Did you open a 401(k) plan at work or buy any insurance policies while you were married for the first time? If you’ve subsequently divorced, the time to check those beneficiary designations is now—unless you want your first spouse to inherit your entire 401(k), life insurance policies and any other assets with a designated beneficiary. The assets will be distributed to the beneficiaries listed on the documents, no matter what your will says. That’s right. If you don’t check to make sure that your current spouse or your child is the beneficiary, your ex is going to have a party, take a nice vacation and laugh all the way to the bank. It’s an easy fix, so don’t wait!
ABC 15 Arizona’s recent post, “Beneficiary designation: Don't set it and forget it or your ex could end up with your life savings,” explains that under the Employee Retirement Income Security Act (ERISA), plan administrators must legally disburse the money to the person on the form—even if it’s an ex-spouse. This even overrides provisions to the contrary in your will. This mistake can create a real probate nightmare for loved ones—a mistake that’s really hard to correct after the fact.
Review all of your assets and to whom you intend to give them at your death whenever there’s a major life event like a birth, adoption, death, marriage or divorce. This quick check-up may save those you leave behind a lot of hard feelings, trouble and expense.
While you’re at it, here are several other things to consider:
- Rather than listing a young adult as a beneficiary, ask an estate planning attorney about drafting a trust to detail exactly how you want the money to be disbursed.
- Do not designate a minor as a beneficiary because life insurance policies won't pay minors directly. Consider a “testamentary trust” under your will or a similar inheritance trust under your living trust.
- Remember you need to list a contingent beneficiary: if the primary beneficiary dies before you, you need a backup.
- Want to list someone other than your spouse as the beneficiary on a 401(k) plan? Unless your spouse agrees, by law, you are not allowed to do this.
- Failing to do estate planning creates ambiguity and means more headaches and fees for your family.
By taking the time now to work with a qualified estate planning attorney at Cottrell & Jacobs , you’ll be able to avoid some of these major snafus, saving your executor and your heirs from the frustration, expense and hassle that results from incomplete planning. The last thing you want is to be remembered as the person who gave his or her ex-spouse the lion’s share of his or her estate!
Reference: ABC 15 Arizona (July 17, 2016) “Beneficiary designation: Don't set it and forget it or your ex could end up with your life savings”