One thing a significant amount of people
do not realize is that a 401K is not necessarily part of someone’s estate in
Tennessee. As a result, almost always
401k assets are not distributed pursuant to the intentions expressed in your
will. Some people believe a 401k passes
pursuant to whatever terms are in their will but this is simply not true. As a general rule, when someone dies, their 401k
proceeds are not distributed under the will.
They are instead distributed based on the beneficiary designations in
the 401k. This is important to remember
when constructing an appropriate estate plan.
It also should cause you to check your beneficiary designations
periodically to make sure they match your intentions.
However, there are some circumstances where
the 401k could be paid to the estate (and therefore pursuant to the will). For instance, if somebody does not list any
beneficiary on the 401k, then the proceeds
would be paid into the estate (unless the 401k plan documents dictate
otherwise). Additionally, people can
list their estate as the beneficiary for the 401k. There are only a very limited number of
circumstances where this would be appropriate.
Due to the tax and other consequences
of such a designation, it is almost always better to list an individual as
the beneficiary of a 401k.
Due to the fact the 401k money is generally
distributed pursuant to the beneficiary designation, the 401k assets are not part of a
probate estate (however, they are still counted for purposes of the Tennessee
Inheritance Tax and Federal
Estate Tax). This is usually a
positive so you can avoid the claims of creditors in a probate estate and so
the money can be distributed to the beneficiaries faster.
As a result, when planning how your assets
will be distributed to your heirs or children, it is important to keep this information
in mind. If you desire to have your
assets split equally among all of your children, for instance, then make sure
your beneficiary designations on your 401k and life insurance policies reflect
this intention. Sometimes people have
their will
done correctly where it shows that all their assets should be split equally
among their children, but they do not properly designate the beneficiaries on
their 401k or life insurance policy.
This can cause an unequal distribution of assets after your death. This is why it is important to have a
comprehensive discussion with a Tennessee
estate planning attorney on your assets and how your desire your assets to be
distributed upon your death.
Follow me on Twitter at @jasonalee for updates from the Tennessee Wills and Estates blog.
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