The Importance of Beneficiary Designations

Once upon a time, William Kennedy married Liv Kennedy.  They divorced. In a divorce decree, Liv waived her rights to William's retirement plan benefits.  Liv eventually died. Yet, when William subsequently died, his retirement plan did not pass to his daughter per his will, but instead went to Liv's estate. 

The U.S. Supreme Court granted William's late, ex-wife's estate the loot for a simple reason -- William had signed a plan document stating that Liv (his wife at the time) was the beneficiary of his retirement account.  William never amended this beneficiary designation and it controlled the disposition of the money.  William's will and the divorce consent decree did not override it.

The moral of the story is straightforward:  Make sure your beneficiary designations are current and accurate.  This is true for all sorts of designations, including life insurance policies.  Please consult an attorney for advice regarding these matters.

There is a caveat, for the more legally inclined.  As Ed Slott, CPA and IRA expert, notes: "In footnote 10 of the case, the court did leave open the option that after the funds were distributed to the ex-spouse, there could be a case against her to recover the funds based on the divorce decree."  But for planning purposes, you do not want to rely on this to enforce your wishes.

See: Kennedy v. Plan Administrator for Dupont Savings and Investment Plan (2009).

Words of Wisdom

"Being of sound mind, I spent it all."  [A will being read by a lawyer to the decedent's family.]
-- Classic Cartoon