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Beneficiary Designations may be the most important aspect to ANY inheritance plan. Who gets your money when you die? I talk about this a lot in fact. Here, here and in other articles throughout my blog, like here.
So, it goes without saying that I am a beneficiary designation fiend. It’s absolutely inexplicable to have not put designated beneficiaries on your IRAs, 401ks, 403Bs, annuities, life insurance etc. In fact, you can put name designated beneficiaries on your bank accounts via a Payable On Death (POD) arrangement or your brokerage accounts via a Transfer on Death (TOD) arrangement.
The only reason you would not want to do this is, well, I don’t know. I suppose, maybe, you have a Will and want your Will to dictate terms of your assets upon your death. By not naming beneficiaries your assets will go immediately to Probate Court where your Will will decide the disposition.
But why put your beneficiaries through that? Just name them outright for Heaven’s sake!
I’m sure there are examples in which you should not name beneficiaries. Let’s say that represents 5% of the population. For the other 95% then what’s your excuse?
I’m going to share with you three REAL WORLD examples I just learned about from a webinar I attended how beneficiary designation mistakes cost people HUGE!
Widower Is Disinherited From Wife’s $900k+ Retirement Account
First, here is a case where a man married to his wife for nearly 20 years was disinherited from her nearly $1 million retirement account because she had named her sister beneficiary 4 years before she married! 24 years after naming her sister beneficiary she dies and guess who gets the money? The sister did! Rightly or wrongly, if the decedent wanted her husband to get her money she should have just updated her beneficiary forms.
Children Disinherited From Dad’s Retirement Account By Dad’s Second Wife
Secondly, here are two widows. Each was married less than a year to their respective husbands when those husbands died. One widow is denied survivor benefits under the ruling that because she wasn’t married for a year the company was not obligated to give her benefits.
Wife Not Eligible To Receive Husbands Retirement Benefits Because Married Less Than One Year
The other widow was granted benefits, overriding the beneficiary form the decedent had filled out naming his kids as beneficiaries! Why? Because the court in this case said that because the company SPECIFICALLY doesn’t state in its retirement plan document that marriages MUST be over a year for the surviving spouse to receive the benefits, the surviving spouse MUST receive the benefits, even if the decedent named his kids! Does this make any sense? Of course not. Yet, there it is. In black and white. This is insanity!
Decedents Daughter Disinherited In Favor of Decedent’s Divorced Spouse
In this case, it’s a pretty open and shut case. Husband named his wife beneficiary of his retirement account. Husband and wife divorce. Husband does not change beneficiary designations and subsequently dies. Plan pays out benefits to husband’s divorced wife, even though daughter of husband was still alive.
Daughter sues and loses due to the fact that the ex-wife was still named as beneficiary. Really nothing unusual about this one. Don’t want your ex to get your money, update your beneficiary designations.
Jointly-Owned Property Beneficiary Blues
This one actually affected my own family. Husband and wife married for many years. Husband dies early when kids were still tots. Wife dies many years later when kids are grown and scattered throughout the country. One of the daughters named executrix needs to settle the estate.
Takes wife’s (her mom’s) death certificate to probate court to confirm she is deceased. Needs probate court to grant her letters of authorization to settle the estate. But probate court won’t proceed with the moving of jointly owned assets because while they can confirm the death certificate of the wife, how about the husband? Probate court requests copy of death certificate on husband(dad).
Well, he died 2 decades before when executrix was a young child. Executrix has no clue where that paperwork would be.
After many weeks of aggravation, constant paperwork shuffling and of course, fees, the estate is finally settled. But that is time that is lost due to the unnecessary burden of the Jointly-Owned Property Blues.
When owner of a jointly-owned property dies, it’s time to revisit the ownership titling of those assets. It will make it MUCH easier on the person you want to settle your estate.
Moral of the story. Understand your beneficiary designations…and your account titling. Think about it. Don’t just look at the statement in the mail and throw it aside and say to yourself “looks good.” Does it? What could possibly go wrong?
Well, as we’ve seen in the soap opera above, many, many things could.