The Importance of Updating Beneficiary Designations
In this article, Don James explains why beneficiary designations, not your will or divorce decree, determine who receives certain assets, and why reviewing them regularly matters.
When “Whenever” Never Comes
Most 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 U.S. Supreme Court decision some years ago reminds us that sometimes “whenever” never gets here, and the results can be tragic. In that case, an ex-spouse collected $400,000 from a deceased father’s company savings and investment plan, even though the ex had specifically waived any interest in the plan under the divorce agreement.
Believing the divorce agreement was the last word on the subject, the father failed to turn in the form to officially change the plan beneficiary from his ex to his daughter. He died seven years after the divorce. The company plan document stipulated that beneficiaries could only be changed by submitting the required form. The Supreme Court unanimously ruled that the beneficiary designation trumped the divorce agreement. So the ex got the $400,000. We can only imagine that the father was rolling over in his grave.
Two Important Takeaways
The first lesson 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 official form is the only document that controls.
The second is that it’s important to keep your beneficiary designations up to date. Whether because of divorce, death, marriage, the birth of a child, or some other life change, beneficiary designations made years ago can easily become outdated. The person you named in 1998 may not be the person you want to receive that asset today.
Don’t Forget Secondary Beneficiaries
While you’re verifying that all of your beneficiary designations are current, make sure you have also designated secondary beneficiaries where appropriate. This is especially important for assets such as IRAs, where naming both a primary and secondary beneficiary can affect how the account is administered if the primary beneficiary dies before you do.
If you have not reviewed your beneficiary designations in the last several years, this is one of the easiest, lowest-cost steps you can take to make sure your assets go where you actually want them to go.
Make Beneficiary Reviews Part of Your Financial Plan
Estate planning isn’t a one-time event. As your family, finances, and life circumstances change, your estate plan should change with them.
At DJ Tax Solutions, we help individuals and families review beneficiary designations alongside their broader financial, tax, and estate planning strategies to help ensure every part of the plan works together.
If it’s been several years since you’ve reviewed your beneficiary designations or you’ve recently experienced a major life event, contact DJ Tax Solutions to schedule an introductory consultation.
