The information in this blog was originally shared by the Gatlin CPA Group in their newsletter. My Dad is on their e-mail list and sent it to me thinking the information is helpful and that my readers might be interested in the topic. I agreed, so wrote this blog for you to learn more about this important topic. In the interest of shortening the information, I will summarize the main points they shared.
Most people are so busy with life that they think they can get to some of the important items tomorrow or the next day, but often that day never comes. The U.S. Supreme Court decided a case where funds were distributed to the deceased ex-wife as the designation was never changed. Details are as follows:
The case involved a $400,000 employer-sponsored retirement account, owned by William, who had named his wife, Liv, as his beneficiary in 1974 shortly after they married. 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, Liv was still listed as his beneficiary. So, 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, the plan rightfully paid $400,000 to Liv.
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.
It’s important to keep your beneficiary designations up to date. Whether it is because of divorce or some other life-changing event, beneficiary designations made years ago can easily become outdated.
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 article is a good reminder as to why you should update your beneficiaries as soon as changes occur. If you put off doing so, you may end up giving funds to someone who you no longer wanted to receive the inheritance, and those you intended to receive the funds will unfortunately lose out.
Gatlin CPA Group is a Northern Indiana CPA Firm providing local small to mid-sized businesses and individuals with tax and accounting services. More information can be found at www.gatlincpa.com.
