How to Handle Your 401K in Your Estate Planning

By Lane V. Erickson, Idaho Estate Planning Attorney

Estate planning has many purposes including providing protections to you while you are alive. Most people understand that one of the major reasons of estate planning is to create a plan that will cause your money, property, and other assets to be distributed to whoever you want them to go to after you have died. These estate assets are typically controlled by your estate planning documents, including your last will and testament, or one or more trust you may have created. However, it’s also important for you to understand that there are things that you own that may not become part of your estate after you die. In addition to your written estate planning documents, you will also need a plan to take care of these assets as well.

The purpose of this article is to describe how you could and should handle your 401k or other similar retirement accounts as part of your estate planning. Our team of Idaho estate planning attorneys have experience and can help you with any questions you have about these types of accounts and how they are affected by your estate planning. Our knowledgeable and skilled Idaho estate planning team includes partners Randy Budge and Lane Erickson and attorneys Nate Palmer and Dave Bagley. Below is a short description of are and are not affected by your written estate planning and what types of things you can do to make sure that these accounts go to the individuals you want after you pass away.

When it comes to your 401k or other similar retirement accounts, the first thing you need to understand is that none of these are controlled by your last will and testament. In other words, if in your last will and testament you say I want my 401k account to go to my sister Jane, it is possible that your last will and testament will not control who will actually receive your 401k account.

The reason for this is that your 401k account and other similar retirement accounts are controlled by a contract. The party who is holding your account is called the plan administrator. They are a contracting party as is the person who owns the 401k account. As a contracting party they are bound to follow the terms and conditions of the contract. One of the terms of this contract is a beneficiary designation by you of who will receive the money in this account when you pass away. Then, when you pass away, the account administrator is required to pay the money from the account directly to the individual you have designated as your beneficiary.

In other words, the contract controls who gets the 401K monies and not your last will and testament. The only time your last will and testament would control these monies is if you did not designate a beneficiary in the contract. In other words, if you did not list a specific beneficiary then the monies would be paid directly to your estate and then would be controlled by your will.

So, what type of planning can you do with your 401k or other retirement accounts? You have the ability of listing whoever you want as the beneficiary in the contract. Again, the way you do this is through a beneficiary designation form that the account administrator can provide to you. Because you own the account, and because you are a party to the contract you are able to change the name of the beneficiary as often as you want and anytime that you want. The main thing is that you make sure that you do have a beneficiary listed if your intention is to have those monies go directly to that person and not become part of your estate when you die.

If you don’t know whether you have listed a beneficiary, then you should contact the account administrator and ask them to provide you with a copy of the documents you have signed. If you learned that you have not named a beneficiary, you can then ask the account administrator for the beneficiary designation form so you can list a beneficiary. If you already have a beneficiary listed, and you want to make a change, then ask the account administrator for a new form that you can then fill out and turn in.

As a party to the contract and because you can change who the beneficiary is that is listed on your 401k and other similar retirement accounts, you should check your beneficiary listing regularly and make sure that the people that are listed as beneficiaries are really the people you want to receive your account monies after you are gone. Changes in our lives are happening all the time. Whenever a major life change occurs, which would include someone being born, or someone dying, someone being married, or being divorced, or someone moving away this may affect who you want to list as a beneficiary on your 401k and other similar retirement accounts. The advice we give to our clients is that if you have gone through a major life change, or if a significant period of time has gone by, you should review who you have listed as a beneficiary. By doing this, you can make sure that you have listed the individuals that you want to be your beneficiaries when you are gone.

If you have questions about how your 401k or other similar retirement account is a part of your estate planning, or the changes that you might need to make to have the beneficiary listed that you want, we can help.

Our team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho Estate Planning problems.