Different rules determine who can get your money when you die. And if you don’t know the rules, you won’t be able to steer the money to the people you think deserve it.
Let’s start with your Individual Retirement Account (IRA). The money goes to whomever is named in the IRA document as your beneficiary. It DOESN`T MATTER what your will says, or what you and your spouse have written and signed in any pre-nuptial agreement. The person or persons listed in the IRA documents get the money. Remember to change the listing if you want to change the beneficiary. If you forgot to drop your ex-husband from the IRA, and you remarry and die, your ex-husband will get the IRA funds, not your current husband to whom you wanted to leave the money .
Spouses Inherit Pensions
But the rules are opposite for the money accumulating in your pension plan or your 401(k) plan at work. Here the money AUTOMATICALLY goes to your spouse, even if you have been married just a week, and you have kids from a previous marriage and you wanted to leave the money to them. The spouse automatically gets the money, unless he or she signs a waiver, giving up rights to the money.
Any waiver has to be signed after a marriage takes place. And it has to be on the forms and applications provided by the employer where you get your pension, or have your 401(k). The law has strong rules in favor of the spouse.
When it comes to the pension or 401(k), the current spouse always trumps children, courts have ruled. One man who was divorced named his children as beneficiaries of his 401(k). He remarried. He died and his children expected their inheritance. They got nothing. The money went to his new wife, now his widow.
Be Sure Your Beneficiary List is Current
Take time once a year to update the names of beneficiaries you have selected to get your money and assets after you are gone. All the forms need to be current: company pension plan, Individual Retirement Accounts, 401(k) plans, bank accounts, life insurance policies, brokerage account, 529 accounts for college savings.
Lots of stuff can go wrong:
Some examples that went all the way to the Supreme Court.
A divorced man failed to take his ex-wife’s name off his pension documents and his life insurance policy. He wanted the money to go to his children. He was killed in a car accident, and the money went to his ex-wife.
In another case that went to the Supreme Court, a couple were divorced , but the husband didn’t change the beneficiary designation on his company ‘s investment plan. He wanted the beneficiary to be his daughter. He died before changing the form, and the court ruled that the ex-wife would get the money because the beneficiary selection takes precedence over the divorce settlement. The ex-wife got the money he had intended for his daughter to receive.
Your divorce decree and your will are not the last word when it comes to IRA documents, and 401(k) documents and corporate pension and savings plans. The last words, or rather the last names, listed on all these forms are the ones that count. Make sure yours always are up to date.
