You are married and you have one child, so you name your spouse as the primary beneficiary and your child as the contingent. What could be easier?
Now, let’s fast-forward ten years. The job has stayed the same, but there have been some dramatic changes in your life. Your “perfect marriage” ended, and since the divorce, you remarried and had another child with your new spouse. Life is good again.
Or so you thought. You never saw the car that ran a red light and broadsided you as you drove home from work, and now your family is saying their goodbyes to you—at your funeral. At least you can rest in peace knowing you took care of your estate. You did that by signing a “Will” leaving everything to your spouse.
But when he or she contacts your employer to look into your retirement plan assets and your life insurance proceeds, there are some surprises. First, your ex-spouse is still named as the primary beneficiary. Even though your will states very clearly that everything goes to your current spouse, your retirement account and life insurance proceeds are not probate assets, so your will has nothing to do with where they go. Your beneficiary designations are still controlled by the original forms you signed when you got that job so many years ago.a But let’s say your ex-spouse predeceased you, so you dodged the bullet on that one. At least your child will receive the retirement and insurance money. But wait—you have two children now. Will the older child share the wealth with the younger? Maybe. But what if the older child is still a minor? A court will have to get involved and appoint a conservator to manage the life insurance and retirement plan money for child number one. And the conservator will probably not be able to share the funds with child number two.
And you thought your will was the foolproof way to prevent these kinds of problems.
Clearly, there is more to the story than just signing a will. Reviewing your beneficiary designations (and the rest of your estate plan) annually with your financial advisors and your estate planning attorney can help keep you from leaving assets to the wrong beneficiaries and disinheriting the right ones.