If you’re like me, you hold the firm belief that a personal finance site like the one you’re currently visiting should occasionally offer more than the usual advice.
Oh, it’s fine if these posts primarily advance ways to track down the best savings account, how to save on life insurance or find the best zero percent APR credit cards. It’s just peachy if most offer timely tips on how to stage a profitable yard sale, get the best deal on pro sports memorabilia, save money on trips to the dry cleaner and earn a mint recycling common household items over online auction sites.
And of course, it’s terrific if they remind us of practices we’ve long known we should get going on but can’t often rouse ourselves to actually undertake, like investing for our kids’ college educations and our own secure retirement.
But every once in a while, shouldn’t there be a posting that truly saves readers from catastrophe? Should there not be, on the rising of a blue moon, a column that, once they absorb it, spurs readers to bellow, “Oh, my God! Can this be correct!? If it is correct, it may have saved me from being vilified as a doofus or worse by my spouse, children and other heirs, after I pass away.”
It’s that kind of wisdom I hope to dispense in this posting. I was clueless about it myself until a fortnight ago. I later learned many folks, up to and including some in the financial services field, remain similarly uninformed.
Here’s the promised insight. When you establish a retirement savings plan or an annuity or insurance policy, you designate beneficiaries to receive those assets upon your death. Those beneficiary designations take precedence over your will. I repeat, those beneficiary designations trump your last will and testament.
Put another way, you may intend to leave your entire estate to people you name in your will. But they won’t receive a dime of the assets in your insurance policies, annuities and retirement plans if others are named as beneficiaries.
How could this be a problem? Let us count the ways.
Let’s say your former spouse is a blending of Attila the Hun, Benito Mussolini and the devil, all rolled into one. You have been divorced from this person for years if not decades, never want to hear his or her name again and can’t abide the thought of one penny of yours ever falling into this jerk’s grubby little hands.
Your current spouse, the love of your life, is like an angel descended to earth. You sincerely want to ensure your assets go to your life partner upon your demise. You establish in your will that everything you own will go to him or her.
Then you die. And those long-forgotten insurance policy and retirement plan beneficiary designations, which name your original spouse, kick into action.
Your current spouse, the apple of your eye, gets nothing. And that past spouse, like a rat feasting on an uneaten jumbo cheese pizza that somehow missed the dumpster, gets his or her greedy claws on your hard-earned dough. Is there any legacy you’d less like to have attached to your memory after your death?
Just think, if you can do so without passing out, of your despised ex-spouse taking round-the-world cruises, purchasing European luxury sports coupes and buying a vacation home with money you’d planned to leave the love of your life.
As Michael Stuart, member manager of The Stuart Legacy Alliance, LLC, in Rolling Meadows, Illinois, told me recently, “There are hundreds of stories where husbands and wives get divorced, forget to change the beneficiary designations on their life insurance or retirement plans, and then they die. And their money goes to their ex-spouse, rather than to their children or current spouse.”
Gregory DeJong, a financial advisor with Naperville, Illinois, Savant Capital Management, recounts an instance of disaster averted. He recalls making idle chit-chat across a kitchen table with a woman while her husband went into the family files to fetch an insurance policy. After much longer than expected, the husband returned, red-faced, with an insurance policy that named his ex-wife, to whom he had not been married for more than ten years, his beneficiary.
File drawers rattling
I think I can hear some of you right now diving into your file cabinets and hunting frantically through file folders marked “Insurance” and “Retirement ” for insurance policies and retirement plans. As you do, tune in to this additional nugget.
“Not only do beneficiary designations trump the will, but the joint tenancy trumps the will,” Stuart says. “The easiest example is the residence. If you want your house to go to your kids, and you have joint tenancy with your wife, the wills and trusts mean nothing. You can effectively disinherit someone unintentionally.”
We all wish to be fondly remembered after we pass away. We all wish to know our assets will go to those we love when we die. To ensure yours do, check your beneficiary designations as soon as possible.
It could keep those most important to you from awarding you a posthumous designation you’d rather not contemplate.