Many Manassas area residents are current, retired or former federal employees with assets still in a Thrift Savings Plan (TSP). That plan should have at least one primary beneficiary as well as one or more contingent beneficiaries.
While TSPs are similar to 401(k)s and other retirement accounts in some ways, there are also some differences that it’s important to know about as you determine how your TSP will fit into your overall estate plan.
One thing it’s critical to know for any account or insurance policy where the beneficiary designation is made directly on the account or policy is that beneficiary designation overrides the will or other estate plan document. The TSP informational documentation specifically states: “A will, prenuptial agreement, separation agreement, property settlement agreement, or court order will not override either a beneficiary designation or the order of precedence.”
When is the “order of precedence” used?
The order of precedence determines how assets in the TSP will be disbursed if the owner of the plan passes away with no surviving primary or contingent designated beneficiaries. The order is as follows:
- Surviving spouse
- If no surviving spouse, to any surviving child(ren)
- If no surviving spouse or children, to any surviving parent(s)
If there are no family members in these categories, the appointed estate executor receives them. Finally, if there is no appointed executor, the assets in the TSP go to the “next of kin who is entitled to the participant’s estate under the laws of the state in which he or she resided at the time of death.”
By designating beneficiaries yourself for your TSP, you determine who gets these assets and what percentage of them they each receive. This is just one area of estate planning where codifying your choices, even if you need to change them throughout your life as your family and other circumstances evolve, is better than leaving things to the law and other regulations.
One final note: This past year has been difficult for many federal employees living in Virginia, with significant layoffs in many agencies. Under the TSP rules, anyone with at least $200 in their plan when they leave the federal government can retain it, make transfers into it, change their mix of investments and continue to earn money on their assets.
With experienced Virginia estate planning guidance, current and former federal employees can help ensure that they are able to leave the legacy they want for their family and others.
