Importance of Updating Beneficiary Designations
Thursday, August 11th, 2011Most of us have more than enough to do. We’re on the go from early in the morning until well into the evening—six or seven days a week. Thus, it’s no surprise that we may let some important things slide. We know we need to get to them, but it seems like they can just as easily wait until tomorrow or the next day or… whenever.
A recent U.S. Supreme Court decision reminds us that sometimes “whenever” never gets here. The case involved a $400,000 employer-sponsored retirement account, owned by William, who had named Liv as his beneficiary shortly after they married in 1974. When the couple divorced 20 years later, as part of the divorce decree, Liv waived her rights to benefits under William’s employer-sponsored retirement plans. However, William never got around to changing his beneficiary designation form with his employer.
When William died in 2001, Liv was still listed as his beneficiary; and the plan paid the $400,000 to Liv. William’s estate sued the plan, saying that because of Liv’s waiver in the divorce decree, the funds should have been paid to the estate. The Court disagreed, ruling that the plan documents (which called for the beneficiary to be designated and changed in a specific way) trumped the divorce decree. William’s designation of Liv as his beneficiary was done in the way the plan required, Liv’s waiver was not. Thus, plan rightfully paid the $400,000 to Liv.
The outcome of this case was controlled by its unique facts. If the facts had been slightly different (such as the plan allowing a beneficiary to be designated on a document other than the plan’s beneficiary form), the outcome could have been quite different. However, it still would have taken a lot of effort and expense to get there. This leads us to a couple of important take away points.
The first is that if you want to change the beneficiary for a life insurance policy, retirement plan, IRA, or other benefit, use the plan’s official beneficiary form rather than depending on an indirect method such as a will or divorce decree. The second point is that it’s important to keep your beneficiary designations up-to-date.
One final thought regarding beneficiary designations, while you’re verifying that all of your beneficiary designations are current, make sure you’ve also designated secondary beneficiaries where appropriate. This is especially important with assets such as IRAs.
If you would like a free copy of our Checklist of Beneficiary Designations, please send an email to info@gunnip.com requesting a copy.