Who Gets Your Money When You Die?

Participant Resources

Setting Up a Beneficiary

We often plan for our retirement years, but forget to put a plan in place for when we die. What will happen with your money and how can you make sure your loved ones are taken care of and your money is protected?

The individual or ministry who gets your remaining retirement account money when you die is called a beneficiary. If you do not designate a beneficiary, your account will be distributed according to state law and may not reflect what you want to happen. If you are married, your primary beneficiary will usually be your spouse, with children often being designated as secondary beneficiaries.

Setting Up A Living Trust

One very attractive option to deal with your retirement plan account as well as your other assets is to put a living trust in place. When you die, your estate will be distributed according to the laws of the state where you live. The court charged with overseeing that distribution is called the Probate Court. If you have a will, the will tells the Probate Court how you wish the assets to be distributed. The court appoints a probate attorney to help with this process. Depending on where you live, this process could take a long time and cost a lot of money.

The alternative to probate law is to create a living trust and a Trustee is appointed. Typically, the Trustee is you and your spouse while living, with a successor Trustee named by you in the event of your death or disability. The successor Trustee then has the power to distribute your assets according to your wishes reflected in the living trust. The result is that your estate avoids Probate Court and results in a less costly and time-consuming process.

If you have a living trust, your spouse will be your primary beneficiary, and the trust will be your secondary beneficiary. Consequently, if you and your spouse die at or around the same time, the terms of the trust will determine how your money is distributed. If you are single, you can name your trust as the primary beneficiary and have the money distributed according to the instruction in the trust document.

Rebalancing Your Account

Rebalancing your account—taking it back to original percentages allocated or designated to each fund—reduces the overall risk of the portfolio. It makes sense to rebalance twice a year. Again, rebalancing means that the individual investments are rebalanced to the percentages originally designated.

The net result is that you are following the important investment adage of selling high and buying low. Here is how it works—when your account is rebalanced, the funds that have grown the most are sold, and the funds that have grown the least are purchased. Then your portfolio is rebalanced to its original percentages. It seems counter-intuitive; however, the net result is that you are selling high and buying low. This is always a good idea.

Many retirement recordkeeping systems include a rebalancing feature that can be turned on or off by each plan participant. If your plan has such a feature, rebalancing every 6 months turns out to be the most advantageous time frame. Typically, there is no cost to take advantage of this feature.

To schedule a time to review your investments and goals with a licensed advisor, click here.

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