When contemplating retirement most thoughts, understandably, are centered on ensuring enough funds are set aside to maintain a vibrant life. \r\n\r\nHowever, the thing that is often overlooked is the inevitable passing. \r\n\r\nFor the sake of all loved-ones please take the time to get very organized to ensure the smooth transition of your hard-earned assets.\r\n\r\nIt\u2019s not just for simplicity it is also to ensure that the money does not get tied up in a probate process, or that various professions provide services that significantly reduce the total windfall that your loved-ones will receive. \r\n\r\nA little organization and work now, will save money and time after you pass.\r\n\r\nLet\u2019s start with Beneficiary designations. If this is done correctly it can save you tens of thousands of dollars and many hours of effort. \r\n\r\nWe\u2019ll go by account type to keep the review organized.\r\n401k Plan Death Benefit\r\nMan Sitting On Bench\r\n\r\nThings are pretty straight forward with a 401k. \r\n\r\nThe laws sets that if you are still married your spouse will receive 100% of all funds, independent of who you designate as beneficiary.\r\n\r\nIf you are single, whoever you designate as beneficiary will receive the funds. \r\n\r\nThe options as the beneficiary is to leave the funds in place with new account owner, rollover to an IRA, or take a withdraw and pay the tax and early withdraw fee if applicable.\r\nIRA\r\n\r\nIRAs, when designed, were set to establish an intended recipient so often these accounts will not be covered in a standard will. \r\n\r\nThat makes it very important that the beneficiary be intentional and reverified as part of this process.\r\n\r\nThere is something unique about IRAs and should be considered in your selection of beneficiaries. \r\n\r\nIf there are multiple parties listed as beneficiary, all parties will be required to take minimum distribution based upon the life expectancy of the oldest recipient.\r\n\r\nA best practice is to take the above into consideration when you are setting up beneficiaries on the individual plans. \r\n\r\nFor example, if your objective is to distribute 3 IRA accounts across 5 individuals, you may be better off segregating beneficiaries by age cohorts and setting groups of beneficiaries accordingly. \r\n\r\nIf your 5 heirs fall across the spectrum of young, middle age, and older, you may want to set the beneficiaries by group. \r\n\r\nNext, below are the 5 possibilities, as beneficiary, to receive the IRA account funds. I listed them from least to most impactful in terms of fees and opportunity cost. \r\n\r\nEvery situation is different but the below should help you think through:\r\nDisclaim all or part of the assets (Opt out)\r\nSenior Couple Reading\r\n\r\nThis is simply deciding you do not want the distributions and prefer the money is passed to others that were designated.\r\nTake the money\r\n\r\nConvert the accounts to cash. Based on your age you will be subject to early withdraw penalty 59 \u00bd, and will certainly be subject to income tax. \r\n\r\nAlso, noted in my other posts you will be giving up a tremendous amount of tax-free compounded investment returns.\r\nConvert to a Roth IRA\r\n\r\nThis would only be done if you believe your incremental tax rate will be substantially higher in the future than it is today. \r\n\r\nThis may be the case if a surviving spouse or child does not currently work but intends to return in the future, it may make sense to pay taxes now, convert to Roth, and avoid taxes upon distribution. \r\n\r\nThis should be carefully modelled before making this decision.\r\nConvert the IRA to a Rollover IRA\r\n\r\nYou will have to transfer the accounts into a like IRA account (Traditional/Rollover or Roth Account). \r\n\r\nThis is only available if you are the surviving spouse. This will allow you to receive the funds without paying a penalty or tax. \r\n\r\nAs the spouse, you set your beneficiaries to your preference and you can put off taking the RMDs based upon your current age.\r\nKeep IRA intact\r\n\r\nThis will make sense if the deceased person has already started to take distributions. \r\n\r\nThe Required Minimum Distributions (RMDs) will be based on the deceased person\u2019s age rather than the beneficiary\u2019s. This can be changed if the beneficiary submits a new schedule.\r\nEstate Taxes\r\nTax Form |\r\n\r\nEstate taxes should always be considered if the person passing had substantial assets. \r\n\r\nThis is a complex subject and when time permits, we\u2019ll have dedicated reviews to mitigate estate tax if this were to apply. \r\n\r\nFor this article we\u2019ll leave it simple, in 2019, your beneficiaries will not need to worry about estate tax if the transferred assets are less than $11.4 million.\r\nIf My Spouse Dies Do I Get His Social Security?\r\n\r\nSocial Security is normally thought of as a post retirement defined benefit. \r\n\r\nHowever, there are several benefits that may apply to children of a working parent that suddenly passed away if they are under 19 years of age.\r\n\r\nThere is a benefit to a surviving spouse, and even an ex-spouse, if unmarried currently, marriage was greater than 10 years, plus other criteria. \r\n\r\nYou can review the article that I published that details this topic further.\r\n\r\nIn general this area has enough moving pieces that the Social Security Administration asks that you reach out to a counselor to have them guide you through the process. \r\n\r\nI put the below infographic together to help you prepare for that conversation.\r\nIf Spouse Dies Before 62\r\n\r\nYou don\u2019t have to wait until age 62 to collect survivor benefits. As a surviving spouse you can make claims for benefits as early as 60. If you are disabled, this can back as early as 50.\r\n\r\nAn important consideration in this benefit is if you get remarried and at what age did you get remarried. \r\n\r\nIf the answer is that you were remarried prior to the age of 60 you may have forfeited your rights to this benefit. If after, you path to a successful claim will be easier.\r\n\r\nOnce again, every situation is unique here and you should definitely reach out directly to the SSA with all the facts and they will guide accordingly.\r\nDo You Get Your Spouse\u2019s Pension if They Die?\r\n\r\nThe answer is \u201cYes, if you qualify.\u201d \r\n\r\nThe qualification depends on where your spouse worked, when did they retire (year), when they passed, and whether you have previously waived your rights.\r\nPension Benefits\r\nWhere did your spouse work?\r\nERISA Book | Spouse Pension\r\n\r\nPrivate pension plans are governed by a regulatory act called Employee Retirement Income Security Act (ERISA).\r\n\r\nIf your spouse worked for a company that offered a private pension, the rules specified here will apply. \r\n\r\nIf your spouse was an employee in non-private pension you would have to look at the specifics of their plans.\r\n\r\nERISA established a regulated standard but only applies to private pension plans.\r\n\r\nFederal, state, city employees, military personnel, and employed members of religious organizations make up the vast majority of non-private pension plans.\r\nWhen did your spouse die?\r\n\r\nERISA required benefits to extend to surviving spouses. \r\n\r\nHowever, prior to August 1984 the employee could elect not to designated the spouse as a beneficiary and that did not require the spouse\u2019s consent/signature. \r\n\r\nSo if your spouse after that period of time you should track down the paperwork and understand your entitlements.\r\nWhen did your spouse retire?\r\n\r\nSame framework as above. Prior to 1985 there was little protection for the surviving spouse; thereafter, there should be a paper trail that establishes your rights.\r\nDid you forego your rights to a survivor\u2019s benefit?\r\n\r\nIf the working employee excluded you, as current spouse, as a beneficiary and you signed the \u201cspousal consent\u201d to this exclusion, you have waived your rights.\r\n\r\nIf you were married during the time credit was received under this defined benefit plan, but later divorced, you may have waived your rights to this benefit in the divorce settlement. \r\n\r\nIf this asset was not specifically addressed during the settlement, it may make sense to review your rights to claim at this point.\r\nThe Bottom Line\r\n\r\nAlthough death is difficult to think about and even more so when thinking about a spouse\u2019s passing, it is very important to get organized. \r\n\r\nThe opportunity cost in lost time and money is significant. \r\n\r\nAlso when you are well education, or at least oriented, the probability of a \u201cprofessional\u201d taking advantage of your situation or you following poor advice is significantly reduced.