You may not know where your biggest assets will go. It’s true. Of course, you know who the beneficiaries under your Will are. You know who the beneficiaries of your Trust are. But, do you know whom you designated as beneficiary on your IRA, 401(k), or other retirement plan? You may not. You may have made that designation decades ago. Guess what….normally, that designation continues unless you affirmatively change it.
Do you have a copy of your retirement plan beneficiary designation? If you’re like most people, you probably are thinking: “Huh? My what? What does it look like?” It was one of those forms you signed when you started at your job. Most people think they know what will happen, but they do not know for sure. That probably would have been Anne Friedman’s reaction. Anne was a longtime employee of the New York City school system. Years earlier, Anne was working in the public school system as a teacher and named her mother, uncle, and sister on her beneficiary designation. Later, she married Bruce Friedman and continued in a successful career as an educator. They lived happily together for nearly twenty years and Anne retired as a principal. After Anne’s death, her husband was counting on having her $900,000 of retirement plan assets for his golden years. In fact, Anne’s account statements from the New York Teachers’ Retirement System would come periodically and said she had no beneficiary designated. Bruce, as her closest relative would have gotten her retirement funds if she, in fact, had no beneficiary listed. Imagine his surprise when he discovered that he was not the beneficiary as he and his then-deceased spouse had both assumed.
In fact, upon Anne’s death, the retirement system found Anne’s beneficiary designation listing Anne’s mother, uncle, and sister. Of course, Anne’s circumstances had changed dramatically. Anne’s mother and uncle had predeceased her and, most importantly, she had married and enjoyed a life with her husband of nearly twenty years, Bruce. With Anne’s mother and uncle gone, her sister became the sole surviving beneficiary on the beneficiary form Anne filled out twenty-seven years before her death. The designation did not change with Anne’s circumstances. Bruce went to court to challenge this result but lost, even on appeal. The courts found that the beneficiary designation remained valid, despite what appeared to be an unfair result.
You should check all your beneficiary designations periodically. Many assets have such designations: IRAs, 401(k)s, and other retirement plans, life insurance, annuities, bank accounts, motor vehicles, etc. In fact, in several states, even realty can have a beneficiary designation. An unintended beneficiary designation can thwart your intended estate plan.
A qualified estate planning attorney will help you coordinate your beneficiary designations with the balance of your estate plan so that your plan works together, not against itself.
Compliments of the McGee Law Firm, Attorney Brandon McGee
Written By: The American Academy of Estate Planning Attorneys