During the relaxed days of summer, SIA encourages you to review the beneficiaries listed on all of your retirement accounts, insurance policies and annuities. Many individuals think – mistakenly – that a will directs the flow of these funds.
A recent court case summarized in the Wall Street Journal highlighted the critical importance of regularly reviewing and updating beneficiary designations. In this particular situation, a man's $1 million+ retirement account assets ultimately went to an ex-girlfriend he dated briefly in the 1980s. He listed her as a beneficiary with his employer.
Despite the relationship ending decades ago, and attempts by his family to have the courts intervene, the beneficiary designation he filed took legal precedence over his presumed intentions to leave to his family.
This event serves as a stark reminder that beneficiary forms carry significant weight and can impact your loved ones. Major life events like marriage, divorce, births and deaths should trigger a review of beneficiary designations across your accounts. In addition, personal financial situations can change dramatically as years pass prompting a change in these decisions.
For 401(k) and other employer-sponsored retirement plans, it is critically important to note that the plan sponsor and recordkeeper are legally required to follow the beneficiary information on file, even if it is outdated.
Some older paper beneficiary forms may not be integrated with current online systems, resulting in outcomes that may not be your intention. A current or former employer has no choice but to distribute assets based on that old paperwork - unless you submit a new beneficiary designation form.
We recommend you proactively review these beneficiaries at least every few years. This step will avoid unintended bequests of your hard-earned assets, and possibly prevent significant personal conflicts and possible legal battles for your heirs.