Employee Benefits and Estate Planning: What New Hires Need to Know

Starting a new job is exciting, but your company’s onboarding process can feel overwhelming. Choosing health and retirement benefits and filling out tax and beneficiary forms can be confusing. Read on to learn how the results of your choices during the onboarding process with your new employer can have serious impacts on your future.

Beneficiary Designations

Beneficiary designation forms allow you to choose who will receive the death benefit from an employer-provided life insurance policy or the remaining funds in your workplace retirement account. These forms allow you to name both a primary beneficiary and a contingent beneficiary. Your contingent designation serves as a crucial backup, receiving the funds if your primary choice passes away or declines the inheritance.

You have several options regarding whom to name. You might select a single individual, multiple people to split the proceeds, a charitable organization, or a trust. It is important to note that some employer-sponsored retirement plans require your spouse to be named as the primary beneficiary. If you prefer to designate someone else, you will typically need your spouse to provide formal written consent.

Because a beneficiary designation automatically overrides any instructions written in a will or trust, it is vital to complete these forms accurately under IRS rules on retirement plan beneficiaries. If you pass away without a valid designation on file, the plan administrator will determine who receives the funds based on their own built-in default rules. This typically means that the balance will be directed to your spouse or closest relatives.

However, if those default rules do not apply to your unique situation, the funds will likely be paid directly to your estate. This outcome forces your loved ones to navigate probate, which can be a costly, time-consuming, and public court process. Furthermore, if a retirement account defaults to your estate, the funds may need to be distributed much faster than they would to a named beneficiary, potentially resulting in a significantly higher tax burden.

Stock or Other Ownership Interests

If your employment benefits include company stock or other ownership interests, it is important that you understand what that entails before you execute any forms. Consult with experienced financial, tax, and estate planning professionals who can help. To fully protect these assets, you will need to gather a few critical details. Specifically, you must know the following information:

• the exact type of interest you hold
• the timeline and conditions for when that interest vests
• whether there are any associated tax obligations or legal reporting requirements
• what happens to your interest if you leave your current employer
• what happens to the asset if you pass away while still employed
• how you can effectively transfer this interest to your loved ones through your estate plan

Estate Planning Documents

To safeguard any employment benefits you may be offered, a foundational estate plan is key to tying everything together for a secure future.

• Last will and testament. Also known as a will, this document lets you direct who receives your money and property, nominate someone as a guardian for your minor children, and name an executor (sometimes called a personal representative) to settle your affairs. Any money or property controlled by the will must go through probate.
• Revocable living trust. A revocable living trust is an alternative to a stand-alone will that allows you and your loved ones to avoid probate. During your lifetime, you can transfer money and property into the trust or name the trust as a beneficiary while continuing to manage and enjoy those assets yourself. If you later become unable to manage your financial affairs, a successor trustee whom you have already selected can step in without court involvement and manage the trust for you. You can also decide in advance what happens to the trust’s money and property when you die.
• Financial power of attorney. This document lets you choose a trusted person (an agent) to handle your financial matters and lets you specify how much authority they have and when they can use it. Without an agent in place, a court may need to appoint someone to manage your finances if you no longer can.
• Medical power of attorney. This document allows you to appoint someone you trust to make healthcare decisions on your behalf if you cannot do so. Without a medical power of attorney, a court may need to name someone to make those decisions for you, costing your loved ones time, money, and privacy.
• Advance directive or living will. Known by either name depending on your state, this document outlines your wishes for end-of-life care. Documenting such wishes ahead of time makes them easier to follow and can reduce tension among loved ones during an already difficult time.
• HIPAA authorization form. A Health Insurance Portability and Accountability Act (HIPAA) authorization form allows you to grant specific individuals access to your medical information, such as updates on your condition, without giving them authority to make decisions on your behalf. Sharing this information can help reduce tension among loved ones since everyone has access to the same information, even though only one person has decision-making authority.

Joining a new company is an exciting adventure. We are here to assist you through the onboarding process and answer any questions you may have. Let us help you protect your next chapter by crafting a proper estate plan.