Take Action Now: Update Your Beneficiary Designations

It is vitally important that you review all your beneficiary designations (life insurance, 401(k)s, etc.) every 2 years, or sooner in cases of births, deaths, marriages, divorce, job changes or retirement. Read on to see real court cases that show why it is so crucial.

We talk about beneficiaries A LOT around here, and the following court cases will show some of the reasons why, but first, let’s review what a beneficiary is and why it’s so important.

There are a few financial planning tools that are not passed down in wills. Things like life insurance and 401(k)s are passed down to whomever you write on the beneficiary designation form when you sign up for them. And sadly, many people NEVER change those names ever again despite the changes in their life circumstances. There are a significant number of people who take the time to care for their loved ones by taking out life insurance policies, but then don’t pay attention to who really owns it or who the beneficiary is. The tragic consequences of this oversight, impact those they love most.

Life is not a fairytale. Things do not automatically work out for the best. The law is the law, and therefore, will not be swayed by what seems reasonable for your family. These two federal cases illustrate that:

In Hearing v. Minnesota Life Insurance Company, a single father named his sister as beneficiary of his life insurance policy so the sister could take care of the daughter. He intended to change the beneficiary to his daughter once she turned 18. But he never got around to it. Sadly, the father died and the sister claimed the life insurance. Despite a handwritten note stating that he wanted his daughter to be the new beneficiary, the court found that the only thing that mattered was the name on the beneficiary designation. The sister, not the daughter, got the $100,000 pay out.

Again, in The Lincoln National Life Insurance Company v. Ruybal case, we have another “sister” situation. A single dad named his sister beneficiary because she was supposed to take care of the kids. Upon death, the decedent’s sister, his executor, and the two daughters all claimed the life insurance. The court ruled in favor of the sister, noting that, “Anyone attacking the right of a named beneficiary to receive the proceeds of an insurance policy has the burden of proving that the beneficiary is not entitled thereto.” In other words, the sister was on the form – plain and simple. Would it have been more fair for the estate or the daughters to get the money from the policy? Probably. But it is not the duty of the courts to do the reasonable thing. It is their duty to uphold and interpret the law. It is your duty to keep up to date with your beneficiary designations.

As you can see in each of these real-live cases, the court ordered payment to the named beneficiary, even to the detriment of the children of the deceased.  The clear message from the courts in these decisions is that the named beneficiary of a life insurance policy will get the death proceeds regardless of what other competing claims exist, or what one’s sense of fairness seems to dictate.

This means the burden is yours to keep up with your beneficiary designations. It is vitally important to make sure they are up to date. At the very least, you should review your beneficiary designations every 2 years. But in the case of the following life events, you should review your beneficiary designations right away:

  • Family events such as births, deaths, marriages and divorces all should trigger a review of ALL beneficiary designations.
  • Work events such as changes in business, change of job or retirement ALL should trigger reviews.
  • External events such as significant tax changes or other legal changes should also trigger a review.

Some mistakes are just not fixable. Please, double check your beneficiary designations if you have not done so recently. Edwards Group clients can rest easy because we help make sure assets are set up properly (and stay that way through our Dynasty Membership program). Join us for an introductory workshop to hear more about how we can help with estate planning.