Have You Changed all Your Beneficiary Designations?
In January 2009; the U.S. Supreme Court ruled (Kennedy v. DuPont Plan Administrator) against a woman suing her late father’s pension plan for money her mother received, even thought the mother had forfeited her rights to the pension in their 1994 divorce. The Supreme Court determined the beneficiary designation form and the procedures set under the plan were sole determinants of benefit distribution.
Employers are required to pay benefits as stated in the original beneficiary designation form, in spite of a divorce decree.
It is important for all divorcing individuals to revisit their estate planning, including beneficiary designations, wills and trusts. Changes must be made to retirement plans in accordance with the rules set forth by respective employers. Otherwise, children and/or new spouses may not be eligible to receive benefits.
Remember the following points:
1. Wills have no precedence/jurisdiction over the beneficiary designations of IRAs, 401(k)s, insurance policies and annuities.
2. It is always important to designate a contingent beneficiary for these accounts. Otherwise, if a primary beneficiary predeceases the owner, the account will need to be probated.
3. Naming a minor as a beneficiary sends estates straight to probate. Probate courts must supervise distributions left to minors. Establishing trusts in the children’s name will bypass probate.
4. Changing beneficiaries can often be done online or with the assistance of a financial advisor.
If you do not have a financial advisor with expertise in divorce, please consider obtaining one. Divorce is likely to be the most difficult financial transition you will ever experience. Professional guidance and support during and after this emotionally charged time will prove invaluable.
Justin A. Reckers CFP®, CDFA™, AIF®