Many people experience a significant change in their family situation from time to time. These are occurring with ever increasing frequency. Perhaps a recent divorce, separation, or marriage. Or, your children have moved out on their own and perhaps have a new relationship of their own. Maybe someone in your family recently passed away or became incapacitated.
Sometimes these changes result in automatic changes in your beneficiaries under various policies and plans – even though you may not realize the change has occurred. Changes in any type of family situation is always a very important signal to review your beneficiary designations.
This point is emphasized in a recent decision by the U.S. Supreme Court. In this 2009 case (Kennedy v. DuPont Savings and Investment Plan), a spouse divorced in 1994 was awarded all rights to her ex-husband’s retirement plan benefits (in a dispute with his daughter) even though the ex-wife had waived all claims to the benefits in the divorce decree. The problem is that prior to the death of her ex-husband in 2001, he had failed to change the beneficiary named in the plan documents. Thus, all his $400k in retirement benefits went to his ex, and none to his daughter. Talk about unintended consequences!
Even though you may update your will and make changes, your beneficiary designations will override what you put in that will. To have a smooth transition of your assets, you should consider having both a primary and a contingent beneficiary designation. Review these designations yearly in your overall financial plan as your overall financial picture changes.
So where do these beneficiary designations typically exist? Life insurance policies, some bank accounts, some general investment accounts, 401(k) plans, IRAs and infrequently real estate deeds are vehicles that typically have beneficiary designations. If you have any of these types of vehicles you should check with the company administering them to verify whether you have completed a beneficiary designation and, if so, whether it still represents the persons you want to receive the benefits of those vehicles when you pass away.
If you haven’t done this in several years, make sure to add this to your to-do list! And you may wish to review those designations with your estate planning attorney to ensure the designations are consistent with the rest of your estate plan.