The husband and wife were reviewing her annuity with their financial advisor. “You need to designate a beneficiary,” says the advisor. “I thought she did,” the husband responds. “I’ll send you a beneficiary designation form and help you submit,” the advisor concludes, and moves on to the next topic.
Later, the husband pulls the annuity contract. It includes the wife’s application, complete with her beneficiary designation. The employee who processed the original application is still on the job, years later. She reviewed the file, and explains that she messed up and had looked at the wrong paperwork when logging the contract. The company had the right paperwork, but didn’t look for it until challenged.
Beneficiary designations matter, and everyone should keep a copy with their Will. Better yet, insist on a written confirmation, to prove your designation was accepted and recorded and matches the instructions you provided. Data entry and record retention are the weak links in beneficiary designation, and they fail too often.
Does anyone remember Washington Mutual? The FDIC bought all of their assets, then sold them to Chase. Did Chase get any account agreements? No, all the assets and records were reduced to electronic notation and more than one family found itself in probate litigation because the records were lost.
Electronic notations are not written instruments. If you expect your beneficiary designation to be honored, leave a written copy.
Double check the designation that’s actually recorded. If you designate a trustee, but confirmation says “my estate,” the asset is going through probate. Don’t assume the professionals know what they’re doing. IRAs are long-term investments, yet some custodians destroy the paperwork after three years. If you don’t leave a written copy, your family’s not getting one from the custodian.
It’s all so haphazard. Why not just let everything run through probate? Think again. If you don’t designate a beneficiary, the account may designate one for you. Especially for employment benefits, where efficient administration is the highest priority, it’s common that the plan defines default beneficiaries. Thought that account was going to probate? Your family may discover it’s going to the kids in equal shares, including the one you disinherited.