50+ Lifestyles

Don’t Make this Mistake! IRA Beneficiary(ies), Have Your Affairs in Order!

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

Recently I was reminded of this very important ruling and the impact on families. I wanted to share with readers this month.

The U.S. Supreme Court Ruling on retirement plan beneficiary form. The case Kennedy Vs Plan Administrator Dupont Savings and Investment Plan (1/26/2009) demonstrates time and time again the importance of updating and reviewing beneficiary(s) on retirement plans. U.S. Supreme Court unanimously ruled William Kennedy’s Ex-spouse receive the proceeds of his retirement plan as she was the named beneficiary. Let’s look at the facts in this ruling. Under the divorce degree of 1994, his Ex-spouse waived her rights and any benefits from his retirement plan. Perhaps it was one of those agreements where Ex-spouse agreed to accept other assets such as house, boat and other items, but expressed no interest in his retirement plan. Mr. Kennedy died in 2001. He wanted the retirement plan to be paid to his daughter their only child. The plan was a considerable $402,000. But Mr. Kennedy failed to change the beneficiary document to name his daughter. The beneficiary document clearly named Mr. Kennedy’s former spouse as beneficiary. Why did they not change the beneficiary? Mr. Kennedy and his attorney thought the same thing…. since the divorce degree is a legal document and has a more recent date than the beneficiary form, the divorce degree will take care of everything and allow daughter as beneficiary. After Mr. Kennedy’s death, Dupont Savings contacted the Ex-Spouse to inquire about settlement. Ex-Spouse told Dupont Savings those proceeds cannot be paid to me because our divorce settlement designated our daughter as beneficiary. Dupont Savings stated that according to ERISA the named beneficiary on their retirement plan document is the recipient of plan’s proceeds and cannot be paid to anyone else. The Ex-Spouse Beneficiary decided after all that the retirement plan proceeds would make her life more comfortable and decided to retain the retirement plan proceeds. Of course, the daughter sued for the proceeds and eventually case ended up in the U.S. Supreme Court. As stated earlier the Supreme Court unanimously ruled Ex-Spouse would remain beneficiary and retirement plan proceeds paid per the order.

What we learn from this ruling is the retirement plan beneficiary designation trumps everything regardless of will, divorce degree, trust terms or other signed documents may say. Do I need to emphasize the importance of reviewing beneficiary designations on our retirement plans and life insurance plans? Having our affairs in order is the greatest gift we can provide to our families and loved ones! Encourage all our readers to make sure your affairs are in order by verifying beneficiary(s) on all our insurance policies and especially on retirement plans the record they currently have as beneficiary.

Further – another important statistic to know is according to insurance company and retirement company estimates, the average inheritance is spent down to $0 between 90 days and 17 months of receipt. Options ‘spend-thrift’ provisions on life insurance and ‘annuitization’ provisions can be established if we are know our beneficiary(s) could benefit from these provisions.

Richard J. Schillig, CLU, ChFC, LUTCF is an Independent Insurance and Financial Advisor with RJS and Associates, Inc. He can be reached at (563) 332-2200.