The purpose of estate tax planning is to maximize the assets you pass on to future generations by minimizing gift and estate taxes. Estate-tax strategies revolve around the use of irrevocable trusts. This article discusses the most common types of irrevocable trusts that are used to minimize gift and estate […]
A remainder beneficiary is a designated individual who will receive the remaining portion of an estate after all debts, taxes, and other paid-out expenses. The owner can name the remainder beneficiaries in the will or any other legal document designating how the estate will distribute upon the passing of its owner.
When establishing a will or other estate-planning document, the testator or person creating the will must designate the beneficiary and any primary beneficiaries. A primary beneficiary receives a specified portion of the estate before distributing any remaining assets to a remainder beneficiary. This beneficiary will only receive their designated share after paying all other debts, taxes, and expenses.
For example, if a person leaves $10,000 to their spouse and $5,000 to their best friend. Then, the remainder of the estate would go to the remainder beneficiary. The estate will be distributed according to state law if there is no specific designation.
A remainder beneficiary can be any individual the testator chooses, such as a spouse or child. Alternatively, it can be an entity such as a charity, school, or organization. Depending on what type of estate-planning document you use to establish the remainder beneficiary, the testator can place additional conditions on the distribution of assets.
Regardless of who is the remainder beneficiary, they must receive proper notification and understand their rights and responsibilities as remainder beneficiaries. For example, without adequate notice, a beneficiary may not realize they are entitled to receive assets from an estate until much later.
A qualified beneficiary can receive distributions from an employer-sponsored retirement plan. This includes employees, their spouses, and their children. A remainder beneficiary is not qualified and therefore is not eligible to receive distributions from the program.
The plan sponsor must designate qualified beneficiaries, and the owner cannot change the designation once it’s done. If the plan sponsor fails to establish a qualified beneficiary, the default rules of the plan will apply. These rules usually state that the employee’s spouse is the default beneficiary.
It’s important to note that just because someone is a remainder beneficiary does not mean they are automatically disqualified from receiving distributions from an employer-sponsored retirement plan. The plan sponsor may choose to distribute assets to the remainder beneficiaries even if they are not designated as such. However, this is at the sponsor’s discretion, and the law doesn’t require it.
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