Many people prepare their estate-planning documents initially when their children are very young. Circumstances change over time, however, and it is important that one’s estate planning documents (wills, trusts and other documents) are updated regularly. But it is equally important that you update your beneficiary-designated assets as well. The recipients of these assets are controlled contractually by those beneficiary designations, such as life-insurance policies, retirement and pension accounts, and not by your will.
Years ago, a person who had been married for many years, and whose dutiful spouse had helped shape that person’s successful career, got a divorce.
Sometime later, the career spouse married again. But the career spouse had a heart attack before that spouse was 50 and died. The new spouse filed to collect on the million-dollar life-insurance policy. But as it turned out, the now-deceased former career spouse had forgotten to change the beneficiary of the policy to the new spouse. (A divorce decree does not change one’s beneficiary designations which name your (now) former spouse.)
This true story has a happy ending — these monies were used by the non-career parent to educate the children, the intended purpose of the policy’s proceeds in the first place, and not by the second spouse. But it could have ended much differently. And when I tell this story in presentations to companies and groups, it gets their attention.
Which is to say: You better check whom you have named as your beneficiary to your company and personal benefits that have beneficiary designations. If you do not, your family may be in for a rude surprise.
I raised the beneficiary designation issue with the human resource department of one of the largest companies in our community, and the response of the HR folks in the know was: these beneficiary designation challenges/snafus happen fairly routinely. So routinely that I am now doing regular presentations to this company’s employees about estate planning, including how important it is to coordinate one’s beneficiary designated benefits.
Here are some key questions you should answer:
1. Do you know whom you have listed as your beneficiaries of your life-insurance policies, retirement and pension accounts, and other beneficiary-designated assets? If you do not, you can get answers to these questions in 15 minutes. Call your life-insurance agent, your plan administrator of your retirement plan, and your HR department where you work about any surviving beneficiary designation of your pension. They can provide you the information (after proper authentication), generally over the telephone or by email.
2. Is there a chance you do not have the beneficiaries you presently wish to receive your benefits upon your passing? You may find your beneficiaries were designated before you married. Or, you may now be divorced or legally separated, and your spouse may or may not be the person you want to get these benefits.
3. What if you haven’t named a beneficiary? The benefit may go to your estate, or in whatever direction your benefit contractually requires, which may be contrary to your wishes.
As noted earlier, an absolute divorce does not change these beneficiary designations. A divorce does write your former spouse out of your will, but your will is almost certainly not going to control who gets payouts from these beneficiary designated benefits.
It is important to find out whom you have named as your designated beneficiaries and coordinate them with your will and any trusts you may have in place.