North Carolina Estate Planning Blog : North Carolina Estate Planning Lawyer & Attorney : Trust Counsel, PA : Trust Administration : Serving Chapel Hill, Durham, Raleigh, Pittsboro, Orange County, Chatham County

The recent U.S. Third Circuit Court of Appeals case Estate of Kensinger v. URL Pharma, Inc. involved an lawsuit by a decedent's estate against an ERISA plan administrator and the decedent's ex-wife, who was beneficiary as beneficiary of her ex-husband's 401(k) plan, seeking a declaration that the decedent's estate was entitled to the funds in the 401(k) account because of a waiver signed by the ex-wife as part of a property settlement upon divorce.  The court ruled that the district court's grant of summary judgment to the defendants was: 1) affirmed in part, since the plan was required to distribute the funds to the ex-wife as the named beneficiary; but 2) reversed in part, because the estate could bring an action against the ex-wife to enforce her waiver and recover the disputed plan proceeds.

Even though the result was favorable to the estate, it was not without significant cost.  It is crucial to remember to change beneficiary designation for retirement accounts and life insurance after a divorce.  Click "Continue Reading" for the text of the ruling.

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It's Halloween, and tonight kids of all ages will be dressed in an assortment of costumes, many designed to frighten.  What frightens an estate planner?  Here are a dozen examples of scary planning (or lack thereof) with regard to life insurance and retirement plan beneficiaries:

1. Not naming a beneficiary at all (usually defaults to estate or next of kin).
2. Naming your estate as beneficiary of your IRA or retirement plan.
3. Naming a trust as beneficiary of your IRA or retirement plan (unless the trust is specifically drafted for that purpose).
4. Not changing your beneficiary designation when you divorce.
5. Not changing your beneficiary when your original beneficiary dies.
6. Naming minor children as beneficiaries.
7. Naming a beneficiary who is unable to properly manage money.
8. Naming a beneficiary who is receiving needs-based governmental benefits.
9. Naming a bankrupt beneficiary or one who has creditor problems.
10. Naming a relative to take care of and use the money for another relative (instead of using a trust).
11. Thinking your Will or Trust will control your life insurance or retirement account (it does not unless you specify it in the beneficiary designation.
12. Failing to get confirmation of any change of beneficiary from the financial institution.

Talk to your estate planning attorney to make sure that your beneficiary designations are properly coordinated with your estate plan/  This will best protect your family, preserve your assets and save taxes.

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Successful estate planning generally involves passing on your assets to your heirs at a low tax cost. To help achieve that goal, there are a few things to keep in mind about retirement accounts.

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When Trusts Meet Retirement Accounts, a recent article on WSJ.com, explains the benefits of using a trust to pass on IRAs and other retirement accounts to children.  Properly drafted trusts can provide protection against losing or depleting the funds due to mismanagement, creditors, and divorce.  What's more, since the accounts can then be "stretched" over the beneficiaries' lifetimes, the effect of tax-deferred compounding on the account values is simply astounding.

Due to the complexities in this area of the law, working with an attorney experienced in drafting such trusts and well-versed in applicable law is imperative.

I regularly recommend Standalone Retirement Plan Trusts to clients who have $200,000 or more in retirement savings and want to ensure that the funds will be protected after their deaths.

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Here's a great, to the point article on what NOT to do to ensure you have sufficient retirement savings - from the National Center for Policy Analysis.

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