Why We Are Relentless: Beneficiary Designations (Part 2)

John Robinson |

Why We Are Relentless: Guiding Clients to Provide Copies of Beneficiary Designations for Document Storage and Review- Part 2

As you may recall, last month's Catch of the Day, chronicled the problems that can arise by failing to properly designate and update beneficiary forms on IRAs and qualified retirement Accounts. In particular, we noted that, while spousal authorization is required to name someone other than one's spouse as the primary beneficiary on qualified retirement accounts, such as 401(k)s, 457 plans, and 403(b)s, it is generally not required on IRAs.

Of course, beneficiary designations apply to other assets beyond just retirement accounts. In particular, consumers should also be aware of the rules for naming beneficiaries on life insurance policies and annuity contracts. With the exception of certain rules in community property states, the owner of a life insurance policy may direct the proceeds to be paid to whomever he/she chooses.

"Besides naming a spouse as beneficiary, a policyholder could choose another family member, such as an adult child, a business partner, or even a boyfriend or girlfriend outside the marriage. Insurance companies don't make moral judgments about who is named as beneficiary. They simply pay out the money when the beneficiary submits a claim". (Source: Insure.com)

The most common problem we see in this regard is the failure to update the beneficiary designations upon divorce/remarriage. Another issue that is gaining attention in elder law circles includes situations in which an elderly person may update his/her beneficiary designation to include a caregiver as primary beneficiary in lieu of other family members.

As you might imagine, this opens up an entirely different set of ethical and legal considerations. It is my sincere hope that sharing this information with you validates why we are so relentless in pestering/prodding/nagging/cajoling clients to

  1. Deliver beneficiary designation forms to us to review and
  2. To maintain copies of all beneficiary designations forms in eMoney.

For more on this topic, see the following articles -

A spouse's right to life insurance money (Insure.com)

Naming a Beneficiary for Your Life Insurance Policy (Nolo.com)