Why clients must regularly review their beneficiary designations

It was a great day when Jessica and Ryan got married. They were childhood sweethearts who went off to college, met and married other people, and got divorced. They reconnected at their high school reunion, rekindled the flame and got married a year later. During this joyous period, Jessica neglected to update her beneficiary designation. She fell into the common pattern of assuming that all of her assets were “taken care of.”

Jessica died tragically in a ski accident. Unfortunately, Jessica was remarried but never changed the beneficiary designations on her retirement assets or her company-sponsored life insurance. Upon her death, her ex-husband received her life insurance death benefit directly, and her current husband and ex-husband went to litigation on her employer-sponsored retirement plan. Ryan knew that Jessica would never have wanted her ex-husband to receive the life insurance proceeds, but that was completely out of his control. Life insurance proceeds always go to the named beneficiary. As for her retirement plan, Ryan was able, albeit with additional hassle and expense, to make the case that he never signed a waiver allowing Jessica’s ex-husband to be the beneficiary of her retirement account at work. It is a law that spouses must be the beneficiary of qualified retirement plans, like 401(k)s, unless they sign a waiver to allow for someone else. Since this was not done, Ryan received her retirement funds.

It is essential for clients to review their assets and beneficiary designations annually. Leaving an unintended beneficiary in place is an all-too-common mistake that can have a significant emotional and personal impact on your affairs. Make sure your intended beneficiaries receive the funds. Review and update your beneficiary designations regularly!

Read more in “Client planning beyond the grave.” Also, watch her in the video, “If only I had known.”

Michaela Scott, CFP, MSFS, has been an MDRT member since 2015 and is a Court of the Table qualifier. She’s a strategic benefits consultant for Borislow Insurance in Methuen, Massachusetts, USA.