By Peabody Law – Serving Southlake, TX and Surrounding Areas
When building an estate plan, many families focus on wills, trusts, and property transfers—but retirement accounts often hold the most substantial portion of a person’s net worth. Failing to coordinate these assets with the rest of your estate plan can result in unexpected tax burdens, beneficiary disputes, or missed opportunities for legacy building.
Whether you’re in Southlake, TX, or nearby communities like Keller, Trophy Club, Westlake, Colleyville, or Grapevine, coordinating your retirement accounts with your estate planning documents is essential for maximizing what you leave behind—and minimizing the hassle for your heirs.
Why Retirement Benefits Deserve Special Attention
Retirement accounts—including 401(k)s, IRAs, Roth IRAs, pensions, and other qualified plans—are unique in that they typically pass directly to named beneficiaries outside of probate. That’s good news in terms of avoiding court delays, but it also creates potential pitfalls if your estate plan doesn’t match the designations on file with your plan administrators.
These accounts also carry significant tax considerations, particularly for high-net-worth individuals. The SECURE Act and other recent legislation have changed how retirement assets are inherited, limiting the ability to stretch tax-deferred benefits over a beneficiary’s lifetime in many cases.
Steps to Effectively Coordinate Retirement Assets with Your Estate Plan
1. Review and Update Beneficiary Designations
Your beneficiary designation form—not your will—controls who inherits your retirement accounts. Many people make the mistake of assuming their will overrides these forms, but it doesn’t.
Regularly reviewing and updating your beneficiary choices is critical, especially after major life changes such as:
- Marriage or divorce
- Birth of a child or grandchild
- Death of a previous beneficiary
- Formation or dissolution of a trust
Also, consider naming contingent beneficiaries in case your primary beneficiary passes before you.
2. Align Retirement Beneficiaries with Your Overall Estate Goals
Suppose your estate plan calls for your assets to be divided equally among your children, but you’ve only named one child as the beneficiary of your retirement account. That misalignment could lead to unintended favoritism, family conflict, or even legal disputes.
It’s best to work with both a financial advisor and an estate planning attorney to ensure your beneficiary structure supports your legacy objectives.
3. Consider a Trust as the Retirement Beneficiary
In some cases, especially when beneficiaries are minors or lack financial maturity, you may want to name a trust as the beneficiary of your retirement account instead of an individual. This adds a layer of control over how and when the funds are distributed.
However, doing this improperly can trigger immediate taxation or violate IRS rules regarding “see-through trusts.” That’s why professional guidance is critical.
There are two primary trust structures used in this context:
- Conduit Trusts: Pass all required minimum distributions (RMDs) directly to the beneficiary.
- Accumulation Trusts: Allow the trustee to retain RMDs within the trust, offering more control but potentially higher tax rates.
4. Plan Around the SECURE Act
The SECURE Act of 2019 significantly altered how retirement benefits are inherited. For most non-spouse beneficiaries, the law requires that the entire inherited account be withdrawn within 10 years of the original account holder’s death.
This “10-Year Rule” can create accelerated tax liabilities for heirs in their peak earning years. Strategic planning—such as Roth conversions or charitable remainder trusts—can help mitigate this impact and preserve more of your legacy.
5. Incorporate Retirement Accounts into Your Trust or Will Review
Even though retirement accounts are non-probate assets, it’s wise to mention them in your estate plan to give context and guidance to your executor or trustee. Doing so can help avoid confusion, especially if you’ve chosen to structure these accounts in a more complex way (e.g., via trust).
Retirement Accounts, Estate Taxes, and High Net Worth Planning
For wealthier individuals and couples, coordinating retirement assets with estate tax planning is also vital. While retirement accounts grow tax-deferred during your lifetime, they’re still counted as part of your gross estate for federal estate tax purposes.
Some strategies to consider:
- Lifetime gifting to reduce taxable estate value
- Charitable rollovers for IRA holders over age 70½
- Establishing charitable remainder trusts (CRTs) for both tax efficiency and philanthropic goals
Don’t Forget About Required Minimum Distributions (RMDs)
Once you hit a certain age (currently 73, rising to 75 by 2033 under SECURE 2.0), you’ll be required to start withdrawing funds from your traditional IRAs and 401(k)s. Failing to take these withdrawals comes with stiff penalties and could complicate the distribution of your estate.
An experienced estate planning attorney can help you plan for these withdrawals as part of your broader wealth transfer and tax strategy.
Final Word
Your retirement accounts may be the single most valuable asset in your estate—yet they often receive the least coordination. Aligning these accounts with your broader estate planning documents ensures a smoother, more tax-efficient transfer of wealth to your loved ones.
Legal Disclaimer
This blog is intended for educational purposes only and does not constitute legal advice. Estate planning, tax rules, and retirement regulations vary by jurisdiction and individual circumstance. Please consult with a qualified estate planning attorney and financial advisor to tailor a plan specific to your needs.
Peabody Law | Trusted Estate Planning in Southlake, TX
Peabody Law proudly serves clients in Southlake, Keller, Colleyville, Trophy Club, Westlake, and surrounding areas with high-touch, strategic estate planning services. If you’re ready to coordinate your retirement assets with your legacy plan, we’re here to help every step of the way.