Back in 2007, one of our client’s died, Before he lost his battle with cancer, he did all the things people do when they care for others, including making sure his children received the balance of his retirement funds when he died…..WRONG!.
A single, small mistake undid his planning. A year after he died, his family found out that his IRA beneficiary form was filled out incorrectly. He got lazy; he distributed the IRA by referencing his will, i.e. “To be distributed pursuant to my last will and testament,” instead of specifically listing the names of his children along with the percentages designated to each heir.
Because he didn’t complete the form correctly invalidated the document, making his surviving spouse the beneficiary by default. His children’s reaction…WHAT? The will leaves it to us. Can the will really be trumped by an IRA beneficiary form?”
You know the story. Court! That’s where the children went to court to recover the money, but the $650,000 in the IRA was awarded to their father’s wife, who married our client only 5 months before he died.
Unfortunately we see this type of error often. Whether it’s the ex-spouse or in 3 different cases in the past 5 years, the husbands parents instead of his wife, we find that many people are unaware that forgotten but still valid beneficiary forms can override wills and undermine their intentions.
How does this happen? People forget to address these forms and fail to update them when they have a major life change. Beneficiary forms are meant to be a straightforward method for heirs to bypass the probate process and receive funds in a timely manner, but they rule until you change them. Rule of thumb; if you have an account anywhere, review the beneficiary designation.
Your estate is governed separately from them (the forms). These accounts include, but are not limited to: retirement accounts, life insurance policies, bank accounts, certificates of deposit, stocks, annuity contracts, bonds, and mutual funds. So if your will designates one person as the beneficiary and your IRA beneficiary form designates someone else, the IRA designee wins. As a result of this, we have a bunch of accidents waiting to happen.
No one is going to remind you to do this. It is YOUR responsibility. You as the account/policy holder have the responsibility to keep these forms current and valid.
None of us really wants to think about death (disability is ANOTHER whole topic) Death and money are both emotional. Real emotional toll; fight with your family over money.
Real time rules:
1) Every so often review what you have. Your beneficiary forms will almost always override your will. Understand the forms when filing it out. If you have questions, ASK! This process is too important to leave to uncertainty.
2) It is NOT the responsibility of your financial institution to “baby-sit” this process. If you have a birth, death, marriage, or divorce in your family, review your situation. Don’t trust electronics; Keep hard copies of your beneficiary forms, if you choose to fill out these form online, make sure to print a hard copy for your files. If all of these forms are in your account online, keep hard copies on hand because computer systems change and the forms might be hard to track down, especially if the bank has merged or changed names.
3) In today’s world of mergers and branding, if the institution where your money is held changes its name or merges with another bank, fill out a new form. Forms with old institution names may not be valid and the financial institutions won’t go out of their way to tell you.
4) Hire an estate planning attorney who is licensed in your state. Your cousin, the real estate attorney and an estate attorney ARE NOT THE SAME. This is a complicated specialty, not a hobby. If you need a referral to a qualified estate attorney, call me and I will point you in the right direction.