As published in the Racine Journal Times | September 5, 2013
Have you been divorced? Have you worked at the same company for decades? Have you owned a life insurance policy since before you were married? If you answered yes to any of these questions, then you may want to take a few minutes to verify who is named as the beneficiary on retirement accounts and life insurance policies.
The importance of these documents was reinforced after a recent meeting with someone who said they weren’t worried about any of this because they had a will that had been drafted in the last couple of years. Unfortunately, what this person (and I suspect a lot of other people) didn’t realize was that the individuals named on their beneficiary designations supersede whatever their will says even if the designation is from decades ago.
Beneficiary designations are very helpful when used properly as they allow assets to be distributed quickly and with minimal hassle (think days versus months for a more formal probate process).
In addition to retirement accounts and life insurance, you can add beneficiaries to real estate deeds and bank accounts. In theory, you might not even have any assets that would pass through a will.
My concern is when the goal backfires and instead of simplifying your finances, you have further complicated them because there is conflict between your estate documents and beneficiary designations. Since I’m not an attorney, I cannot say definitely what happens in every situation, but I can assure you it will make life more complicated for everyone involved.
So how do you avoid this mess? It’s simple: Just ask any company you have accounts or policies with to provide the latest beneficiary designations they have on file. Review this information in the context of what you want to see happen, and determine if there are any changes required.
Ideally, if you worked with an attorney to draft your estate documents, they should have provided a letter of instruction indicating who should be named and even the exact wording to use. As with most legal issues a few missing or wrong words can radically change the outcome. Some attorneys and financial advisers even get the appropriate forms for you, further saving you time and hassle.