Beneficiary Forms Can Cause Problems If Out of Date

To you readers who have ex-spouses, perhaps you want to double-check your beneficiary forms today. In fact, those of you who do not have ex-spouses should double-check your beneficiary designations. Here are two examples showing the importance of ensuring the correctness of beneficiary forms:

Mrs. Kennedy waived her rights to Mr. Kennedy’s pension when they divorced. Mr. Kennedy intended for his daughter to inherit all his retirement benefits, which was reflected in his will . Despite this, in early 2009 the Supreme Court ruled that Mrs. Kennedy was entitled to his pension because the now deceased Mr. Kennedy had never changed his beneficiary form to remove her name. The plan administrator sent Mrs. Kennedy $402,000.

A Texas Teachers Retirement System (TRS) representative once told me about a deceased TRS member in this community whose first wife received his TRS pension benefits at his death because he never got around to changing his TRS account beneficiary after their divorce. This left his second wife and their four young children without his pension benefits.

To you readers who have ex-spouses, perhaps you want to double-check your beneficiary forms today. In fact, those of you who do not have ex-spouses should double-check your beneficiary designations. Just a few reasons to reevaluate your beneficiaries include

Change in financial circumstances
Change in job
Your employer stops offering your employee life insurance
You cancel your life insurance coverage
Your spouse passes away
Any of your beneficiaries become incapacitated or die
You change your mind about having named that charity as a beneficiary
A primary beneficiary is the person or entity you name to receive life insurance or retirement account proceeds before anyone else. A contingent beneficiary receives proceeds under a certain event, such as the death of the primary beneficiary. Local CPA and attorney who practices primarily in estate planning, Richard D. Talbert says, “Many people have a spouse as primary beneficiary, but have not named contingent beneficiaries. When their spouse dies, they don’t revisit their beneficiary designations.”

In fact, says Mr. Talbert, at the end of each year while gathering up income tax information, everyone should revisit their beneficiary designations in their retirement accounts and life insurance policies. This would include accounts for TRS pensions, 403(b), 401(k), 457 plans, annuities and any other accounts and insurance policies for which you have beneficiary forms.

Contact the company where the account is held. Ask them to send you a form or letter that shows your beneficiaries. Keep a copy of this document with your will and other important papers.

Verifying your named beneficiaries every year is just one part of keeping your final wishes in order. Just as important is consideration of all your estate assets, including your retirement benefits and life insurance policies. For retirement accounts and life insurance policies, you may wish to understand the impact of income tax and estate taxes before you name the beneficiaries. While taxes should not determine whom you name as beneficiaries, disregarding the influence of taxes could prevent you from making the best choices. “You can make a lot of good tax planning decisions with your beneficiary designations. Your beneficiaries on each asset should coordinate with your other beneficiaries,” advises Mr. Talbert.

Don’t assume you can change a contractual beneficiary designation in your will. A will does not override the beneficiary on file with the life insurance company or retirement account custodian. If you need to change your beneficiary, do it with a change-of-beneficiary form provided by the company or custodian.

We have only touched the surface of the importance of carefully choosing and monitoring your beneficiaries. Don’t think that just because you feel young, this doesn’t apply to you. Every day I open The Eagle to the obituary page and read about people who have prematurely passed on. Take control of your wishes for your loved ones today. Review your beneficiary designations. Make sure they are in line with your intentions.