For Mark Roberts’ Use: Last year, the U.S. Supreme Court decided a case in which a widow and her deceased husband’s first wife were embattled over his federal employee insurance benefits. The man had designated his first wife on the insurance policy, but forgot to change the designation after divorcing her and marrying the second wife. Even though the first couple had been divorced for more than 10 years at the time of the man’s death, the court ruled in favor of the first wife. The widow received none of the benefits, even though that may have been the deceased husband’s intention.
This case underscores the importance of regularly reviewing, updating, and cleaning up your financial records. Even if you have a current will or trust which designates beneficiaries, problems can arise if those names are different from the ones included on the beneficiary forms you originally completed for bank accounts, retirement plans, and insurance policies. If you pass away before updating old beneficiary forms, your intentions could become the matter of a court dispute.
To avoid these problems, update your financial professional when there are changes in your life such as:
- the birth of a new child or grandchild
- death of a family member
- illness or incapacity of a family member who may now need additional financial protection
Each year, you should review and update your beneficiary designations. It’s an easy process to file new beneficiary forms with most financial institutions and insurance companies. Just keep in mind these guidelines if you choose to name new beneficiaries:
- Be careful when naming someone other than your spouse as a beneficiary, because many state laws favor spouses
- If you want to name a minor child as a beneficiary, remember to establish a guardian or trustee to control the assets until the minor child is of legal age
- Print a copy of the new beneficiary forms, or request a copy of acknowledgment from the financial institution or insurance company. File these copies with your other financial documents, and remember to clean out your records periodically to remove old beneficiary forms.
Source: Forbes, June 3, 2013