It's 2013: Do You Know Who Your Beneficiary Is?
In a few weeks, as we slowly emerge from our post-Thanksgiving food coma and approach the end of 2013, our thoughts will be turning to year-end tax preparations and new resolutions for 2014. One thing that stands out to me year after year in providing service to our clients is the need for every client to have a regular beneficiary audit. A beneficiary audit is a review of your beneficiary designations for all retirement plans, life insurance policies, pensions, annuities, Transfer on Death accounts, Payable on Death accounts, and even some types of government savings bonds.1 If you have undergone a major life change in the past year or two – such as a marriage, a divorce, the birth or adoption of a child or the death of a spouse – your beneficiary designations may be out of date. Your will, even if it is more recent than your beneficiary designations for assets such as IRAs and life insurance, does not control the disbursements from these types of “will substitutes.” It is imperative to keep those designations current to avoid problems when you are gone. Trust me, we’ve seen and heard horror stories.2
The question of whether or not the beneficiary designation trumps a person’s will went all the way to the United States Supreme Court just this year, in Hillman v. Maretta. The Court decided unanimously that the proceeds of federal life insurance policies are to be paid to designated beneficiaries before anyone else, including Mr. Hillman’s widow and his children; Ms. Maretta, his ex-wife and designated beneficiary, wound up with the proceeds of his policy 10 years after their divorce, simply because Mr. Hillman failed to complete a new form before he died.4
In determining your beneficiary designations, it is important to seek the advice of your attorney and your tax advisor. Legal advice is particularly critical in the case of naming minors as beneficiaries, since in most states a minor cannot receive these assets directly and a guardian must be appointed. In addition, if a child of any age with special needs receives proceeds from a retirement plan or a life insurance policy, the child may be disqualified from government benefits he or she may be receiving that are based on need.3
To avoid problems such as these, I would advise that you compile a list of all assets for which you have named a beneficiary. Once you have consulted your attorney with legal questions and your tax advisor for tax implications of your designations, check with your financial institutions to see how your beneficiaries are currently listed. For most financial institutions, if changes need to be made, you will need to sign a new form; some firms will accept these changes online. If you have an account with us and need to check your beneficiary status, please contact us at 336-544-6800. We will be happy to let you know how your accounts are set up, and we’ll provide you with a form to make any necessary changes.
All of us at HMC Partners hope you have a happy and safe Thanksgiving!
1 “Don’t forget to Audit Your Beneficiary Designations.” Gary Altman, J.D., L.L.M., CFP®. May 23, 2011. Financial Planning Association http://www.fpanet.org/ToolsResources/ArticlesBooksChecklists/Articles/Retirement/DontForgettoAuditYourBeneficiaryDesignations/
2 Chartered Retirement Planning Counselor℠ Professional Education Program – An Overview of Estate Planning, pages 17-28. 3 “Don’t Name Your Special Needs Child as the Beneficiary of Your Life Insurance.” Bill O’Quin, CLU, ChFC, RFC. October 21, 2013. www.lifehappens.org http://www.lifehappens.org/dont-name-your-special-needs-child-as-the-beneficiary-of-your-life-insurance/
4 Hillman v. Maretta. Scotusblog.com case files. http://www.scotusblog.com/case-files/cases/hillman-v-maretta/