What You Should Know About Designating Beneficiaries of ASRS Benefits
1. How do I designate beneficiaries of my ASRS Benefits upon death?
In order to name beneficiaries of Arizona State Retirement System (“ASRS”) benefits payable upon your death, you must submit a Beneficiary Form, prior to death, to the ASRS Records Management office in Phoenix. The ASRS Beneficiary Form names the intended beneficiary, or beneficiaries, in the event of your death. A fill-in form is available on the ASRS website.
2. How does the ASRS determine the amount of the death benefit?
When a non-retired member dies, the named beneficiary is entitled to an amount equal to two times the member’s lifetime contributions and interest, plus all contributions and interest made for service purchase. However, if the named beneficiary is the member’s surviving spouse, child under age 21, or handicapped adult child, and the member either attained early retirement (age 50 with five years of service) or had a minimum of 15 years of service, then a present value calculation is made by the ASRS. The beneficiary is entitled to the larger of the two amounts.
When a retired member dies, the named beneficiary is entitled to at least the member’s lifetime contributions plus interest on account at the retirement date, less the benefits already paid to the member after the retirement date. However, if the retired member selected an annuity option other than Life Annuity with Refund Provision, then the benefits payable will be determined by the annuity option selected.
If the retired member selected the Joint and Survivor annuity option, and the non-member survives, then the annuity payments will continue as planned for the non-member annuitant.
Certainly the above calculations and options are confusing, which emphasizes the importance of requesting a survivor’s benefit packet as soon as possible from the ASRS after the member’s death.
3. How is the death benefit paid to the beneficiary?
The benefit amount may be payable in a lump sum, or if the amount is more than $5,000, the beneficiary may elect to receive it in the form of a 5, 10, or 15 year term certain annuity. However, the beneficiary’s interest may be subject to an annuity option already chosen by the member upon retirement.
4. Should I name minor children as beneficiaries?
Although common in practice, it is poor planning to name minor children as primary or contingent beneficiaries on the ASRS Beneficiary Form. If benefits must be paid to a minor child, Arizona law may require a court action (“conservatorship”) to appoint a surviving parent or responsible adult to manage the funds for benefit of the minor child. This is a hassle that a well-drafted will or living trust aims to avoid.
If you want to name minor children as primary or contingent beneficiaries, a better solution is to sign a will that includes contingent trust provisions (that would take effect if the children are young at the time of your death) and then name your estate as beneficiary on the ASRS Beneficiary Form. In other words, the children’s names would not appear on the ASRS Beneficiary Form. The effect is to pay the ASRS benefits to the personal representative (executor) named in your will, who can then distribute the benefits to your minor children in the manner described in your will.
The best solution in this case is to name a living trust as beneficiary, instead of your minor children. However, this option is only available if you have a living trust based estate plan.
5. May I name a Revocable Living Trust as beneficiary?
In general, the best practice is to name living persons as beneficiaries of tax-deferred retirement assets. For example, a married member should name his or her spouse as primary beneficiary (although sometimes a trust for benefit of the spouse is preferred). Similarly, for adult children and other adult beneficiaries, the best practice is to designate them by name on the ASRS Beneficiary Form.
On the other hand, there are many situations when it makes sense to name a trust as beneficiary. Examples include when an intended beneficiary is a minor or disabled child, or unable to manage large sums of money. A trust may also be preferred for beneficiaries who have recently filed for bankruptcy or divorce, or are struggling to pay off creditors.
6. What if the member gets divorced?
If a member and named beneficiary get divorced, the ASRS will automatically revoke the designation. A new Beneficiary Form should be submitted as soon as possible after the divorce.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.
In order to name beneficiaries of Arizona State Retirement System (“ASRS”) benefits payable upon your death, you must submit a Beneficiary Form, prior to death, to the ASRS Records Management office in Phoenix. The ASRS Beneficiary Form names the intended beneficiary, or beneficiaries, in the event of your death. A fill-in form is available on the ASRS website.
2. How does the ASRS determine the amount of the death benefit?
When a non-retired member dies, the named beneficiary is entitled to an amount equal to two times the member’s lifetime contributions and interest, plus all contributions and interest made for service purchase. However, if the named beneficiary is the member’s surviving spouse, child under age 21, or handicapped adult child, and the member either attained early retirement (age 50 with five years of service) or had a minimum of 15 years of service, then a present value calculation is made by the ASRS. The beneficiary is entitled to the larger of the two amounts.
When a retired member dies, the named beneficiary is entitled to at least the member’s lifetime contributions plus interest on account at the retirement date, less the benefits already paid to the member after the retirement date. However, if the retired member selected an annuity option other than Life Annuity with Refund Provision, then the benefits payable will be determined by the annuity option selected.
If the retired member selected the Joint and Survivor annuity option, and the non-member survives, then the annuity payments will continue as planned for the non-member annuitant.
Certainly the above calculations and options are confusing, which emphasizes the importance of requesting a survivor’s benefit packet as soon as possible from the ASRS after the member’s death.
3. How is the death benefit paid to the beneficiary?
The benefit amount may be payable in a lump sum, or if the amount is more than $5,000, the beneficiary may elect to receive it in the form of a 5, 10, or 15 year term certain annuity. However, the beneficiary’s interest may be subject to an annuity option already chosen by the member upon retirement.
4. Should I name minor children as beneficiaries?
Although common in practice, it is poor planning to name minor children as primary or contingent beneficiaries on the ASRS Beneficiary Form. If benefits must be paid to a minor child, Arizona law may require a court action (“conservatorship”) to appoint a surviving parent or responsible adult to manage the funds for benefit of the minor child. This is a hassle that a well-drafted will or living trust aims to avoid.
If you want to name minor children as primary or contingent beneficiaries, a better solution is to sign a will that includes contingent trust provisions (that would take effect if the children are young at the time of your death) and then name your estate as beneficiary on the ASRS Beneficiary Form. In other words, the children’s names would not appear on the ASRS Beneficiary Form. The effect is to pay the ASRS benefits to the personal representative (executor) named in your will, who can then distribute the benefits to your minor children in the manner described in your will.
The best solution in this case is to name a living trust as beneficiary, instead of your minor children. However, this option is only available if you have a living trust based estate plan.
5. May I name a Revocable Living Trust as beneficiary?
In general, the best practice is to name living persons as beneficiaries of tax-deferred retirement assets. For example, a married member should name his or her spouse as primary beneficiary (although sometimes a trust for benefit of the spouse is preferred). Similarly, for adult children and other adult beneficiaries, the best practice is to designate them by name on the ASRS Beneficiary Form.
On the other hand, there are many situations when it makes sense to name a trust as beneficiary. Examples include when an intended beneficiary is a minor or disabled child, or unable to manage large sums of money. A trust may also be preferred for beneficiaries who have recently filed for bankruptcy or divorce, or are struggling to pay off creditors.
6. What if the member gets divorced?
If a member and named beneficiary get divorced, the ASRS will automatically revoke the designation. A new Beneficiary Form should be submitted as soon as possible after the divorce.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.