Earlier this year, Forbes Magazine reported that a prominent mutual fund had announced a new beneficiary policy which would require its customers to use identical beneficiaries for all IRAs of the same type. According to the article, they intend to apply the latest beneficiary form received to all IRAs of the same type unless their customers contact them with instructions to the contrary. Although this policy may work well for some IRA owners, without close attention to each beneficiary designation, it is possible that proceeds from some IRAs could go to unintended beneficiaries.
This brings to mind a high-profile beneficiary situation that occurred recently. A January 2005 article in the New York Post placed the spotlight on an individual by the name of Bruce Friedman. He and his wife Anne were married for 20 years before she died suddenly as the result of a massive heart attack.
Anne, a former school principal, had a $1 million pension. Unfortunately for Bruce, Anne completed a pension beneficiary form in 1978, four years before Anne met Bruce. The beneficiary form named three beneficiaries: Anne’s mother, uncle, and Anne’s sister, Virginia. Only Virginia was still alive at Anne’s death, and she received 100 percent of the pension proceeds. Bruce did not receive a penny, and according to him, Anne’s failure to update the beneficiary forms left Bruce destitute.
Bruce attempted to receive relief from the courts, but the court ruled in favor of Anne’s sister, Virginia. The New York court ruled it could not assume Anne’s intention was to name her husband as beneficiary, and the paperwork on file clearly identified Virginia as the beneficiary. Virginia, the article states, would not sit down with Bruce or his attorney. A clear take-away from both stories is the importance of frequently reviewing and updating beneficiary designations. Appropriately structured beneficiaries allow for proper tax planning and efficient wealth transfer.
When reviewing beneficiary designations for new clients, FranklinMorris often discovers incorrect beneficiaries listed on investment accounts and insurance policies, minor children named as outright beneficiary, insurance policies with the estate listed as a contingent beneficiary and situations where no beneficiary has been named. Each of these situations could be problematic, and at the very least could improperly reflect the clients’ intentions. Reviewing beneficiary designations is part of our client annual review process, but sometimes beneficiaries need to be updated more frequently than on an annual basis. If you are unsure who you named as beneficiary or if you need to update designations, simply call our office.
Jason S. Abosch, CPA/PFS, CFP®, MBA, is an associate of FranklinMorris, Coordinating Broker for the Bar Associations Insurance Agency, Inc. For more information on the insurance benefits available to MSBA members, visit www.msba.org/departments/membership/baia/.