What Did I Just Sign?

When you start a new job, you sign a lot of forms.  Tax forms, health care forms and retirement beneficiary designation forms.  Your first few days on the job you take the forms and read them, think about them, sign them and turn them back in to your boss or human resources department.  After that you probably never think about them again.  Big mistake.

One of the most poignant examples of this mistake comes out in a New York Post story back in 2001.  The story “Pension Pickle!” tells a twisted tail of Anne Friedman’s nearly million-dollar pension.  Anne was a lifelong New York City school system employee.  In 1974, Anne named her mother, uncle and sister on her beneficiary form with the Teachers’ Retirement System.  A year later, Ann met and married Bruce Friedman to whom she was happily married for the next two decades.

During her entire marriage, Anne never updated her beneficiary designation.  So after her death, Anne’s sister was the sole surviving beneficiary of Anne’s retirement plan and only her sister had the right to receive Anne’s pension money.  Anne’s sister exercised her right, took nearly a million dollars of Ann’s pension and left Bruce with nothing.  Bruce sued, lost, appealed and lost.

The moral of this tale, don’t be like Anne.  Always update your retirement plan beneficiary designation form, especially after a life-changing event, such as marriage, divorce or the birth of a child.  If you don’t you may end up leaving your loved ones with a broken heart and nothing else.

Unfortunately, not updating your beneficiary designation forms isn’t the only mistake that people make.  Many people assume that if they have a Will, the Will takes care of all the details.  Sorry, it just doesn’t work this way.  Beneficiary designations always trump what’s in a Will.  Even if Anne’s Will stated that all of her pension money is to go to Bruce, Anne’s sister would still end up with the money.  Sorry Bruce.

Alternatively, if you fail to name a beneficiary for an IRA, you are robbing your heirs (excluding your spouse) the right to maintain the same tax advantages that you derived from having the IRA in the first place.  That’s a tax bill that I’d just as soon have my heirs avoid for as long as possible.  For that matter, you’re also going to want to name multiple primary and secondary beneficiaries.  Again, if you don’t pick them yourself, the court will and you won’t have any control over how much goes to who or when it gets to them.

In the end, we all have to come to terms with the reality that each and everyone of us started our estate plans on the very first day of our very first jobs.  We may not think of them as estate plans because the words “Will” and “Trust” are nowhere to be seen, but these plans are deciding what happens to our stuff after we are gone.  Wouldn’t you call that estate planning?  Just like a formal estate plan put in place by a qualified attorney, these plans need to be looked at and updated over and over.  Remember that estate planning is a lifetime process for the benefit of you during your lifetime and your heirs after you’re gone.

Pay attention to what you’re signing.