BEWARE THE BAD BENEFICIARY!
W
hen an investor opens a qualified account (new 401(k) account, new IRA,
new life insurance policy, etc.), an
important part of that process is to designate a beneficiary. In most cases, the account owner is required to provide a primary beneficiary and is able to provide a contingent beneficiary as well. Unfortunately, this may be the last time the account owner thinks about the beneficiary (beneficiaries) that have been designated and this can lead to disastrous consequence.
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BENEFICIARY: A person or entity who is the recipient of or will receive some or all proceeds of money or property held by the current owner upon a specified event or condition. Such vehicles as life insurance policies, inheritances, annuities or trusts may require that a beneficiary be named. CONTINGENT BENEFICIARY: Should the primary beneficiary precede the account owner, a contingent beneficiary if so designated would be next in line. “What problem could possibly arise?” you may ask. Consider Bob. Like many people today, as Bob has honed his skills over his career, he has pursued newer and better opportunities resulting in Bob
BUSINESS & CIVIC
changing employers about every five years. As happens often, Bob was so busy changing jobs that in each case he left his 401(k) account back with his former employer. Each of his “orphaned” 401(k) accounts were all but forgotten over time as he figured he’d just “clean this up” later when he approached retirement. Along the way, Bob got divorced and never went back to update his beneficiary despite remarrying. Unfortunately, there was a terrible accident that claims Bob’s life. When presented with the death certificate, the custodians of each of his “orphaned” 401(k) accounts dutifully payout to the designated beneficiary, who is his ex-spouse. What can ensue is a legal battle between the ex-spouse and others like
| WINTER 2020 |
10/30/20 4:15 PM
