Posted by: Heinz Brisske

When was the last time you reviewed the beneficiary designations for your retirement accounts, life insurance policies and annuities?

Failure to keep those beneficiary designations current, or to properly designate beneficiaries, is never a good thing and, in certain circumstances, can lead to disastrous results.

In a recent case (that was ultimately settled), a widow had to fight for her late husband’s 401(k) plan because he had failed to name her as his beneficiary before he died. Prior to his marriage (his second), his children were his named beneficiaries. He didn’t expect to die, and he had every intention of naming his new wife as his beneficiary (he had provided for his children in other ways in his estate plan). He was comforted by the fact that, under federal law, a surviving spouse is automatically the beneficiary of a 401(k) plan unless she waives her rights in a written instrument. He had promised her that she would receive his retirement benefits upon his death, and she had no reason to believe otherwise. She had certainly never exercised a waiver of her rights to those retirement funds.

Unfortunately, his children did not see it that way. Before his widow could even make a claim to receive the retirement benefits, the children had requested a distribution of the entire plan amount. The widow was left with no alternative but to file a lawsuit in federal court to get what she felt was rightfully hers. The children eventually settled the lawsuit, but at a tremendous cost in court costs and attorneys’ fees to the widow. The costs of litigation effectively reduced her husband’s $1 million retirement account by one-fourth of its value.

More recently, in the case of Hillman vs. Maretta, the result was even more egregious. In 1996, Warren Hillman was a federal employee who named his wife, Judy, as beneficiary of his group term life insurance policy. He later divorced, and married Jacqueline. He and Jacqueline were still married when Warren died in 2008. Warren had never changed the beneficiary designation on his life insurance policy, which had a death benefit of $125,000. Jacqueline filed a lawsuit to recover what she believed was rightfully hers as Warren’s widow. The case involved conflicts between state and federal law and ultimately found its way to the Supreme Court of the United States. In 2013, the Supreme Court decided Hillman vs. Maretta in favor of Judy, the former wife and designated beneficiary; Jacqueline received nothing.

Unique circumstances? Perhaps. But unique circumstances exist in almost every situation. Can you afford to take the risk that someone other than the person that you wish to benefit will inherit from you? Or that a lawsuit will have to be filed in order for your loved one to receive what is “rightly” theirs?