Without care, estate planning can benefit former spouses
1/27/2016 | Kaplin Stewart Blog
When most Pennsylvania spouses go through a divorce, it is in the hope of severing all ties with their former spouse. Those who share children may have to maintain a degree of cooperation until their kids are grown, but very few divorced spouses will continue to take an active interest in the lives of their former husband or wife. Even so, without the proper level of estate planning effort, it is possible to provide one’s ex with a substantial financial windfall in the event of death.
This occurs because many people fail to update their beneficiary designations after they divorce. They may change their will, and will begin choosing a different person or persons to inherit any new accounts. It is not uncommon, however, for individuals to overlook accounts that already exist, and where their former spouse remains listed as the beneficiary.
No matter what is stated in a will, beneficiary designations will prevail. That means that an old life insurance policy or retirement account that still lists a former spouse as beneficiary will be paid out to that individual, no matter what other provisions have been taken to avoid that outcome. The same is true for bank accounts, investment accounts and pensions from previous places of employment.
As people age, many will accumulate a significant number of these accounts. Very few, however, will be conscientious about reviewing the beneficiary designations and updating that information as needed. In addition to the displeasure that comes with the thought of leaving an inheritance to a former spouse, there are also practical considerations. Those funds will be unavailable to one’s current spouse, as well as any children that are not a product of that marriage. That alone should be sufficient motivation for Pennsylvania residents to sit down and go through all of their estate planning documents, including old beneficiary accounts.
Source: USA Today, “Your ex could get rich if you don’t update your beneficiaries“, Jeff Reeves, Jan. 14, 2016