Most of us have more than enough to do. We're on the go from early in the morning
until well into the evening - six or seven days a week. Thus, it's no surprise that
we may let some important things slide. We know we need to get to them, but it seems
like they can just as easily wait until tomorrow, the next day, or whenever.
A U.S. Supreme Court decision reminds us that sometimes "whenever" never gets here and
the results can be tragic. 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.
The tragic outcome of this case was largely controlled by its unique facts. If the
facts had been slightly different (such as the plan allowing a beneficiary to be
designated on a document other than the plan's beneficiary form), the outcome could
have been quite different and much less tragic. However, it still would have taken a
lot of effort and expense to get there. This leads us to a couple of important points.
- 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can easily become outdated.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 is especially important with assets
such as IRAs, where naming both a primary and secondary beneficiary can potentially
allow payouts from the account to be stretched out over a longer period and maximize
the time available for the tax deferral benefits to accrue.
This publication is distributed with the understanding that the author, publisher and
distributor are not rendering legal, accounting or other professional advice or
opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2015