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The Importance of Updating Your Beneficiary Designations

Do you know who's listed on the beneficiary form(s) for your IRA, annuity or qualified retirement plan? It's possible that it's not who you think or want it to be. 

Over the years, I've heard numerous horror stories about IRAs and qualified plans that ended up in the hands of people who were not the intended beneficiaries.  

In one example, the United States Supreme Court ruled that an IRA owner's daughter could not inherit her father's $402,000 company retirement plan because he neglected to change the named beneficiary from his ex-spouse to his daughter after he got divorced. Even through the ex-spouse waived her rights to the money in the couple's divorce decree, the beneficiary form takes precedence over divorce decrees, wills and trusts. The person(s) you name on your beneficiary form are the ones who will inherit your IRA, regardless of any other legal documents.

In another example, an elderly widower was left penniless when it was discovered that his wife had named her mother, uncle and sister as beneficiaries of her million-dollar retirement plan prior to their marriage and never updated the beneficiary form. Because the wife's mother and uncle were also deceased, the entire proceeds from the retirement plan went to the deceased woman's sister who refused to share anything with her sister's widower. The Manhattan Supreme Court ruled that ERISA plans, governmental plans and non-qualified plans do not provide spousal protection, hence the widower's sister-in-law was entitled to all of the proceeds from her sister's IRA.  

Currently, I'm helping someone rectify the mess created when his father (who intended to leave his IRA to his three children) mistakenly left it to a trust earmarked for his second wife's children, essentially disinheriting the IRA owner's three children. 

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Comment   |  6 years, 6 months ago from Woodland Hills, CA