Answers to Commonly Asked Questions About Vanguard's
Standard Beneficiary Designations

Your beneficiary designation controls who receives your retirement account assets after you die. It is important to carefully consider your choice of both primary and secondary beneficiaries—and to keep your designations current.

As a participant in a 403(b)(7) plan, you should note that if you are married and your account is part of an employer-sponsored plan governed by the Employee Retirement Income Security Act (ERISA), 50% of your balance may be required to be paid to your surviving spouse in the form of a preretirement survivor annuity, unless your spouse consents to a nonspouse beneficiary designation in the presence of a plan representative or notary public.

Contact your plan administrator (not Vanguard) for more information.

Vanguard offers six standard designations (options 1–6 on the Vanguard® 403(b)(7) Beneficiary Designation form) that you can use for your primary and secondary beneficiaries. These standard designations were designed to meet the needs of most shareholders in most circumstances.

You may select just one designation for your primary designation and one for your secondary, or any combination of the six, as long as each set of primary and each set of secondary beneficiary designations total 100% independently.
 
Below is a list of commonly asked questions that should help you in filling out the form.

> Filling Out the Form
> Naming Your Children, Grandchildren, or Others as Beneficiaries
 
> Naming Your Spouse as Beneficiary > Miscellaneous
 
If you need further assistance, call a specialist in Small Business Services at 1-800-662-2003, Monday through Friday from 8 a.m. to 7 p.m., Eastern time.

 
 

Filling Out the Form

Q. Why do I need both primary and secondary beneficiaries?
You should designate a secondary beneficiary in case your primary beneficiary dies before you. If you haven't designated a secondary beneficiary, the current terms of Vanguard's 403(b)(7) Custodial Account Agreement provide that your assets will pass to your surviving spouse, if you have one. If you do not have a surviving spouse, your assets will pass to your estate. In the event the assets pass to your estate, the Internal Revenue Service may require your estate's beneficiaries to accelerate the distribution of the assets—forcing them to pay higher income taxes than they might otherwise.

Q. Why do I have to complete the entire form if I only want to update my secondary beneficiary?
You need to complete the entire form because the beneficiaries you designate on the form will supersede any previous instructions you provided regarding both your primary and secondary beneficiaries.

Q. What if there isn't enough space on the form for all of my beneficiaries?
If you need more space to list additional beneficiaries, either photocopy pages 2 or 3 of the form, or provide all of the information requested in the same format on a separate sheet attached to the form and submit it to Vanguard in the same envelope.

Q. What happens if my beneficiary dies before me?
It depends on which option you choose on the Vanguard 403(b)(7) Beneficiary Designation form. Generally, if one of your primary beneficiaries dies before you, your assets will be divided proportionately among your surviving primary beneficiaries. If none of your primary beneficiaries are alive at the time of your death, the assets will pass to your secondary beneficiaries.

Note: This may differ if you have chosen option 2 and designated your descendants per stirpes.

Q. Why doesn't Vanguard need specific names for some of these designations?
For the designations that are based on the relationship of specific individuals to you at the time of your death (options 1, 2, and 3), you do not need to include information about them now because the personal representative of your estate (or the trustee if you designate a trust as a beneficiary) is responsible for providing Vanguard with the names of your beneficiaries after your death.

It's a good idea to discuss your beneficiary designation with your personal representative to ensure that there's no misunderstanding about what he or she will have to do and what information will need to be provided after your death.

Q. How often should I review my beneficiary designations?
You should review your beneficiary designations whenever a major life event, such as marriage, divorce, or birth of a child, occurs. Also, be sure your designations meet your needs in light of any changes in the law such as estate or tax law changes. Your beneficiary designations are an important part of your estate plan, so make certain that they always complement other documents such as your will or any trust agreements. You may want to consult an estate attorney before making any beneficiary changes.

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Naming Your Spouse as Beneficiary

Q. Why should I designate my spouse by relationship instead of by name?
By designating your spouse by relationship (option 1) rather than by name (option 6), your family may avoid potential problems after your death because this option ensures that an ex-spouse or the estate of a spouse who died before you will not receive your account assets.

If you designate your spouse by name, that person (or his or her estate if your spouse dies before you) will inherit your retirement assets, regardless of any future change in your marital status. So if you divorce and don't change your beneficiary designation, your ex-spouse will inherit the assets.

By choosing option 1 (to my spouse who survives me), Vanguard will pay the proceeds of your retirement account to the person to whom you are married at the time of your death. (You don't need to provide Vanguard with any information about your spouse now; we will obtain it when we receive a request to distribute your retirement assets after your death.)

Q. Does Vanguard recognize community property laws?
Nine states and Puerto Rico have laws that treat most property acquired during a marriage as "community property" owned equally by both spouses. If you once were a resident of those states or Puerto Rico, any assets acquired during your marriage while living there may be considered community property—even if the state where you currently reside does not have community property laws.

The beneficiary designation you file with Vanguard will not override any community property rights that your spouse may have in your retirement accounts. Until Vanguard receives a properly documented community property claim at the time of distribution, we will not be liable to anyone for acting in accordance with the designation we have on file.

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Naming Your Children, Grandchildren, or Others as Beneficiaries

Q. How can I name all of my children as beneficiaries?
If you want to designate all of your children as beneficiaries, you should consider using option 2 (to my descendants who survive me, per stirpes). This designation would first be payable to all of your children who survive you (including those born after you complete the designation form). If any of your children die before you and leave surviving children (your grandchildren), those children would equally share their deceased parent's share of your account. If any of your children die before you but do not have their own children, that child's share would be divided among your surviving children.

Alternatively, you may designate your children by name under option 6. If you choose this option, be sure to update your designation if you have any more children after you complete the form, or if any of your named beneficiaries dies before you.

Q. What if I designate my children or grandchildren by name instead of by relationship?

If you designate your children or grandchildren by name (option 6) rather than by relationship (option 2 or 3), be sure to update your designation to add any later born children or grandchildren because only the living descendants whom you name will inherit your assets.

If you choose option 2 (to my descendants who survive me, per stirpes), your assets will be divided among all of your children. If a child dies before you, that child's share will be divided among that child's offspring, if any, or if that child did not have any offspring, among your surviving children. You won't have to update your designation to add any later born children or grandchildren.

Q. Who is considered a descendant?
For the purposes of distributing your retirement assets, Vanguard uses the term descendant in option 2 (to my descendants who survive me, per stirpes) to refer to lineal descendants. That is, offspring who are blood relatives such as your children, grandchildren, or great-grandchildren, including any legally adopted children. Stepchildren or stepgrandchildren whom you or your children have not legally adopted are not considered lineal descendants and will not inherit your assets using this option. If you want to include any of your non-lineal descendants as beneficiaries, you need to name them in option 6 (other).

Q. Why aren't my nieces and nephews considered descendants under option 2?
Vanguard uses the term descendant to refer to a lineal descendant. Any person who is in direct line to an ancestor is a lineal descendant. For example, a lineal descendant is a child, grandchild, or great-grandchild. A lineal descendant is distinguished from a collateral descendant, who is related to you through the line of a brother, sister, aunt, or uncle.

Q. What happens if I choose option 2 and none of my children survive me?

If you choose option 2 (to my descendants who survive me, per stirpes) and none of your children survive you, your assets will pass to your surviving grandchildren. If there are no grandchildren, your assets would then pass to your secondary beneficiaries. If there are no surviving secondary beneficiaries or you haven't named any secondary beneficiaries, the assets may pass to your estate in accordance with Vanguard's IRA Agreement and be distributed under court supervision (known as the probate process).

Q. Why doesn't Vanguard offer the option of designating equally to my children who survive me?
If you were sure that all of your children would survive you, a designation of "to my children who survive me" would probably meet your needs. However, if one of your children died before you, but left surviving children (your grandchildren), those surviving grandchildren would be cut out of any share of your retirement account. Because most people who name their children as beneficiaries want to be sure that their grandchildren in this situation will not be inadvertently disinherited, we offer option 2 (to my descendants who survive me, per stirpes). This option ensures that you don't unintentionally disinherit your grandchildren from your retirement account.

Q. How can I designate my stepchildren or stepgrandchildren?

You should name your stepchildren or stepgrandchildren individually under option 6 (other). Just remember to update the designation should you have additional stepchildren or stepgrandchildren; otherwise, they will not receive any of the assets.

Q. Can I designate my nieces and nephews or siblings by relationship using option 6?

No. You can use option 6 (other) to designate individuals by name who have a relationship to you other than spouse, child, or grandchild, such as nieces and nephews, siblings, or friends. You can also use option 6 if you want to designate your spouse, child, or grandchildren by name rather than by relationship.

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Miscellaneous

Q. To whom will my assets go if I don't name a beneficiary?
The terms of the Vanguard 403(b)(7) Custodial Account Agreement provide that if you do not name a beneficiary, your assets will go to your surviving spouse. If you have no surviving spouse, your assets will go to your estate. Your Vanguard 403(b)(7) Custodial Account will be paid out in accordance with this default provision if you have not named a beneficiary, all of your beneficiaries have died before you, or the beneficiary does not come into existence, as the case may be with a trust that was never created.

Q. Can I create a trust by designating a trust as one of my beneficiaries?
No. A trust is a legal arrangement under which a fiduciary, or trustee, holds title to certain assets for the benefit of another. Trusts can be created either during your lifetime or after your death through your will. To create a trust, you should have an estate planning attorney draft the appropriate trust documents. You cannot create a trust merely by checking the box on the Vanguard 403(b)(7) Beneficiary Designation form.

Q. What happens if I name a trust as beneficiary?
If a trust is your primary beneficiary, your assets will be payable to the trustee of your trust. The trustee will be responsible for distributing the assets in accordance with the trust's terms.

If your trust is never established or ends before you die (the trust is no longer needed), your assets will be payable to the surviving primary beneficiaries, if any, or to your secondary beneficiaries.

Q. How will Vanguard know when it is time to distribute my assets to my beneficiaries after I die?

After you pass away, a beneficiary or your personal representative is responsible for notifying Vanguard of your death. Once we receive the request to distribute your retirement assets and any required paperwork, we will begin distributing the assets to the proper beneficiaries.

Q. Who will direct Vanguard on how to distribute my assets?
After we receive notice of your death, Vanguard will accept direction from someone authorized to act on your 403(b)(7) Custodial Account. That party may include:

  • The executor, administrator, or personal representative of your estate.
  • The trustee of the trust(s) named as beneficiaries on the Vanguard 403(b)(7) Beneficiary Designation form.
  • Other authorized persons.

Q. What is the role of the executor? And, who is the executor?
The executor is the person or institution you name in your will to administer and distribute the assets in your estate during the legal process of settling your estate, called probate. The executor manages your assets and makes sure any necessary tax returns are filed. If you die without a will, an administrator may perform these functions. An executor or administrator may also be known as a personal representative.

Q. What if I don't have a personal representative?
If you don't have a personal representative, the court will appoint one during the probate process.

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