Most people name their spouses as the beneficiaries to their retirement benefits. Since this is not a requirement, others also name non-spouse beneficiaries, but such arrangements are fraught with lots of pitfalls. Here are examples of complications that may arise for naming a non-spouse beneficiary to retirement benefits:
The major problem here is that the minor will not be allowed to take immediate charge of the funds. He or she has to wait until he or she becomes an adult (usually 18 years of age) to access them. In the meantime, you are better off naming somebody to take care of the benefits until the minor comes of age. It is best to have a fund manager that does not have to be supervised by the court. Failure to name a fund custodian means that you are leaving it up to the court to decide who (such as the child's parent or parent) will manage the fund on behalf of the child.
A living trust is an arrangement in which you let a person manage your assets with the hope that he or she will transfer them to a beneficiary after your demise. For example, you can set up a trust fund for your retirement benefits so that it is managed by a trustee who is mandated to transfer it to your spouse after your death.
The problem with this arrangement is that the beneficiary cannot transfer the trust to another beneficiary. For example, if you make a living trust with your parents as the beneficiaries, then they cannot use it to set up a trust for your siblings (their other children).
You can also name your estate as the beneficiary for your retirement benefits. The problem here is that once an asset is mixed up in an estate, it is treated just like other properties. This means it has to go through probate before it is distributed to your beneficiaries according to your will or your state's intestacy laws.
Apart from the issue of probate, the other problem with this arrangement is that the money has to be withdrawn within five years if you died before reaching the age of seventy and a half years. Your beneficiaries aren't scot free either if you pass away after the age of seventy and a half; they have to withdraw the funds as fast as you would have if you were alive.
As you can see, it's pretty complicated to bequeath your retirement benefits to other people other than your spouse. It is not impossible, but it is difficult. You will need the skills of an experienced lawyer at a firm like Souders Law Group in pulling it off with minimal losses.