Who is Your Beneficiary?

When you joined your employer’s retirement plan, you probably appointed a beneficiary and forgot about the issue right until this very moment. But how often should you review the appointment of your retirement account beneficiary? The team at Popular Fiduciary Services will tell you about the factors you should consider when appointing a beneficiary.

What is a beneficiary? A retirement plan beneficiary is the person appointed to receive all the money in a retirement account when the participant passes away.

Who appoints the beneficiary and how? The plan participant is responsible for appointing the person to be the account beneficiary. Even if you have a will and have appointed someone to inherit all of your assets, this will generally not affect your retirement account. The money in your retirement account will automatically pass to the person you have appointed as your retirement plan beneficiary.

Why is it important to appoint a beneficiary? The purpose is to identify who will receive the money from the account when the participant passes away. When participants enroll in a retirement plan, they usually fill a form to appoint their beneficiaries, but after a while they forget about it. However, we recommend reviewing your appointed retirement account beneficiary every so often, since you may need to make changes.

Married Participants In the case of married participants, the spouse will have the exclusive rights to all the plan’s benefits, payable upon the participant’s death. Nonetheless, participants may appoint beneficiaries other than their spouses, if the latter waive their rights to the plan assets. The participant should fill out a beneficiary appointment form to appoint a new beneficiary. For the spouse to effectively waive their rights, the following steps should be followed:

• The waiver should be done in writing, where the spouse agrees to the participant’s appointment of someone else as the beneficiary. The participant may not change the new beneficiary subsequently without their spouse’s consent.

• The consent provided by the spouse should explicitly state that they understand what their waiver entails.

• The waiver should be completed before a notary (sworn statement) or an authorized plan representative.

Single Participants In the case of single participants, they are free to appoint whomever they want as their plan beneficiary. To do this, they must fill the beneficiary appointment form. If there is no appointment made, the retirement plan documentation will establish the way the benefits should be distributed.

Participants with Children If the participant (either single or married) has children and wishes to appoint them as the plan’s beneficiary:

• If the participant is married: The participant will need their spouse’s consent and a written waiver of their rights as plan beneficiary, as specified above.

• If the participant is single: The participant may appoint their children with no need from anyone else’s consent.  Nonetheless, most retirement plans will not transfer money directly to minors. Instead, a court will appoint a trustee or guardian for the minor(s) to receive the money on their behalf.

In either case, participants should fill the beneficiary appointment form and name their children.

If No Beneficiary Has Been Appointed Keep in mind that if the participant has not completed the beneficiary appointment form, the retirement plan documentation will establish the manner in which the benefits will be distributed. Correctly completing and frequently reviewing the beneficiary appointment will help participants ensure that the assets in their retirement account will be distributed according to their wishes.          

The content of this material is for informational purposes only and intends solely to serve as a guide and/or an additional tool in helping you plan for retirement. An investment in a retirement plan is not a bank deposit or a savings account; is not an obligation of, nor guaranteed by Banco Popular de Puerto Rico or its subsidiaries and/or affiliates; is not insured by the FDIC or any other government agency; and may lose all or part of its value. Banco Popular de Puerto Rico and/or its subsidiaries and affiliates are not engaged in rendering legal, accounting or tax advice. If legal, accounting, or tax assistance is required, the services of a competent professional should be sought. Consult your accountant, attorney or tax advisor before investing.  

Source: DST