When you initially created your estate plan, you likely started with a basic Last Will and Testament that provided the guidelines necessary for the distribution of your estate assets when you die. At that point in your life, your only real objective was likely preventing the State of Illinois from deciding how your estate assets would be distributed which would happen if you died intestate, or without a Will in place. Since that time, however, both your family and your estate have likely grown, prompting you to review and revise that initial plan. Like most people, you have probably added additional components to your estate plan, or are considering doing so in the near future. One of those components may focus on retirement planning. As such, you may be wondering how 401(k) plans fit into your estate plan. As is always the case, specific questions and concerns regarding any aspect of your estate plan should be discussed with your Illinois estate planning attorney; however, there is a wealth of general information about 401(k) plans that may help you decide how a 401(k) plan fits into your estate plan, it at all.
Estate Planning in the 21st Century
Estate planning was once almost exclusively the province of wealthy families attempting to retain control over the family wealth and avoid taxation on the transfer of that wealth. In the 21st century, however, every adult should have at least a basic estate plan in place for several reasons. In the absence of at least a basic Will, state intestate succession laws will determine what happens to your assets, including sentimental items and family heirlooms. In addition, if you are a parent, your Will is the only opportunity you have to nominate someone as Guardian for your minor child in the event one is ever needed. These basic estate planning goals will quickly give way to more mature and complex goals and objectives and you and your family grow.
Your Growing Estate Plan
As you move through the various phases of your life, you will likely start your own family and move up the career ladder. As a result, the need for a comprehensive estate plan increases because you have more to protect. Consequently, additional estate planning components will likely be added to your plan, such as incapacity planning, probate avoidance, and retirement planning. When it comes to planning for your “Golden Years,” you cannot start too early. In fact, the earlier you start your retirement plan, the less money you will need to contribute in order to be comfortable in your retirement.
401(k) Plans and Your Estate Plan
There are a variety of ways in which you can financially contribute to your retirement, including a number of different types of retirement plans. 401(k) plans are among those retirement plans. A 401(k) is a retirement savings plan sponsored by an employer that allows you to contribute to your retirement nest egg with pre-tax dollars. Typically, your employer contributes a pre-determined amount each paycheck and you have the option to match your employer’s contribution. Taxes are not paid on the income until it is taken out during your retirement years, often when you are in a lower income bracket. Moreover, because your contribution is taken out pre-tax, those contributions throughout the year can actually lower your overall income each year during your working years as well.
Finally, another very important advantage to including 401(k) plans in an estate plan is that they are a non-probate asset. After your death, your state will have to go through the legal process known as probate during which time all probate assets will be held up until the conclusion of the process. Consequently, those assets are not immediately available to help provide for loved ones. Assets held in a 401(k) account, however, are considered “non-probate” assets and can be distributed to the named beneficiary soon after the account owner’s death. If you are concerned about providing immediate funds for a spouse and/or children in the event of your death, a 401(k) plan might make an excellent addition to your estate plan.
If you have questions or concerns regarding 401(k) plans, contact the experienced Illinois estate planning attorneys at Nash, Nash, Bean & Ford, LLP by calling 309-944-2188 to schedule your appointment today.
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