtained, the default plan beneficiary was the participant's spouse even though she was not the named beneficiary. The spouse got the 401(k) and the children, who were the intended beneficiaries, were disinherited.

The Court's ruling illustrates just how difficult it can be to remove a spouse as the beneficiary of an ERISA governed plan, such as a 401(k). In order to name a non-spouse as the beneficiary of a 401(k) or other ERISA plan, there are two key steps that must be completed. The first step is that your spouse must waive their ERISA granted rights under the plan. This must be done AFTER you are married, as only a spouse can grant consent, and you only have a spouse if you are married. The second step is to update your beneficiary form to list the non-spouse beneficiaries you want to inherit your account.

A spousal waiver just means that your spouse has consented to the naming of a non-spouse beneficiary, it doesn’t mean they can’t be the beneficiary. So if you don’t name someone other than your spouse directly on the beneficiary form, chances are it may end back with them anyway.

All too often advisors focus on only the beneficiary forms for the accounts they have. That could leave your 401(k) even more vulnerable to unfortunate beneficiary mistakes. Make sure that when you review your own plan or meet with your advisor, you include a discussion of any 401(k) and other plan beneficiary designations to make sure you don't inadvertently disinherit your intended beneficiaries.
 

Receive Ed Slott and Company Articles Straight to Your Inbox!
Enter your email address:

Delivered by FeedBurner

 


Posted in: Jeff Levine, 401(k)

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to matt@irahelp.com for approval.

For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at matt@irahelp.com or (516) 536-8282 with any questions.

 

Find members of Ed Slott's Elite IRA Advisor GroupSM in your area.
We neither keep nor share your information entered on this form.
 

I agree to the terms and services:

You may review the terms and conditions here.