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The Negative Side Of Not Updating Beneficiary Designation

Thompson Mungo Firm Jan. 3, 2023

Updating your beneficiary designation is crucial when a significant event happens, such as birth, adoption, marriage, divorce, and death. You must complete an update form with the right beneficiary if your designated beneficiary is no longer the best choice for a certain account. The consequences of not updating a beneficiary designation are vast and dangerous. The benefits could pass to someone you don't want to inherit.

The Story of Warren Hillman

Warren Hillman had three different marriages throughout his life. 

When he married Judy Maretta, his second wife, he purchased a life insurance policy naming her as the beneficiary in 1996. However, in 1998, Warren Hillman divorced Judy Maretta. Then, later on, he married Jacqueline Hillman, his third wife, in 2002. 

Warren Hillman passed away from leukemia at the age of 66 in 2008 and the life insurance policy amounting to $124,558.03 still listed his ex-wife, Judy Maretta as the beneficiary.  His widow, Jacqueline Hillman, and his ex-wife have been fighting over that money for five years. This case entered the Supreme Court of the United States. The Supreme Court found that Judy Maretta, Hillman's ex-wife more than ten years ago, was entitled to every single penny. Unfortunately, Warren Hillman did not update his beneficiary designation from the time he divorced Judy Maretta and when he married Jacqueline Hillman. The Supreme Court found that Judy Maretta was entitled to receive the life insurance proceeds due to the beneficiary designation at the time of Warren Hillman’s death.

Consequences of not updating beneficiary designations:

Georgia law does not automatically revoke beneficiary designations upon divorce. When you are divorced, and the ex-spouse is still the primary named beneficiary to your assets, the ex-spouse will receive the assets at the time of your death. Your widow and children will have no claim to your life insurance proceeds.

Moreover, when you were still a single person, you might have chosen to designate your parents or siblings as the primary beneficiaries of any investment, insurance, or asset accounts. If this is the case, consider updating these designations. If you get married and do not change the beneficiary to your spouse, all the funds will go to either the parents or the siblings specified as beneficiaries in the assets, not your spouse and children.

If you have been married but have not kept all your documents up to date, the government or estate will not recognize you as married. Your spouse will have to provide a marriage certificate to claim your government benefits, given you are working for the government. However, even if your spouse has presented your marriage certificate, your spouse will only receive part of the amount of benefits to which she is entitled. Your spouse might only receive not even half of the benefits.

Important things to remember:

  • The court or the financial, policy, and insurance companies will honor and rule over the beneficiaries designated on your assets.

  • Out-of-date beneficiaries are common and costly mistakes. Your assets might be claimed by the wrong people and will cause trouble to the rightful beneficiaries. 

  • The Will never outweighs the beneficiary forms. In a legal dispute, beneficiary forms are more important than final wills and testaments. Therefore, individuals who possess assets they intend to pass on to their heirs should ensure that their beneficiary designations are updated. This is necessary if they want their assets to be transferred in accordance with their wishes.

Beneficiary designation documents to update during major life events:

  1. Health insurance

  2. Life insurance

  3. Retirement Benefits

  4.  401(k)

  5. Bank Accounts 

  6. Investment Accounts

  7. Civil status on your legal documents

To update your beneficiary designation, you must complete a form. It would be best if you do so before any significant event occurs. Monitor your beneficiaries at least once a year to ensure they are current. The consequences of not updating a beneficiary designation are very serious. You could end up losing control over your money and property. Keep close watch over the ones you love, for their sake and your own. If you have questions about beneficiary designations, do not hesitate to speak with a professional.