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Keeping retirement accounts separated


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The following may or may not be hypothetical.

HE and SHE are considering becoming Husband and Wife.  Second marriage for both.  Both have adult children from first marriage.  Both age 70.  Both have investments that fall into the common categories:

a)   individual investments, such as stocks, bonds, mutual funds, none of which are part of an IRA or qualified plan.

b)   small cash accounts (checking, savings, CDs).

c)   retirement accounts, including all of the following: traditional IRA, Roth IRA, 403b plan (governmental), and 401a plan (ERISA-covered).  All retirement accounts are individual accounts, not defined benefit.  None of these accounts have reached Required Minimum Distribution.  All accounts existed long before HE and SHE met each other and have no potential beneficiaries other than children.  There are no real or potential QDROs.  All current accounts have named children as beneficiary(ies).

d)   There may be other property with small (but non-zero) value such as vehicle, artwork, real estate, antiques.

Both parties want the following to happen:

  • Current retirement accounts will not be commingled.
  • Upon the first to die, the retirement accounts and investments of the deceased will remain in existence and the income (and/or RMD) will be payable to (for the benefit of) the survivor.  The principal of the retirement accounts and investments would NOT be available to the surviving spouse unless the spouse's investments become exhausted.  Non-investment property (i.e., items that do not produce income) of the first-to-die (such as a car) might remain with the surviving spouse or go to the surviving children of the deceased (to be determined).
  • Upon the death of the second, the ownership of all remaining investments (in all categories above) will pass to the children of the original owner.  For example, if HE dies first, at the time SHE dies, all of HIS investments and IRAs and accounts will become owned by HIS children, and all of HER investments and accounts will become owned by HER children.

What method(s) can be used to accomplish this?

Would the marriage automatically alter any beneficiary designations in effect for any of the above investments or accounts?

Does it require both pre-nuptial and ante-nuptial agreements to document the intent and actions?

What have I forgotten?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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4 hours ago, Peter Gulia said:

What each of “he” and “she” needs is to get work from a good estate-planning lawyer.

To get candid, unconflicted advice, each needs his or her own lawyer.

10000000000%

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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On 7/27/2022 at 11:38 AM, david rigby said:

accounts and investments would NOT be available to the surviving spouse unless the spouse's investments become exhausted

That seems to me the trickiest part of your scenario David, and requires a creative and highly-competent estate counsel's input.

On 7/28/2022 at 6:17 AM, Peter Gulia said:

If the spouses ever will or might reside in a community-property State (or otherwise invoke a community-property law), either or both might want a premarital agreement that undoes community property for some or all of the property interests.

Every point Peter made is important. Certainly in a community property state, and likely some common law states as well, an anti-nuptial agreement is required to achieve some of these goals. In states where wills of nondeceased persons can be filed with the recorder or the court, the agreement should be filed along with the wills with the court having jurisdiction. 

The reasoning underlying anti-nuptial agreements (which the supreme court has also used in a QDRO context) is that some forms of property only arise in a marital context, and therefore a pre-marital agreement cannot address the disposition of that property as the couple involved do not have those rights to dispose of prior to marriage. It is also good practice to do so for older clients to help protect them from potential heirs' later claims of undue influence.

---

Edited to say, with egg on face, not only did I mean post-marital, not ante-nuptial, but unsupervised autocorrect compounded my error to make ante anti. The horror, heh, though all you polite people ignored the faux pas.

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As I mentioned above, some retirement plans would require an after-marriage consent.

If a plan includes a provision ERISA § 205 requires (or a similar provision to get IRC § 401(a) tax-qualified treatment), a premarital agreement cannot be a spouse’s consent to waive those rights. Usually, a spouse’s consent must be signed by the spouse, and a person making a premarital agreement is not yet a spouse.

See ERISA § 205, 29 U.S.C. § 1055; 26 C.F.R. § 1.401(a)-20, Q&A-28.

See, for example:

Appeals courts

Hurwitz v. Sher, 982 F.2d 778 (2d Cir. 1992);

Hagwood v. Newton, 282 F.3d 285 (4th Cir. 2002);

Greenebaum Doll & McDonald PLLC v. Sandler, 2007 F. App’x 0822N (6th Cir. 2007);

Howard v. Branham & Baker Coal Co., 968 F.2d 1214 (6th Cir. 1992);

Pedro Enters. Inc. v. Perdue, 998 F.2d 491 (7th Cir. 1993);

National Auto Dealers & Assoc. Ret. Trust v. Arbeitman, 89 F.3d 496 (8th Cir. 1996);

Trial courts

Robins v. Geisel, 666 F. Supp. 2d 463, 467–468 (D.N.J. 2009);

John Deere Deferred Sav. Plan for Wage Employees v. Estate of Propst, No. 06 Civ. 1235, 42 Empl. Benefits Cas. (BL) 2076 (E.D. Wis. 2007);

Davis v. Adelphia Communications Corp., 475 F. Supp. 2d 600, 605-606 (W.D. Va. 2007);

Veolia Water Ret. Sav. Plan v. Smith, 2007 U.S. Dist. LEXIS 9754, 2007 WL 496425 (W.D. Va. Feb. 12, 2007);

Neidich v. Estate of Neidich, 222 F. Supp. 2d 357 (S.D.N.Y. 2002);

Ford Motor Co. v. Ross, 129 F. Supp. 2d 1070, 1073–1074 (E.D. Mich. 2001);

Callahan v. Hutsell, Callahan & Buchino, P.S.C. Revised Profit Sharing Plan, 813 F. Supp. 541 (W.D. Ky. 1992), vacated and remanded on other grounds, 14 F.3d 600 (6th Cir. 1993);

Nellis v. Boeing, No. 91 Civ. 1011, 15 Empl. Benefits Cas. (BL) 1651, 18 Fam. Law Rep. (BL) 1374 (D. Kan. 1992);

Zinn v. Donaldson Co., 799 F. Supp. 69 (D. Minn. 1992).

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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