Financial Plan Failed

A client succumbed to cancer in 2008. He intended his IRA, worth just about $400,000 to go to his children. He did not name his children individually, and instead directed "to be distributed pursuant to my last will and testament".

This direction invalidated his beneficiary designation, and the total IRA was left to his wife, who he had married two months before his death.

Beneficiary forms are the most often overlooked and forgotten documents in the financial planning process. Each time we enroll in a retirement plan, buy life insurance, change jobs and make other changes, we are asked to submit beneficiary forms. This is also true of bank accounts, certificates of deposit, stocks, annuity contracts, bonds and mutual funds. These forms take precedence over instructions in wills and trusts.

Our life situations change over time. Many of us remarry. Sometimes, we determine that we want to leave specific amounts to named beneficiaries. We recently had two cases of clients who had lost both parents, and in each case there were stock investments naming one of the deceased parents, and no successor beneficiary.

There are no automatic processes in place to remind us to review and change, if necessary, beneficiary designation.

The best option is to schedule a time to review all designation annually. If your bank or other institution changes its name, file new beneficiary forms. Keep hard copies of all beneficiary forms, and make sure that someone trustworthy can access them in case of your inability to manage your own affairs.

Alan Nadolna is a consultant to financial service organizations and is a financial advisor to corporations and individuals. He is a member of a panel of financial experts preparing This Way to Wealth. Your questions are invited by writing to Nadolna at Associates in Financial Planning, 633 Skokie Blvd., Suite 480, Northbrook, IL 60062 or call 800/428-9786 or 847/509-5090.