Designating a beneficiary can be an obvious choice for many people. It is usually your spouse and/or your children. It is a private decision while you are alive, but it immediately becomes a permanent decision after you die. Everyone wants to maintain control of their financial accounts and insurance payouts, which is why it is so important that you choose someone to inherit your assets.
However, what if you forget to change your beneficiary designations after a divorce or falling out with listed beneficiary? Don’t forget that beneficiary designations supersede language in a will and bypass probate. They can even have priority over a court-ordered judgment…!
And just how important are contingent or secondary beneficiaries? Consider the following hypothetical example:
It was a second marriage for both Jim and Mary. Jim had a son from his previous marriage while Mary had two daughters from hers. They both knew it was important to have a plan to dispose of their assets. In fact, they had named each other as primary beneficiaries on their life insurance policies, IRA’s and bank accounts and purchased their home as joint tenants.
Unfortunately, they never got around to creating simple wills or designating contingent beneficiaries, and then the unthinkable happened. Jim and Mary were both involved in a head-on car collision. Mary was killed instantly and Jim survived for only 10 days. Because Jim passed after Mary, the house, and all of their life insurance, qualified assets, savings accounts and investments were distributed to Jim’s son.
Mary’s daughters were left with nothing.
Is that how Jim and Mary would have wanted their assets distributed? Probably not, but once someone dies, it’s impossible to understand what their intentions really were. This serves to remind us exactly how important both primary AND contingent beneficiary designations truly are. Unfortunately, many clients are never reminded to keep them up-to-date according to their wishes – and as we have seen, the results can be devastating.