Should Your Employer Offer Help with Estate Planning When They Offer a 401K Plan?

By Veronica Baxter

August 28 2020 - It would be convenient for the employee if they did! While there is no legal requirement for an employer to offer any such assistance, chances are the company’s human resources staff can help you or refer you to someone who can help you if you have questions about estate planning.

This article will introduce you to the basics so that you know what estate planning is, why it is essential, and how to start your estate plan.

What is Estate Planning?

While most of us think of something much grander when we hear the word "estate," just about everyone has an estate. "Estate" is the term used to describe the sum of all of your worldly belongings, such as your home, your car, your personal possessions, your bank and investment accounts, and yes, your 401(k) plan through your employer.

"Estate planning" is the term used to describe the process of allocating a person’s possessions in life so that assets are distributed in an orderly fashion after death, to those individuals that person intends.

Why Do I Need Estate Planning?

Every person, no matter how modest their estate is, should practice some estate planning, especially if they own valuable personal possessions such as family heirlooms, art, a classic car, or a baseball card collection. Estate planning ensures that your belongings go to the friends, family members, or organizations you intend.

If you do no estate planning before you pass, you will have died "intestate," and your state’s laws of intestacy will control who gets what. This could mean that an estranged spouse will inherit everything, or an estranged child will receive an equal share of your estate as his siblings. If no family can be found to inherit, your estate will "escheat," meaning the state will get it. Is any of this what you want?

The Basics of Estate Planning

Last Will and Testament

Everyone has heard of a will and should have one. But what exactly is it? It is a document created under the laws of your state to set forth your ability and fitness to decide how to dispose of your estate, how the estate contents are to be distributed, and who will manage the estate, pay all last bills, and make that distribution.

A will can be as detailed or as general as you wish. For example, if you have three children and you want them to take turns choosing from your household furniture, appointments, and family heirlooms, you can specify that rather than list each individual item and designate who is to have it.

When you draw up a will, you will designate someone trustworthy as executor of the estate. That person will act as the afore-mentioned manager. Your heirs are the people you designated in your will to receive part of the estate.

Minor Children and a Trust

If you have minor children, you can use your will to designate their guardian or guardians and leave them assets "in trust," meaning that a trustee (usually a guardian) controls those assets until the children come of age.

If you do not designate guardians for your minor children, a judge will.

Avoiding Probate by Creating a Trust

A will must pass through probate, which is the court process of proving the will, which in turn means it is determined that the will was drawn up and witnessed properly. This is a public process. Many high-worth individuals choose to avoid probate by putting all of their assets in a trust that privately and automatically passes to the next beneficiary upon their death. The costs of creating a trust can be high so look into it prior to committing to it.

Setting up POD accounts

Most bank and investment accounts are POD accounts. POD stands for "payable on death" and you designate the beneficiary or beneficiaries to receive the funds upon your death. These accounts are not governed by the terms of your will, in other words, your designated beneficiary or beneficiaries will receive the account funds if there are contrary instructions in your will.

Designating Beneficiaries of Your Life Insurance Policy

Life insurance works like POD accounts in that your designated beneficiary or beneficiaries will receive the death benefit regardless of any contrary instructions in your will.

An interesting twist in life insurance law requires your attention in keeping your beneficiary designation current. For example, some states revoke a spouse’s beneficiary designation upon divorce, automatically. If you wish your ex-spouse to continue to be the beneficiary, you must re-designate him or her.

Other states uphold the beneficiary designation even if the beneficiary is the ex-spouse, and the insured would not have wanted his or her ex to receive the death benefit.

Be sure to keep your beneficiary designations current with your wishes, should they change.

Drawing up a Durable Power of Attorney

A comprehensive estate plan will include a durable power of attorney (DPA). A DPA designates a trusted friend or family member as the person who will manage your finances if you become unable to do so yourself.

If you do not have a DPA and become incapacitated, your family or friends will have to ask a judge to appoint a conservator or guardian. Wouldn’t you rather pick this person yourself? Get a DPA.

Creating an Advance Health Care Directive

The last item in your estate plan is your advance health care directive, sometimes called a living will or a DPA for healthcare depending upon where you live. This document sets forth the type of medical procedures you want and do not want as you near death, and designates someone to ensure that your healthcare professionals respect your wishes.

Planning for Retirement and Estate Planning Go Hand in Hand

Contributing to your company’s 401(k) plan is the first step towards providing for a financially secure retirement, and enrolling in it probably has you thinking of the future in other ways. Now you know you can provide for the orderly distribution of your assets by engaging in some estate planning with the help of a qualified professional. If one is not available at work, contact an estate planning attorney in your area for assistance.

About the Author

Veronica Baxter

Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with Chad Boonswang, Esq., a Philadelphia life insurance beneficiary lawyer.