Beneficiary Issues for the Sandwich Generation

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

The “sandwich” generation is those who are raising their children and also taking care of their parents. They are sandwiched by their care-taking responsibilities. They are likely to have their own 401(k)s or other employer plans and IRAs, and they are likely to be the beneficiaries of their parent’s retirement assets. Again, they are sandwiched – they are owners with beneficiaries and they are also beneficiaries. Here is what these caretakers need to know about both sides of the equation.

First and foremost, they need to be sure there are beneficiary forms for all retirement assets, both the ones their parents have and for their own assets. They need to make sure that Mom and Dad’s assets have living beneficiaries named and that they do not go through the estate. Retirement assets should never go through an estate. That means they have to go through probate and they could be subject to claims of creditors. Trusts can be problematic and you should talk to an advisor with expertise in distributing retirement assets if you want to name a trust as a beneficiary. On the other hand, for the caretaker’s own assets, a trust may be necessary if their retirement assets are being left to minor children. Minors cannot sign the necessary documents to establish an inherited IRA, they cannot request required distributions and they cannot make investment decisions. Without a trust, or a guardian, a court may need to become involved to determine who is going to manage the assets for the minor.

Divorce rates are rising for those over age 50 and marriage is becoming a thing of the past for younger couples. Again, beneficiary forms are critical in these circumstances. If parents get divorced, the caretaker needs to be sure that the parents update their forms to reflect their new circumstances. If the caretaker gets divorced or never married in the first place, the beneficiary form will ensure that retirement assets are left to the individual they choose. That could be the individual responsible for raising any children or it could be to the children of a previous relationship. In either situation, you generally do not want retirement assets going to ex-spouses in addition to whatever they got during the divorce or the break-up of a relationship.

The beneficiary form is like the will for the retirement assets. You worked hard for that money. Make sure it goes where you want it to go – not where the company, or the courts, or state law says it should go. If the assets are going to minors, make sure there will be a smooth transition.

– By Beverly DeVeny and Jared Trexler