Note: The questions and answers below generally relate to both retirement plans and individual retirement accounts (IRAs). Collectively they are referred to as accounts or retirement accounts. Where there is a distinction between plan treatment and IRA treatment there are separate questions and answers. Beneficiary can refer to one or more beneficiaries.
A beneficiary is the person or entity that receives your retirement account benefits upon your death.
A primary beneficiary is the person or entity designated to receive your retirement account benefits upon your death. If you specify more than one primary beneficiary, you need to specify the percentage that each beneficiary will receive in whole percentages. Remember, the percentages that each primary beneficiary will receive must add up to 100%. As long as there is a primary beneficiary still living, the account will go to the remaining primary beneficiary. For example, if you name two primary beneficiaries and one dies before you do, the remaining primary beneficiary will inherit the account. (See: What happens to my account if one of my named beneficiaries dies before I do?)
Please note that federal or state law as well as plan documents may require a married participant to obtain spousal consent in order to name a non-spouse as beneficiary.
A contingent beneficiary is the person or entity designated to receive your retirement account upon your death if all the primary beneficiaries have died before you. In other words, your contingent beneficiary receives the benefit only if there are no remaining primary beneficiaries living at the time of your death.
If you specify more than one contingent beneficiary, you need to specify the percentage that each contingent beneficiary will receive in whole percentages. Remember, the percentages that each contingent beneficiary will receive must add up to 100%.
As long as there is a contingent beneficiary still living, the account will go to the contingent beneficiary. For example, if you name two contingent beneficiaries and one dies before you do, the remaining contingent beneficiary will inherit the account. (See: What happens to my account if one of my named beneficiaries dies before I do?)
If you selected the “per Stirpes” box on the beneficiary election form, any living children of the deceased beneficiary would divide the share of your retirement account equally. This is true for either a primary beneficiary or a contingent beneficiary.
If you do not select the “per stirpes” box, the account will be divided among the remaining named beneficiaries in that category of beneficiaries.
A “Designated Beneficiary” is a person who is named as a primary or contingent beneficiary. While you can name an entity or a trust as a primary or contingent beneficiary, neither can be a Designated Beneficiary. Only individuals can be Designated Beneficiaries. A Designated Beneficiary has the right under the Internal Revenue Code (the Code) to stretch payments inherited from a retirement account over his or her lifetime instead of being required to take the distribution and pay taxes on it no later than the fifth calendar year after the death of the account holder.
If you do not name a beneficiary either the underlying contract for the investment, the plan document, or federal or state rules will determine who receives your retirement account benefits. Additionally, if you do not name a person as your Designated Beneficiary the beneficiary may not be able to stretch payments and taxes on the account over his or her lifetime. If the beneficiary does not qualify as a Designated Beneficiary the account may be required to be paid out and taxed no later than the end of the fifth calendar year after you pass away.
Generally, a will does not control who inherits your retirement account benefits. Retirement accounts are generally non-probate assets and they pass according to your beneficiary designation, according to plan terms or according to state or federal law default rules. If you name your estate as your beneficiary or if you do not name any beneficiary, the account may default to your estate and your will or state law may control who inherits your account. Any beneficiary that cannot be a Designated Beneficiary under the Code, such as an estate, will not have the right to spread the taxation of the account over his or her lifetime but will be required to take the distribution and pay the taxes by the end of the fifth calendar year after your death.
While a trust can be named as your beneficiary the beneficiary of the trust may not qualify as a Designated Beneficiary. If the trust beneficiary does not qualify as a Designated Beneficiary the account will have to be distributed and taxed by the end of the fifth calendar year after the account holder passes away.
Please note there are exceptions for beneficiaries of trusts that meet the criteria in the Treasury Regulations for a “look-through trust”.
A trust can only control who inherits your account if it is named as beneficiary of the account. The beneficiary of the trust may or may not qualify as a Designated Beneficiary. Only individuals can be Designated Beneficiaries for purposes of taking required distributions spread and taxed over their lifetime.
Generally, neither a pre-nuptial agreement nor a post-nuptial agreement nor a marital property will control who inherits your retirement account benefits when you die. A beneficiary designation form on which you name your retirement account beneficiary, default language in either the underlying investment contract or the plan document or state or federal law are methods available to control who inherits your account when you die.
Generally, a divorce decree does not control who inherits your plan account when you die. Plan benefits can generally be divided only by a Qualified Domestic Relations Order or a Domestic Relations Order as described in Section 414(p) of the Code. A divorce decree that directs a party to the divorce to name the former spouse a beneficiary is generally not binding on the plan.
A divorce decree directs the parties to a divorce to take action. It is not directed to the custodian of an IRA account. An IRA does not require a Qualified Domestic Relations Order or Domestic Relations Order to divide the account pursuant to a divorce decree. If an IRA account is to be divided pursuant to a divorce decree or property settlement agreement, the account owner should direct the custodian to divide the account. Then the owners of each IRA should complete new beneficiary designations for their accounts.
Generally, when the estate is the beneficiary the accounts must be distributed and taxed no later than the end of the fifth calendar year after the year in which the account owner dies.
Plans that are subject to ERISA, as well as some non-ERISA covered plans require a spouse to consent to any primary beneficiary that is not the surviving spouse.
There is a limited window of time when a named beneficiary can waive his or her right to receive a retirement account benefit. The account would then be distributed as if the party who waived the benefit died before the account holder. The party who waives a benefit has no control over who will receive the retirement account benefit.
No, the party who waives a benefit has no right to decide who will receive the benefit.
It depends on the powers granted in the POA as to what rights the agent can exercise. If you want someone to be able to do something or not to be able to take a particular action such as to be able to change your beneficiary designations, such direction must be specifically described in your POA.
If the trust named as primary beneficiary does not exist the account will go to the contingent beneficiary. If there is no contingent beneficiary, the account will default under the rules of the investment, the plan or state or federal rules.
If an estate is the primary beneficiary but no estate is opened the account will go to the contingent beneficiary. If there is no contingent beneficiary, the account will default under the rules of the investment, the plan or state or federal rules.
If you do not name a new beneficiary before you pass away, your former spouse may inherit your benefit. The answer to this will depend upon the provisions in the plan document and state and federal laws.
Some states have statutes that revoke a former spouse as a named beneficiary upon divorce; however states vary as to the timing of the divorce and the existence of the revocation rule.
It is also possible that regardless of a state revocation rule, the revocation rule may not apply to the plan.
The best solution is to complete and submit a new beneficiary election as soon as possible after the divorce.
At least every 12-18 months and any time something changes in your situation that would impact who you would like to inherit your account, you should review and consider updating your beneficiary elections. Some examples of times you should review your beneficiary elections are:
Minors are not eligible to make contracts and generally cannot control financial accounts. Depending upon the state of residence a child generally becomes an adult for financial management purposes between ages 18 and 21. Consequently all 50 states have laws concerning gifts to minors often referred to as the “[State] Uniform gift to Minors Act” or something similar. If you name a minor as beneficiary you may want to work with an estate planning professional to make sure that your specific goal will be accomplished.
It is possible to define the beneficiary similarly to the following: “[name of adult you nominate to act as custodian for your minor child] as custodian for [name of minor] under the [name of state] Uniform Transfers to Minors Act”.
If you are able to update your beneficiary information online, you can do this by going to your profile name and selecting My Beneficiaries from the dropdown menu. Otherwise, a “Beneficiary Designation Form” can be printed and submitted to AIG Retirement Services for updating.
Note: Certain plans require that if you are married your spouse must consent to any non-spouse beneficiary. Under the terms of certain plans if you die before your payments begin your spouse is entitled to a preretirement survivor annuity of no less than 50% and no more than 100% of the value of your account. Your spouse can generally waive the right to the preretirement survivor annuity benefit and elect a different form of benefit under the terms of the plan. If you are married and you die after payments begin your spouse’s benefits will be determined by the payment option elected as well as plan, federal and state rules.
Additionally, if you are married the terms of the plan and/or the rules governing the plan may require your spouse to be your primary beneficiary unless you spouse has waived that right.
When a spousal consent is required to name a non-spouse beneficiary your spouse’s signature must be witnesses by either the Plan Administrator or Notary Public.
If a spousal consent is required a pre-filled Beneficiary Designation form will be provided for you to view and print in order to obtain signatures.
Mail or fax the form back to AIG Retirement Services for your request to be completed.
Please fax the completed form to 1-877-202-0187 or mail to the address below for processing:
AIG Retirement Services
P.O. Box 15648
Amarillo, TX 79105-5648
If your plan requires spousal consent and you are legally separated from your spouse you will need to provide the beneficiary election form to your plan administrator along with court documents pertaining to your legal separation in order to name a non-spouse beneficiary.
If your spouse is missing you will need to provide information to the plan administrator who is charged with responsibility for determining if the spousal consent is necessary on a beneficiary election that names a non-spouse.
If you are not married, or the plan does not require your spouse to consent to a non-spouse beneficiary, you may be able to update your beneficiaries online.
Yes, AIG Retirement Services will mail a confirmation letter to your address of record or email when a beneficiary is updated based on your selected preferred communication delivery method. Additionally, beneficiary updates will appear on your next quarterly statement.
* The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension plans in a private industry. Many employer-sponsored retirement plans are subject to ERISA, however individual retirement accounts (IRAs) and public employee plans, are not subject to ERISA.