At some point in your life you have done all of the following; started a new job, applied for life insurance, or opened a brokerage or bank account. In each event, forms required you to name a primary and contingent beneficiary. You had to provide your account custodian the names of your beneficiaries of your money if you died.
Your primary beneficiary is the first person who receives your account balance or death benefit. The contingent beneficiary receives the account balance if your primary dies before you.
It is absolutely critical to review and update your beneficiary designations on your individual company 401(k) retirement account as well.
I have lived through the following example twice with investment advice clients over my 34 years as an investment advisor.
The client divorced, and then remarried a few years later. The client never updated his company 401(k) retirement plan beneficiary form. The client dies and the ex-wife (first in line before his children and current wife) gets the company 401(k) retirement plan balance.
Don’t make the mistake thinking that your will or trust will direct how assets should be distributed or utilized when they die. Don’t allow your existing beneficiary designation to conflicts with your will or trust. If there is a conflict, the beneficiary form will control.
Countless court cases all over the United States have been fought over this very argument. In the vast majority of court cases the beneficiary designation form is where the money ends up.
Here’s the kicker. In each case, the client was a lawyer. The client should have known better.
Reviewing and updating your beneficiaries only takes a few minutes. I know from past client experience that a mistake can erase a lifetime of saving and investing success.
- A change in your marital status
- A birth of a child or grandchild
- A death in the family
- New job or promotion
- Problems with your health
Review your current beneficiary forms and make absolutely sure that they are in line with your current will or estate planning documents. That is the only way that your money will go where, and to whom, you want it to go.
Ric Lager
Lager & Company, Inc.
