Determining the beneficiary of a retirement account or life insurance policy of a deceased person can be challenging, but it’s easier than you think. To prevent any confusion, it’s crucial you know about what benefits get passed on and to whom. There continues to be perplexity about these matters for clients with retirement accounts.
So, I’m here to let you know why this needs your focus and how to plan accordingly.
Why You Need Up-to-Date Designations
Your beneficiaries, in most cases, need the money or benefits you’re giving to them. Without the financial help you’re passing on, they’ll have difficulties paying bills or getting the resources they need to live comfortably. Therefore, it’s incredibly important to make sure everything is filled out properly. Without giving the correct information exactly how it’s asked for, the beneficiary can be someone other than the one you intended.
Real Life Example
We can learn from Ruiz v. Publix Super Markets, a case that came down to specifics in how the beneficiaries were named. Iraleth Rizo had worked for Publix and originally named her niece and nephew as beneficiaries. Years later, as she was battling cancer, she wanted to change the beneficiary to her friend, Arlene Ruiz.
In short, Iraleth didn’t date and sign the new Beneficiary Designation Cards. She only wrote that she wanted to change the beneficiary “as stated in the letter.” This didn’t include the signature and date necessary by law, and Iraleth’s niece and nephew remained the beneficiaries. This is unfortunate because Iraleth passed away the day after the letter and cards were mailed to Publix.
The Need for Change
The decision reached by the court sheds light on a few issues for retirement account holders. Therefore, when there is a change in your life involving you and/or a beneficiary, it’s YOUR responsibility to contact your financial advisor or plan administrator to make those changes what needs to be changed and learn that process on how to make those changes.
What A “Life Change” Is
Life changes can include
• The death of a beneficiary
• The birth of a new beneficiary
• A divorce (yours or a beneficiary’s) or
• A disability.
And, keep in mind, these life changes not only apply to cases involving primary beneficiaries but contingent beneficiaries (i.e., those who would get assets if the primary beneficiary passes away before funds are distributed) as well. Lastly, the type of person or entity named as a beneficiary can have serious and potentially adverse income and estate tax consequences as well.
To riff off a line from Ferris Bueller, “Life moves pretty fast. If you don’t stop and look around once in a while, you could make some huge mistakes”. Sometimes, when we have a life-changing event, we get so caught up in it that we don’t see potential problems down the road. When it comes to beneficiary designations, it is imperative to keep your beneficiary designations up to date and see your financial advisors, including your estate planning attorney, to ensure your accounts will pass to the intended beneficiaries with minimal risk and confusion.
Chris established Christopher T. L. Brown, Attorney at Law, PLLC on October 20, 2009. Before starting his own firm, he practiced in the business planning and transactional section of HannaStrader, P.C., in Portland, Oregon, from August 2001 to March 2007.