@danilol wrote:
@Mike9241 First I do not have any scenarios that you listed in your first paragraph.
So can I understand as : when I considering assign a beneficiary for my 401K, I should choose person first as primary and secondary beneficiary, and choose trust as the last one if no more person available.
The reason to put trust in as the last one if there is still room to put in, (some 401k only allow limited number of beneficiary to be assigned) is in the case all beneficiaries passed away and the money go no where, then the money can go to trust.
Am I correct?
Thank you for so detailed answer.
You may want to consult an estate lawyer in your state.
In general, if you name John as your beneficiary, and John dies before you (and you don't change the beneficiary before you die) then the asset would pass to John's estate (his heirs). If you name a primary and second beneficiary and they both die before you (and you then die before updating your beneficiaries) the funds will go to the heirs of your secondary beneficiary, cutting out the heirs of the primary beneficiary. Make sure that's what you want.
Example:
Tom has two sons, John and James, and John and James each have two daughters (Tom's granddaughters). Tom and John get in a car accident and John dies at the scene, while Tom dies in hospital. Tom has a 401k with John and James as 50% beneficiaries. 50% of the 401k will go to James, and 50% will go to John's estate, to be divided based on John's will or the laws of intestacy in that state. So that might mean it all goes to John's wife, or 50% to each daughter, or 50% to John's wife and 25% to each of John's daughters, or something else entirely. The wife and daughters can rollover the funds to IRAs and pay taxes at normal rates instead of estate or trust rates.
So now Tom needs to think, is that arrangement what he wants? Maybe Tom wants all the funds to go to the children and cut out John's widow. In that case, Tom needs to designate contingent beneficiaries. If the girls are minors, Tom might want to create a family trust, even though the taxes are higher. (Paying 37% to keep the money safe until the girls are mature enough to handle it might be preferable to paying 22% having the girls waste it on boyfriends and booze.)
So you need to talk to your beneficiaries and find out if they have a will, and you need to educate yourself on the intestacy laws of your state. It may be that you only need to designate a primary beneficiary if the operation of inheritance law would put the money where you want it anyway.
