In my 21+ years of advising people on their finances I find one often overlooked area is beneficiary designations. You may be asking yourself why this topic would warrant a full article. Please allow me to share two stories so you can see the first hand impact of not having your beneficiary designations updated.
Several years ago I received a call from a gentleman who was referred to me when he lost his wife of over 30 years to cancer. He called because he was going to come into a large sum of money from her pension plan and her life insurance and he had no clue what to do with the funds. As we started to work up a strategy he called me one day out of the blue and said we may have a problem. The beneficiary designations on her life insurance and pension plan still had her sister and brother listed from when she started teaching 30+ years ago…a few years before she met him. Since finances weren’t their specialty they never remembered or were advised to go back and revisit those beneficiary designations and make sure they were updated to reflect him, being her husband, and their 6 children. Thankfully her brother and sister didn’t fight his claim to the money and after a mountain of paperwork and phone calls he was made the beneficiary of those accounts and the checks were cut to him. But just think if her siblings had not been so nice. They could have taken that money and never let him have a cent.
We hear about these types of situations in the media and it is so simple to avoid these problems. Often times it’s just completing a new form and nowadays as simple as going online and doing it electronically.
More recently I had a client who passed away suddenly. Months before his death his family situation had changed and made some updates to his life insurance. One policy he had, not through me, required a new beneficiary change form be completed by him and mailed or faxed back in. I helped him on the phone with this company get the required form mailed to his residence. Unfortunately he never got around to filling it out and sending it back in. As I mentioned, he died suddenly. Thankfully, everyone in his family acknowledged his wishes and took the appropriated steps and filled out all the required paperwork so the money could go to the people he wanted. But again, they could have played hardball and won. Beneficiary designations override a person’s will, so even if a will gets updated, that doesn’t mean those people will get the money that was supposed to be left to them. The beneficiary designations have to be updated as well to avoid all the trouble that could come down the road.
So please take the time NOW (there is no time like the present) to check your IRA’s, 403b’s, 401k’s, Life Insurance (Private and Work plans), Pension plans or anything else that has a beneficiary designation on it and make sure those designations match your wishes.
The two stories I shared are those I have first hand experience from but being in this industry as long as I have. However, I have heard many, many stories just like this and not all had happy endings like mine fortunately did.
Have more questions and need some more specific help? Don’t fret! Just email me at larry@midwestwealthadvisors with your specific question. You will get a reply just soon as I am able.