Life and Death Planning for Retirement Benefits

CHAPTER 3: MARITAL MATTERS Rules and estate planning concerns for the married participant and the surviving spouse.

This Chapter explains most of the rules and planning considerations that apply when advising married participants and their surviving spouses; matters covered in other Chapters are cross-referenced in the Road Maps ( ¶ 3.1.01 , ¶ 3.1.02 ) and other appropriate sections. For convenience, the participant is referred to as male and the spouse as female. All statements apply equally to a female participant and her male spouse. 3.1 Considerations for Married Participants 3.1.01 Road Map: Advising the Married Participant Here are matters to consider when advising a married participant whose marriage is recognized for federal tax purposes. For a participant who is about to get married, see item #6. 1. The tax laws generally, though not always, favor naming the participant’s surviving spouse, personally and outright, as Designated Beneficiary of retirement benefits. See ¶ 3.2.01 . Name a trust for the spouse as beneficiary (rather than the spouse personally) only for a compelling estate planning reason, such as the surviving spouse’s inability to handle money, creditor risks, conflict with other family members, estate tax savings, etc. See ¶ 6.4.06 regarding ways to leave benefits in trust for the surviving spouse. 2. The client’s spouse has certain rights, under federal law (“REA”; ¶ 3.4 ), to be named as beneficiary of certain types of retirement plans. Make sure the client is aware of these, if applicable, and the need to obtain spousal consent if any death benefits subject to REA are not to be left to the spouse. If there is any question about the spouse’s willingness to consent to waive REA benefits in order to facilitate the estate plan (or to honor a consent once given), it becomes especially important to adhere strictly to the statutory requirements regarding the form of the consent ( ¶ 3.4.06 ). There is no guarantee that the plan’s standard printed spousal consent form complies with REA. Consider supplying your own form, using the IRS-provided sample spousal consent forms. 3. If naming a marital deduction trust as beneficiary, comply with the marital deduction requirements (including special provisions that must be included to assure compliance with the “entitled to all income” requirement). See ¶ 3.3.01 . 4. Be aware that state laws under which marriage or divorce revokes a beneficiary designation form will not apply to qualified retirement plan (QRP) benefits, but normally would apply to IRAs. 5. Consider state community or marital property laws; see ¶ 2.1.05 , ¶ 4.4.09 , ¶ 4.5.03 . 6. When advising a client who is about to marry, point out that the client’s new spouse will automatically be entitled to substantial inheritance rights under any QRP the client participates in, under “REA” (see ¶ 3.4 ), and that such rights cannot be waived in a prenuptial agreement. If the client does not want the soon-to-be-spouse to have such rights, the client should consider taking the benefits out of the QRP and rolling them to an IRA (if the client is entitled to withdraw the