Welcome to the second edition of Tip Tuesday. Today's topic - beneficiary designation forms and why keeping these forms updated is vital if you want to prevent an unintended heir!
In my last life as a family law paralegal, I was actually part of a team that handled a case involving this very issue. Husband and Wife were getting divorced. They had a separation agreement where Wife agreed not to receive proceeds from Husband's life insurance; instead, the proceeds were to go to Husband's Brother. Husband died. Brother tried to claim the life insurance proceeds, but the life insurance company said wife was the rightful beneficiary of the proceeds because Husband never updated his beneficiary designation forms. Brother sued and ultimately lost.
Many people fill out beneficiary designation forms for 401(k) accounts on their first week at a job, and ten or twenty years later, they've gotten married, gotten divorced, had children, lost a parent, broke up with their partner and yet never go back and look update their beneficiary designation form. This is a major mistake that is easily fixable!
Minnesota has a law on the books providing that a divorce automatically cancels the designation of an ex-spouse as the beneficiary of a life-insurance policy (though the US Supreme Court is currently considering the validity of such a law: read a summary of the issue here. North Carolina has no such law!
If you have retirement assets, such as a 401(k) or IRA, or life insurance, or any other type of asset that allows you to designate someone to receive money or benefits at your death, do right by your loved ones and confirm you have these set up the way you want. Now's the time to conduct a self-audit to make sure the wrong person doesn't benefit from your death!