Do this when done with your Ex....


When is the last time you updated your beneficiary designations?

It's truly amazing the amount of people who have prior spouses or deceased relatives still named as a beneficiary on a retirement account at a former employer, or on a life insurance policy purchased long ago. But leaving a spouse or significant other as a beneficiary was that due to 'inattention' or 'intention'? In fact, this issue is so prevalent that now state legislatures and even the US Supreme Court are getting involved with mixed results. But the overwhelming sentiment is that most folks would not want their ex-spouse to inherit their life insurance or retirement benefits. But what if you would want your minor children to inherit your assets?

That's why it's so important to work with an estate planner who can remind you that that after marriages, divorces, births, deaths and other major life events such as your children becoming adults, account-holders need to check and, if necessary, update beneficiary statements.

Estate Planners say this is one of the most common and potentially costly retirement and estate planning errors that savers and investors make. Before the recent Supreme Court decision, the classic worst case was you got divorced, the [ex-]wife was still named as beneficiary and you never change the form. Even if you have "You might have changed your will to leave everything to the kids. But after you die, your individual retirement account, if it's never changed, would have gone to your ex-wife, not the kids." This was the decision from the US Supreme Court in 2009 in Kennedy v. .

Beneficiary forms are 800-pound gorilla when it comes to distributing assets after death. The names you designate in your beneficiary statement trumps your estate plan, so you need to make sure it all works together. Financial custodians use the beneficiary designations as the go-to documents

Just this spring, the US Supreme Court heard argument from a deceased man's ex-wife that his beneficiary designation forms naming her has the beneficiary of his life insurance policy trumped Minnesota (and New Mexico) state law. Specifically, in both states there is established law that upon a divorce the beneficiary designations lapse. Or the money would skip over the ex, treating her as if she had predeceased the policy holder. The money would then go to the contingent beneficiary or the estate. The 8th Circuit lower court had found for the ex-wife on the grounds that the policy was bought prior to the change in state law, but the US Supreme Court held that in most instances the deceased probably would not have wanted his money going to his ex-spouse and that his 'inattention' was not his 'intention'. Seven v. Melinon, 584 U. S. ____ (2018) No. 16–1432 [June 11, 2018].

Interestingly, in 2009, the Supreme Court heard a deceased man's daughter argue that she, not his long-divorced wife, should get his retirement plan funds. Though the ex-wife had even waived her claim to the funds during the divorce, the court ruled unanimously that, because the beneficiary form was never changed to remove her as sole beneficiary, the ex-wife got it all.

There are also often mistakes made on the forms that you, and not the financial institutions need to catch before it becomes a problem after you die. These mistakes often include forgetting to add ‘jr’ or “II” or using a nickname. This issues is especially prevalent in states like New Mexico where hispanic surnames are often used. Don't let financial institutions, or anyone else for that matter,

fill out the forms and then not read the forms before you sign them.

Beneficiaries named for some retirement accounts can be conveniently checked and changed online. For others, account holders need to request the necessary document from the administrator or custodian. Some beneficiary designations can get more complicated, however. People may name multiple primary or contingent beneficiaries, with a percentage of the funds going to each, or leave funds to trusts or charities. In New Mexico, depending on whether property is sole and separate or community property will require a spouse's signed waiver or permission to name anyone else as primary beneficiary.

If you have no named beneficiaries, either because you never named them or your beneficiaries pre-decease you, your assets may pass to your estate or be forced to go through probate, which can be a very costly process. If your IRA ends up going to your estate, rather than a named beneficiary, the estate can be forced to withdraw funds and pay the tax on those withdrawals over a fairly short time period. The high stakes mean beneficiaries should also be examined occasionally even when nothing has changed. Thus, it is prudent to periodically, every three to five years, check your beneficiary designations and see if anything should change, ideally when you meet with your estate planner to review your overall plans and goals.

Advisors say errors often can creep in if a plan administrator changes to a new system and fails to carry over a named beneficiary. Sometimes, after mergers, institutions destroy beneficiary forms from predecessor institutions, with a similar result. For that reason, account holders should request and retain copies of beneficiary forms and check that the financial institution's information matches on at least a three year basis.

In addition to IRAs of the traditional, Roth, SIMPLE and SEP varieties, beneficiaries should be checked on 401(k) plans, 403(b) and deferred-compensation employer plans, life insurance policies, 529 education accounts and any bank or other account designated as "Transfer on Death." Make sure these accounts have up to date beneficiary designations as well and work as part of your overall plan. At the Foster Legal Advisory Group, PC, I help my clients understand the complexities of beneficiary designations and make sure they are checked on an annual basis through our Wealth Planning packages. Call us today for a holistic review of all your estate planning needs.

#estateplanning #beneficiarydesignations #IRAplanning

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