There are many different pension plans, with each offering a different degree of intricacies. According to wealth management expert D. Paterson Cope, you should familiarize yourself with the ins and outs of your specific pension plan to get the most out of it.
For example, can you name a beneficiary to your plan? If so, what happens if your beneficiary dies before you do?
Here are some answers to common questions about pension plans and beneficiaries.
Designating a beneficiary on your pension plan simplifies the inheritance process when you pass away. Setting a beneficiary overrides any will that you may — or may not — have. So, if you’ve forgotten to update your will, but your beneficiaries are up to date, you will be covered.
Designation of beneficiaries becomes active as soon as you pass away. This ensures that pension plans are not subject to probate, which can often be very expensive and time-consuming.
This also means, of course, that you have to keep your beneficiaries up to date on your pension plans if you set one. Updating your will would not suffice, as whoever is listed as the beneficiary on your pension plan is the one who would be given the money.
When you designate beneficiaries, you reduce any confusion about how you want your money to be handled after you pass. For example, if you’re married, your spouse will default beneficiary in pension plans. However, if you want some of the money to go to your children, you’ll have to set them as beneficiaries — or set up a trust or custodian to handle that.
If you’re single and have no children, the funds in your pension plan would most likely go into your estate. When this happens, courts ultimately distribute how the funds should be handled and distributed through the process of probate.
As D. Paterson Cope points out, this can often be a very nerve-wracking process for your loved ones and could cause many headaches, arguments, and money. However, you can easily avoid this by simply designating who you’d like your pension plan to be left to.
Most pension plans will allow you to name contingent beneficiaries, also referred to as secondary beneficiaries. This option is available for several reasons.
First, if your primary beneficiary either passes away before you or at the same time as you do, the assets in your pension plan would go to that contingent beneficiary. This helps to protect your heirs should you and your primary beneficiary pass away simultaneously, for instance.
You can also split your pension plan proceeds among multiple people through contingent beneficiaries. When you set this up, you can assign percentages to various beneficiaries in this way. This could include your adult heirs, or it could consist of trusts for younger children.
About D. Paterson Cope
D. Paterson Cope, CFP® is the founder and CEO of Cope Private Wealth, a financial planning and wealth management firm specializing in assisting retirees and people who are about to retire. D. Paterson Cope has been providing financial advice for more than 30 years. He first earned the Certified Financial Planner (CFP) designation in 1997. When he isn’t working, he enjoys spending time with his wife, Jennifer Miree Cope, and the rest of his family in Mountain Brook.