Saturday, May 11, 2019
Beneficiary provisions and designations under qualified plans tend to receive little attention until the death of the policy owner. Unfortunately, death may spotlight or uncover less desirable provisions and once-hidden ambiguities. With some minor review and planning now you can better prepare for simplicity later.
- Disentangle Your Waterfall Provision
- A waterfall provision provides instruction for what happens to a benefit when the participant dies before that benefit begins and there is either no beneficiary designation or no designated beneficiary survives the participant. When using one, abstain from creating unnecessary complications. Shorter provisions generally avoid the thorny determinations that can otherwise occur.
- Address Deaths of Beneficiaries
- Beneficiary provisions should provide not only what happens when the policy owner dies, but what happens in case the primary beneficiary dies.
- Be Ready for Small Estates and Minor Children
- Many states allow for distribution via small estate affidavits, provided the amount in question does not exceed a dollar threshold. Also, under the Uniform Transfers to Minors Act, the plan can distribute benefits to the minor with the benefit of state protection. Knowledge of minor child beneficiaries and compliance with the applicable state transfers to minors act should allow for a more timely and safer distribution.
- Specify When Determinations Are Made
- Review your beneficiary provisions and designation forms to ensure that it’s clear when beneficiary designations are reviewed and determined for approval. The difference in timing can affect who becomes the beneficiary, especially if a participant is married and the beneficiary is other than the participant's spouse.
See Isaac J. Morris, Beneficiary Provisions and Designations – Plan Now for More Simplicity Later, National Law Review, April 29, 2019.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.