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Surviving Spouse Benefits under SEPs


Scott
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An unmarried participant in a SEP designates his mother as beneficiary. He subsequently marries, but does not change the beneficiary designation. He then dies. Does the mother get the benefit, or is a SEP subject to the rule for qualified plans that the surviving spouse gets the death benefit unless the spouse consents to another beneficiary?

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Yes, unless (1) the beneficiary designation form says that the surviving spouse is automatically the beneficiary unless the spouse had consented to a different beneficiary (even though ERISA is not applicable, I would not be shocked to find this in the form); or (2) there is a state law statute that mimics ERISA as applied to IRAs.

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I have been involved in several situations where the parent of a deceased IRA owner has been the beneficiary of an IRA because the beneficary designation was not updated after marriage. ( in once case the death was 15 years after marriage.) Sometimes the spouse sues the custodian or the mother for the benefits but if the bene designation is valid the funds go to mom. I dont know of any IRA custodian who would change the IRA beneficiary designation due to a change in marital status without receiving the owner's request because the custodian does not want to become entangled in personal beneficiary designations, e.g, why would there be a presumption that the owner wants the spouse to be the bene after marriage? I dont know of any state law that makes the spouse an automatic beneficiary of an IRA. State laws, e.g., New York, permit the IRA owner to designate a beneficary in writing that is enforceable under state law.

The IRA provides default options in the event the participant dies without a designated beneficiary. In this case the spouse is usually the default beneficiary if the participant is married. If the participant is not married the estate is usually the bene. The only way a spouse attains rights to an IRA under state law is if the IRA owner lives in a community property state where 1/2 of all assets acquired during marriage is owned by each spouse and the non owner spouse can assign the rights to 1/2 of the IRA.

mjb

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