Transferring a retirement account to beneficiaries upon your death is complicated and if it is not done right can have adverse control and tax consequences.
For example, one issue most people do not consider is minor beneficiaries of retirement accounts. By law, if a child is a minor, the child cannot inherit assets of any kind until said child becomes an adult. If estate planning is not done, the state laws and the retirement agreement default policies will dictate how the minor child will receive the retirement account upon adulthood. The parents will lose the control of how the minor child receives retirement account funds.
Another example is whether or not the retirement agreement policies allow the retirement to pass to beneficiaries per stirpes (to the children of a specific deceased beneficiary) or per capita (to all the issue of one generation) if the estate becomes the beneficiary. If estate planning is not done, the retirement agreement default policies will apply, which might not agree with your planning preferences.
A final example deals with coordinating a retirement account with a trust (which usually gives a person the most control in how assets are distributed to individuals). In coordinating a retirement account with a trust, there are funding issues that can botch up a beneficiary's chance to roll over or stretch a retirement account if the funding is done wrong.
These are just a few examples of issues that effect the transfer of retirement accounts to beneficiaries. It is to a person's advantage to consider the complexities of retirement accounts with an expert estate planning attorney to ensure their retirement accounts get to their beneficiaries in the best possible way.
Here are a few Wall Street Journal articles regarding retirement accounts:
Trust as Beneficiary of IRA Is a Polular Strategy
What a Gift: How to Name a Minor Your IRA Beneficiary
Inherited IRAs: a Sweet Deal
Rules of Rollovers
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