The Case of the Unintended Heir

Beneficiary designation forms are very powerful. If not properly updated and maintained, they can disrupt your entire estate plan. It is vital that you audit your beneficiary designation forms on a regular basis if you want to prevent an unintended heir!

In my last life as a family law paralegal, I was actually part of a team that handled a case involving this very issue. Husband and Wife were getting divorced. They had a separation agreement where Wife agreed not to receive proceeds from Husband's life insurance; instead, the proceeds were to go to Husband's Brother. Husband died. Brother tried to claim the life insurance proceeds, but the life insurance company said Wife was the rightful beneficiary of the proceeds because Husband never updated his beneficiary designation forms. Brother sued, arguing that Wife gave up her rights in the policy when she signed the separation agreement. Brother lost. Wife received $200,000.

Many people fill out beneficiary designation forms for 401(k) accounts and life insurance policies on their first week at a job. Now, here they are ten or twenty years later, and they've gotten married, gotten divorced, had children, lost a parent, or broken up with their partner. Yet, they have never gone back and updated their beneficiary designation form. This is a major mistake, but the good news is it is easily fixable!

Minnesota has a law on the books providing that a divorce automatically cancels the designation of an ex-spouse as the beneficiary of a life-insurance policy. Other states have similar rules, but North Carolina has no such law!

If you have retirement assets, such as a 401(k) or IRA, or life insurance, or any other type of asset that allows you to designate someone to receive money or benefits at your death, do right by your loved ones and confirm you have these set up the way you want. Now's the time to conduct a self-audit to make sure the wrong person doesn't benefit from your death!