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Get advice before signing retirement, pension documents

When couples sit to create an estate plan, many topics come to the foreground. One of the most common subject matters for couples to discuss is asset preservation. Taking the time to plan for your future often means taking a hard look at your household's financial security. For many couples that discussion may include reviewing any retirement savings and accounts.

Miami residents who want to tinker with the beneficiary designation on their retirement accounts or who will soon begin receiving their pension need to take note. It is required that before any changes can be implemented on a retirement account, that the owner of the account receives their spouse's consent. Spouses must sign off on any change the account holder wants to make to protect survivors' assets. Additionally, spouses must agree to the way in which pensions are distributed.

The law dates back almost 30 years, when President Ronald Reagan signed the Retirement Equity Act of 1984 into effect. The law specifies what can happen to both traditional pensions as well as the retirement plans, such as a 401(k), to which people voluntarily contribute.

Why would one spouse sign away his or her rights to the other spouse's retirement funds? There actually are many reasons.

  • If spouses have been married before, for example, they might want their children from their first marriage to inherit the funds. A spouse can agree to that and sign away the rights to the money.
  • If a couple does not believe the money will be necessary in the future, the funds can be transferred into a trust account for their children, whether they are minors or of legal age.
  • If the money eventually will go to charity, it is best to name the charity as the beneficiaries. Charities will not pay tax on a lump-sum pension distribution, for example, but an individual would. Therefore, account holders do not want to transfer the money to a spouse, who would pay taxes, only to have that spouse leave the funds to a charity.

The bottom line is such documents should not be signed without the advice of a lawyer. A spouse's waiver cannot be revoked, and the husband or wife should be fully advised of all the implications before signing any paperwork. A change in retirement or pension accounts can impact what is left behind for a spouse and what funds he or she will have available to them after you're gone.

Source: The New York Times, "Spouse's Consent Is Required to Change Retirement Account Beneficiary," Charles Delafuente, Sept. 11, 2011

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