Just Another Reason to Check Your Beneficiary Forms | Ed Slott and Company, LLC

Just Another Reason to Check Your Beneficiary Forms

By Beverly Deveny, IRA Technical Expert
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@BevIRAEdSlott

We are all going to die someday. That is pretty much guaranteed. What is not guaranteed is who is going to inherit our “stuff?” We can use a will, a trust, and beneficiary forms. This story is about a man who did not use his beneficiary form.

Let’s call him Gerry. Gerry participates in his employer’s life insurance plan. There are two methods that can be used to determine who will inherit plan life insurance. You can complete a beneficiary form and direct the proceeds to your choice of beneficiary or you can do nothing and let the employer plan determine who will get the proceeds of the life insurance. Gerry did nothing and then he died.

Gerry’s executor let the employer know that Gerry had died. The employer determined that there was no beneficiary form on file. That meant that they had to go to the plan defaults to see who gets the insurance proceeds.

This plan had a lot of defaults. First was to the spouse, second was to a legally recognized partner, third was to children, fourth was to parents, and fifth was to siblings. Well, out of this list Gerry had a child and two sisters. It would seem pretty clear that the child should get the money, but the sisters thought otherwise.

You see, the daughter had been legally adopted by her step-father. So the sisters argued that she wasn’t really his child anymore and she shouldn’t get the money. They spent a lot of time litigating the matter, but eventually a court told the sisters that they were out of luck. The language in the plan defined a child as a person related by birth or adoption but not by marriage. It did not say that a child could be disinherited by adoption. So the child ended up with the money.

Now, considering that the child had been adopted by her step-father one has to wonder if Gerry would have wanted her to inherit this insurance money. On the other hand, maybe the sisters were resentful and money-grubbing and were not Gerry’s intended beneficiaries. Bottom line, a lot of time and money was spent to determine who should inherit Gerry’s life insurance. But maybe that was Gerry’s plan all along. If this is not your plan, then check your beneficiary forms.

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