Multiple marriages have their own problems when it comes to estate planning techniques, especially when children are involved in a previous marriage. It can be a problem to protect your assets and ensure that your assets go to the designated beneficiary instead of someone else.
If you have a 401 (k) plan with your business and are considering a second marriage, I recommend converting your 40l into a traditional IRA or IRA Roth before getting married again. If you want to keep your children as beneficiaries or don’t want the new spouse to become the heir, this strategy must be done before the second marriage.
Federal ERISA (Employee Retirement Income Security Act of 1974) regulates retirement plans such as a 401 (k) and states that a spouse’s right to plan assets rests immediately on marriage, despite the beneficiary’s designations. It is not enough to complete a beneficiary form.
Once the marriage takes place, the spouse must sign a waiver declaring his rights to the 401 (k) plan to transfer the assets of the retirement plan to another designated beneficiary. This would exclude the spouse from retirement assets.
An additional benefit in converting the 401k plan can be the fact that an IRA rollover offers far greater benefits than employer-sponsored retirement plans. Unlike with ERISA plans, a spouse is not required to be a beneficiary of his / her spouse’s IRA account. Couples living in community states may have some exceptions.
An IRA owner has the advantage of appointing everyone he chooses as a beneficiary. They can divide their IRA into multiple accounts, identifying individual beneficiaries for each account.
When it comes to selecting securities to invest in an IRA, there is usually more flexibility than a traditional 401 (k) plan. An IRA can offer unlimited investment choices, while a 401 (k) plan may only have a dozen investment options.
In summary, if a client wants to appoint someone other than a spouse as a beneficiary, I must first do two things.
- The first is to obtain a waiver of marital rights.
- Secondly, there is an update of the required form for the beneficiary.
Every step is equally important and it does not mean that the spouse cannot be or is not the beneficiary. A spouse can still inherit, even if a waiver previously relinquished marital rights, as long as the spouse is still on the beneficiary’s form if the client dies.