How Important Is Your Beneficiary Form? THIS Important!

By Beverly DeVeny, IRA Technical Expert

Follow Me on Twitter: @BevIRAEdSlott

Let’s assume you have an IRA or retirement plan or annuity or even life insurance. All of those things have a beneficiary form. They do not pass through your will and they are not probate assets as long as you have completed or updated the beneficiary form. We say this over and over again. The reason we are repeating it is because there is a new court decision in a case where there was no beneficiary form for employer plan assets.

What happened? The spouse predeceased the plan participant. There was no contingent beneficiary named on the plan beneficiary form. The participant was survived by stepchildren and his siblings. The plan gave the funds to his siblings after determining that step children do not meet the plan’s definition of children. The balance of his estate went to his stepchildren. (Editor’s Note: We initially brought up this case in Tuesday’s article on leaving retirement assets to your stepchildren. CLICK HERE to read that article).

When you have no beneficiary form or the beneficiaries you have named have predeceased you, then you have no say over where your retirement assets go. The documents – the IRA agreement, the plan agreement, the annuity contract, the insurance policy – will determine where your money goes, NOT you.

It is imperative that you complete beneficiary forms whenever you open one of these types of accounts. And take it one step further. Don’t just name a primary beneficiary. Also name a contingent beneficiary. It doesn’t cost you anything to do this. This way, if your primary beneficiary predeceases you, then your assets automatically go to the contingent beneficiary – without you having to do anything more. In our court case above, if the plan participant had put his stepchildren on the plan as contingent beneficiaries, they would have inherited the plan assets. No court case. No lawyer’s fees.

It also doesn’t hurt for you to check on your forms every couple of years. Companies have been known to “lose” them. I know mine did – they told me so. If they can’t find the form or if you need to update your beneficiaries, get a new form, fill it out, and send it in. Keep a copy of the form. And check back with the company to see if they actually received your form and processed it. Of course you only need to do this if you want your funds to go where you decide they should go. If you are OK with the company deciding for you, then you don’t have to do a thing. They will take care of it after your death.