One of the biggest estate planning mistakes I see is people who do not have updated beneficiary designations for their retirement assets or life insurance. However, as further explained this article from Forbes, there are many IRS rulings that show the disastrous effects of families who fail to take this important step.
When deciding who inherits your retirement accounts and life insurance, the only thing that matters most of the time is who you have named on the beneficiary designation form on file with the account administrator, custodian, or life insurance policy. It doesn’t matter what’s in your will or that you clearly intended someone else should inherit the IRA or life insurance. It also may not matter if the named person is deceased or is divorced from you.
In a recent court case, a 401(k) participant named three nieces as beneficiaries on her beneficiary designation form. After learning that she had terminal cancer, the participant decided to change the beneficiary to her long-time partner. She called the plan administrator’s customer service line and was told that including the instructions in a signed letter would be sufficient to change the beneficiary designation. This conflicted with the plan’s documents, which stated that only a signed beneficiary designation form could effectively change a beneficiary.
The participant submitted the letter with an unsigned beneficiary designation form. The plan did not process the change, because the letter and unsigned form did not comply with the plan rules. The participant died, and the partner filed a claim as beneficiary. The plan rejected the claim.
The court ruled that the plan administrator was correct. With qualified retirement plans, intent and substantial compliance don’t count. To change a beneficiary, you must fully comply with the rules and procedure spelled out in the plan documents. In this case, only a signed beneficiary designation form was sufficient to change the beneficiary. (Ruiz v. Publix Supermarkets, Inc., United States District Court, M.D., Fla, 2017).
Rulings such as this re-emphasize the importance of regularly reviewing your beneficiary designation forms for IRAs, 401(k), other qualified retirement plans, and life insurance policies. Your will, stated intentions, and other evidence won’t be able to change the beneficiary as far as the IRS, plan administrators, and the courts are concerned. And regularly reviewing your beneficiary designations is a key step in estate planning.
If you have any questions about how to ensure your beneficiary designations are in alignment with your estate plan, please give us a call today.
Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information and to learn about our firm, please contact us.
Reference: Bob Carlson, April 24, 2018, “3 Rulings Show The Importance Of Checking IRA Beneficiary Forms,” accessed April 29, 2018, from https://www.forbes.com/sites/bobcarlson/2018/04/24/3-rulings-showthe-importance-of-checking-ira-beneficiary-forms/#3ea0da886a48.