Company's 401(k) Plan.
01 April 2011
I recently came upon a couple of stories regarding beneficiary designations and unhappy endings. I’ve heard many throughout my years, but this is the first I’ve read where the case went to the Supreme Court.
The first story was about a long-time DuPont employee who experienced a divorce. His ex-wife was excluded from any right to his pension in the divorce decree, but he failed to change the beneficiary designation on his savings and investment plan. The opinion doesn’t state if the DuPont employee remarried, but he died seven years after the divorce and DuPont paid about $400,000 to his ex-wife. Of course, the estate sued and the case worked its way to the U.S. Supreme Court. The estate lost. The court unanimously ruled that his error could not be corrected.
Beneficiary designations override a Will or Trust.
The second story is one of oversight and is just sad. Someone with six kids purchased an annuity and inadvertently only named five of the children as beneficiaries. The sixth was omitted. Mistakes like this leave bad feelings and uncertainty. I don’t know how this situation ended. The other five may have wondered if Mom or Dad left the sixth child off intentionally. Even if they decided to share equally between the six kids, there is always a lingering doubt. This happens more often than you might think–A couple has two children and may name them as either primary or secondary beneficiaries on a document. Along comes child number three and they never add that child to the beneficiary designation.
The last story comes from one of our office staff. She tells the story of a person who had a company life insurance policy. He got a divorce and then remarried. Despite his stated objective and our advice that he update his beneficiary designation, he never removed his ex-wife as the beneficiary of his life insurance. The insurance company was contractually obligated to pay the ex-wife the proceeds of the insurance policy when he died.
If you are unsure who the beneficiary designation is on your pension plan, 401(k), insurance policies, any company stock or savings plan, or anything else with a beneficiary designation–Check. The bottom line is that it is easier to fix beneficiary designations while you are still alive!
If you have any questions or if we can assist you in reviewing your beneficiary designations, please give us a call at (916) 435-2100.