Do You Really Want Your Ex Inheriting Your Retirement Account(s)?

We’ve written more than once about the importance of keeping your beneficiary designations current.
In fact, one of the first things we do at RFG with new clients is to ask to see beneficiary statements on all relevant accounts and insurance policies, both life and disability. We also ask to review these periodically, as life’s circumstances change for us all, and it is of vital importance that we (as individuals) make sure our beneficiary statements reflect such changes appropriately.
Did you know that, according to Supreme Court precedent, beneficiary designations trump your will’s explicit provisions?
Case In Point
We recently became aware of an actual instance – a case study – of the unfortunate consequences to a family when a beneficiary designation was left unreviewed and unchanged for decades.
Today, we’ll share that story with you – in the hope that it will spur all of us to be conscientious in ensuring our assets and benefits are secured to those we want to have them – now, not in the past. And that we continue that diligence into the future as our life circumstances change (and they will). Now is only for now, and eternal vigilance is the price of liberty, security, and informed peace of mind.
Almost 40 years ago, a man took a new job with the benefit of a 401(k)-retirement account. He named his wife the sole beneficiary of this account. Back then, there was only physical paperwork to complete (but you could still change your beneficiary or beneficiaries by completing and submitting an updated beneficiary form).
This couple had moved in together, married, and bought a home together. In fact, they intended to—and to an extent, did—build a life together. But the marriage lasted only a few years before the couple divorced. On his death in 2015, the man left two living brothers.
However, he had never changed the beneficiary designation on his 401(k), which held assets valued at over $750,000 at the time of his death. His long-divorced spouse remained the sole beneficiary.
The two brothers sued to stop the ex-wife from inheriting this account since the marriage had ended decades earlier.
After years of court battles and appeals, the courts finally ruled that the ex-wife, as the sole beneficiary designated by her now-long-ex-husband, was entitled to the entire account—which, by the time the case was finally adjudicated, had grown to over $1 million in assets.
The company holding the account had proven they’d provided numerous notifications of the option to change beneficiaries, and the man had, in fact, logged into the now-online account more than a few times. The holding company further demonstrated that they had repeatedly recommended that all participants review their beneficiary designations.
Is this what we want for our hard-earned assets? That they devolve to those we’d no longer prefer to have them – through our failures of vigilance and diligence?
I think we would all have to answer “no.”
So, how do we avoid this?
Get Your Ducks in a Row
If you have assets you want to protect, we recommend consulting a financial and estate planning expert, like the team at Rigby Financial Group. Whether it’s your virtual CFO or another trusted financial advisor, take counsel with someone with the experience and expertise to ensure that your financial and estate planning – including your beneficiary designations – keeps pace with your life.
Because, as life goes on, things happen, relationships change, new loved ones emerge. And, as they do, your estate planning should move with them.
You should have primary and contingent beneficiaries designated on all:
- Individual retirement accounts (IRAs)
- Employer-sponsored accounts, such as pensions, 401(k)s, 403(b)s, 457(bs), ESOPs, etc.
- Life insurance policies
- Disability insurance policies
Keep Those Ducks in Their Proper Row
It’s crucial that these designated beneficiaries be reviewed and updated to ensure that the designations align with your current life circumstances and goals and stay aligned as those circumstances and goals alter.
Review your beneficiary designations upon:
- Marriage (whether it’s your first or your sixth!)
- Divorce
- The birth of a child or grandchild
- The death of a family member or close friend (even if that person is not one of your designated beneficiaries – contemplating such a death may change your wishes)
- If a plan administrator changes (sometimes glitches occur when systems change over)
Even when you think nothing’s changed, it’s a good idea to review your beneficiary designations at least every 2 to 3 years. People move, telephone numbers, email addresses can change – even if the right people are designated, keep their contact information updated.
Think of your overall estate plan as an engine, driving your assets to their proper destination(s). Complete with many moving parts, all of which require attention, maintenance, and perhaps repair.
And consider regular review of your beneficiary designations – and your entire estate plan – as a tune-up for your car – every so often, it’s necessary.
If you wonder whether your beneficiary designations might need updating, there’s a good chance they do. Please click here to email me directly – RFG is here to help you!
Until next time –
Peace,
Eric