Mary Smith got a pleasant surprise when she picked up her mail the other day. Her first husband, from whom she’d been divorced for over 10 years, had left her the proceeds from an insurance policy. The good news for Mary, however, meant bad news for Mr. Smith’s second wife, with whom he’d had 2 children. Although the second wife received other assets, the life insurance proceeds still went to Mary.
When someone purchases insurance, opens an IRA, or a bank account, the institution holding the account asks who should receive the proceeds of the account if you die, i.e., the beneficiary of the account. Normally a form is included with the application for you to indicate the beneficiaries of the assets. You fill in the names of loved ones, or perhaps charities, and think you’re done.
Loved ones pass away, or can become ’unloved’, and even charities dissolve. When beneficiary names aren’t updated or removed, problems will be encountered by the person or institution who administers your estate after your death. If a beneficiary is deceased, the financial institution will usually require their Death certificate. A charity which has dissolved, or can’t be found, is more problematic. Eventually, the money will usually go to the account holder’s estate, and/or be distributed to the account owner’s legal heirs.
Mr. Smith probably didn’t want his ex-wife to receive his insurance proceeds. You can prevent this problem by checking the beneficiaries of your accounts. You may be able to update this information on the institution’s website, or by calling the Customer Service department of the institution. If you’re unsure who to designate, or wonder if your trust should be the beneficiary, you may want to confer with an attorney. And make sure to check your beneficiaries every few years!
