When Should You Change Your Beneficiary?

| July 01, 2018
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IRAs and investment accounts allow you to name beneficiaries in case you pass away. When you name beneficiaries on a beneficiary form, it will generally supersede the instructions in your trust and will. This is why it is important to keep your beneficiary designations up-to-date on everything – including life insurance policies, retirement accounts, and other financial accounts. You want to check to make sure the beneficiaries on these accounts are who you want to receive your money.

If these forms are out of date, you will want to get them changed as soon as possible. Failing to do this can cause devastating consequences.

Here is a real life example, in Egelhoff v. Egelhoff, 532 US 141 (2001), Dad was married when he designated his wife as his beneficiary of a life insurance policy and pension plan provided by his employer, both of which were governed by the Employee Retirement Income Security Act of 1974 (ERISA).

Then Dad divorces his wife - and did not immediately take her off as beneficiary. A few weeks after the divorce was finalized, he was killed in a car accident. Dad's children from a previous marriage filed a suit against his ex-wife for the benefits from their deceased father.

The Supreme Court ruled that the beneficiary designations trumped the state law that would have removed his ex-wife as beneficiary. She ended up as the beneficiary of her late ex-husband's benefits with his children receiving nothing.

The moral of the story is clear. If you are going through a divorce or are already divorced, make sure to verify or update your beneficiary designations as soon as possible. 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

 

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