The Importance of Beneficiary Reviews

Simple mistakes can cost your beneficiaries everything. Beneficiary designation forms are often overlooked when people are reviewing their estate plans. This simple oversight, however, can have dire consequences. For example, divorce is already an unpleasant event but imagine that your ex-spouse gets the proceeds of your life insurance policy plan assets and/or retirement accounts because you forgot to update your beneficiary designation forms.

In Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, Kari Kennedy was the administrator of her father’s estate and she tried to recover $402,000 that was paid to her father’s ex-spouse. As part of the divorce agreement, the soon to be ex-wife had given up her rights to Mr. Kennedy’s pension and other work related benefits.

However, Mr. Kennedy failed to remove his ex-wife as the beneficiary of his investment plan assets and replace it with Kari’s name. Following Mr. Kennedy’s death, the funds went to his ex-spouse, not Kari as he had intended.

This case made it all the way to the Supreme Court but, unfortunately, Kari was not deemed the beneficiary. Why? Under ERISA, a beneficiary designation form trumps a divorce decree. The Court made it clear that a former spouse can give up the right to retirement benefits as part of a divorce decree but the specific terms of an ERISA governed plan ultimately control what happens to the plan assets – the former spouse must execute a valid spousal waiver. This is an extreme case, but it illustrates the dire consequence of failing to review and update beneficiary designation forms whenever a life changing event occurs such as death, divorce, marriage or birth. A beneficiary review is an important part of your estate and financial review process. Your personal distribution expert and tax professional can guide you through the review process and help you identify and correct any errors.