You may not realize it, but an important step in estate planning doesn’t involve any estate planning documents. It’s your beneficiary designations on your various accounts. This includes retirement accounts.
If you’re a federal employee or retiree, you likely have a Thrift Savings Plan (TSP). If you haven’t designated one or more beneficiaries for your TSP when you pass away, the entire plan will be distributed as designated by law – which may or may not be what you would prefer.
Who gets the funds if you don’t designate beneficiaries?
It goes in this order:
- If you’re married at the time of your death, it will go to your spouse.
- If there’s no surviving spouse, it will go to your children.
- If you have no surviving spouse or children, it will go to any surviving parent(s).
- Next in line is any executor already appointed and your surviving next of kin.
While you may also choose to note these designations in your will or other estate planning documents, it’s crucial to remember that if there’s a discrepancy at the time of your death, the funds will be distributed according to the designation on your TSP. That overrides any estate planning or other documents. The same is true for other beneficiary designations – not just for those on TSPs.
Does the beneficiary get their own TSP? It depends
As with other types of accounts with beneficiary designations, if you choose your own, you don’t have to choose a family member – or even a person. You can leave the money to a charitable organization or perhaps to a trust you’ve set up. The only differentiation when the funds are distributed is that surviving spouses can get their own TSP to hold the funds while non-spouse beneficiaries can’t. They’ll get the funds either way.
Don’t neglect any other accounts you have that allow beneficiary designations, like investment accounts. It’s also important, as with other aspects of your estate planning, that you ensure that the information is current. For example, if you divorce or one of your beneficiaries passes away, you’ll want to update the information. This can prevent confusion and conflict later and help ensure that your wishes are carried out.