Retirement Benefits and Annuities: Beyond the Gold Watch

Most of us are entitled to retirement benefits from an employer. Typically, a retirement plan will pay benefits to beneficiaries if you die before reaching retirement age. After retirement, you can usually pick an option that will continue payments to a beneficiary after your death.

In most cases, the law requires that some portion of these retirement benefits be paid to your spouse. This right may be waived only with your spouse's properly witnessed, signed consent. Why would your spouse waive the right? There are several possible reasons. These accounts are subject to the payment of the income tax that has been deferred during their existence. Sometimes a spouse rejects benefits because of tax consequences or because there is enough income from other sources and the money might be better used by another beneficiary. Check your plan to see what is required for this waiver.

Payment options are treated differently for tax purposes. Ask your tax advisor how they'll affect your estate and tax planning. (See chapter 18 Retirement Planning.)

IRAs Pass Money Quickly

IRAs (Individual Retirement Accounts) provide a ready means of cash when one spouse dies. If your spouse is named as the beneficiary, the proceeds will immediately become your spouse’s property when you die. Like retirement benefits (and unlike assets inherited via a will), they will pass without having to go through probate.