Checking One Form Could Save Your Family Headaches In The FutureSubmitted by Castlebar Asset Management on July 16th, 2014
A beneficiary designation form. It just sounds boring but it is a critical part of your personal financial planning. If you own an IRA, 401(k) or life insurance product the person or people your designation as the beneficiaries will receive the proceeds of these accounts when you pass away. Beneficiary forms even supersede anything you have stated in a will or trust. It should be clear why these are so important now.
Yahoo Finance had an article that highlighted one family’s experience that ended up being a $400,000 mistake. A father passed away in 2008 and intended for his children to inherit his IRA. The quote below finishes the story.
A single mistake, however, thwarted his well-laid plans. Family members realized a year after he died that his IRA beneficiary form was filled out incorrectly. Instead of specifically listing the names of his children along with the percentages designated to each heir, Smith wrote: “To be distributed pursuant to my last will and testament,” where the disbursement of funds was spelled out.
But Smith’s failure to complete the form correctly invalidated the document, making his surviving spouse the beneficiary by default.
“I had no idea that a will could be trumped by an IRA beneficiary form,” Deborah Smith-Marez, 50, Leonard’s daughter, told Yahoo Finance.
Smith-Marez and her siblings fought in court to recover the money, but the court awarded the $400,000 in the IRA to their father’s wife, who married Smith two months before he died.
Now, what should you do if you can’t remember what your beneficiary designation form says? You can give your financial institution or financial advisor a call or log on your account. Then look at who your beneficiaries are and if you would like to make a change there is usually a form that you will have to sign to confirm the changes. I recommend you check on this every few years. If it has been five years or longer it is time to take a look again. We review this with our clients every year as part of our annual review process.
When you open a new account like an IRA or 401(k) the beneficiary form is usually one of the last steps of establishing a new account. By this point, you are usually frustrated because a 10 minutes process is taking 15 or 20 minutes and you blow through this part with little thought. Take the time to fill this incorrectly and set a reminder on your phone to check it in a few years. It could end up saving your family a lot hassles down the road.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.