For residents of Grand Rapids, Michigan who are thinking about estate planning and, in particular, are thinking about options concerning their pensions, it is important to understand how estate planning is connection to decisions about your pension. First, what is a pension? Is this something you need to add into your will? And can you have more than one beneficiary for your pension? These are some of the common questions we receive, and we will discuss these and more as we explain how pensions can figure into your estate planning.
What is a Pension?
In order to understand how your pension will play a role in your estate planning, you will first need to know what a pension is and how it functions. As CNN Money explains, a pension is simply a “retirement account that an employer maintains to give you a fixed payout when you retire.” A pension is what is known as a defined benefit plan. A defined benefit plan is simply one in which the benefit you received is based on how long you have worked for your employer and your salary. This is also a plan into which your employer pays the money (and makes decisions about where it will be invested).
How much is a pension worth and how does a pension get paid? The answers to those questions will depend upon a number of factors, including the length of time you worked for your employer, as well as your salary during your period of employment. A pension pays out when you decide to retire, and it will typically be paid either in a monthly payment over a period of time, or it can be paid in a lump-sum payment.
Learning More About Your Pension and Estate Planning
Now that you understand more about pensions (and, perhaps, how they are distinct from other types of retirement accounts such as IRAs, for example), it is important to learn more about designating beneficiaries and ensuring that your retirement benefits can help to provide for your loved ones.
A trusts and estates resource sheet from the American Bar Association helps to explain how you name beneficiaries on a pension plan, and other issues to consider. First, it is important to know that you do not name beneficiaries of your pension plan account in your will. While items that you bequeath in your will must go through the probate process, retirement benefits and other insurance payouts will not automatically have to go through the probate process. Now, how do you name a beneficiary on your pension plan if not through your will?
Pension plan accounts are a bit different than other retirement accounts when it comes to naming beneficiaries. While certain retirement accounts allow you to choose your beneficiary and to name that specific beneficiary in writing, pension plans require your spouse to be the named beneficiary—if you are married—unless the spouse expressly waives this benefit in writing. While in most cases your spouse will be the person you would choose as the beneficiary regardless, pension plans to assume that the spouse will benefit from this account in the event of your death. If you are not married, you can name anyone you choose as the beneficiary of your pension plan, and that person then may be able to receive lifetime payments through your pension.
A West Michigan Estate Planning Attorney Can Help
Whether you are married or not, it is important to discuss any estate-planning questions, including naming beneficiaries on your retirement accounts, with an experienced Grand Rapids estate planning attorney. An advocate at our firm can answer your questions today. Contact the Law Offices of David L. Carrier, P.C. to learn more about our services.