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Have you reviewed your 401k beneficiary designation?

Have you reviewed your 401k beneficiary designation?

| April 26, 2024

Anyone who has attended one of my 401k enrollment presentations knows about my emphasis on the need to keep your beneficiary designation current. While I am not an estate attorney (nor frankly an attorney of any sort), I believe this is part of a prudent process and sound financial planning. Yet time and time again, I find beneficiary designations that are out of date.

Each 401k education meeting I conduct will typically see me mentioning beneficiary review at the beginning. Even a recent talk on first time home buyer programs saw me loop around on this topic. While one legal case is the famous (infamous?) case of "Kennedy vs. DuPont", I would also offer the following cautionary tales.

An employee recently passed away in one of my retirement plans. While she had a partner and they happily owned a home together, she had named him as one of three beneficiaries on her 401k. The other two beneficiaries were her mother and her brother. Apparently the three do not get along and it seems her intention was to have everything go to her partner. By the time this came to a head, it was too late

Some 401k plan documents contain provisions that 401k assets will automatically transfer to a spouse at the death of the participant. The spouse may complete a notarized document disclaiming the money. The plan participant may then direct the funds be paid at death to a non-spouse beneficiary. But what of the case of a married couple in the process of a divorce?

Some employees have named their trusts as beneficiary on the advice of their estate planning attorneys. But when was the last time the trust was reviewed? I remember a dust-up from 2009. A father was estranged from one of his three sons. As a matter of fact, he had written in his trust that nothing was to go to the estranged son as (in the eyes of the father), he had not amounted to much. Over time, the father and estranged son patched things up. However, when the father passed away, he had forgotten to update his trust. In fact, when the family attorney read the trust out loud, he cringed as he got to the part about "nothing goes to my estranged son as he has never amounted to much". That started a whole new family fracas.

Bottom line? Take a few minutes and review your beneficiary designations. Make sure your beneficiary has the relevant contact information in the event of death. Also, if you name your spouse as beneficiary, have you checked that they have named you? Trust me. Do this now and review it frequently. It can save heartache and headaches in the future.