Guest Post – Attorney Mike Mastry: Beneficiary Designations

This week we welcome a guest post from Attorney Mike Mastry on beneficiary designations. He has an instructive story that illustrates why it is important to double-check them.

 Mike can be reached at mike.mastry@mastrylaw.com 

 

Attorney Mike Mastry of St. Petersburg, FLIf you haven’t reviewed your beneficiary designations recently, now would be a good time to take a look. The number of horror stories of assets going to unintended people would surprise you. It’s such an easy fix that is all too often forgotten.

Recently, the Fifth Circuit Court of Appeals reversed a trial court decision and held that a pension plan administrator didn’t abuse her discretion in determining that a deceased plan participant’s stepsons weren’t considered his “children” under the terms of the plan. As a result, the deceased participant’s siblings received the payout instead of his stepsons.

In that case, John Hunter died in 2005. He had retired from Marathon Oil, where he participated in the company pension plan, which let him name a primary and secondary beneficiary. Hunter designated his wife as the primary beneficiary but didn’t designate any secondary or “contingent” beneficiary. After his wife died, he didn’t update the document to add a new primary beneficiary. Under the plan’s terms, when a participant died without designating a valid beneficiary, benefits were distributed in the following order: (1) surviving spouse, (2) surviving children, (3) surviving parents, (4) surviving siblings, and finally (5) the participant’s estate.

After Hunter died, the plan administrator rejected the claim that his two stepsons would qualify as “children” who’d be entitled to all the benefits. Instead, the plan administrator distributed the benefits of more than $300,000 to Hunter’s six siblings.

Although the evidence seemed to indicate that he probably did mean to leave his benefits to the stepsons, the Fifth Circuit agreed with the administrator’s interpretation that the term “children,” meant biological or legally adopted children. The pension benefits then went to Hunter’s six siblings.

The moral of the story: regularly review and update beneficiary designations (including secondary beneficiaries).  If their names don’t appear on the beneficiary form, they will not receive anything. Furthermore, your will or living trust will not override a beneficiary designation.

Mike’s website is www.mastrylaw.com.

Holly Donaldson

Holly P. Donaldson, CFP® writes and consults on the psychology of money. Her fee-only, product-free financial planning practice focuses on increasing financial self-efficacy for those seeking a financial navigator to help them make good decisions. She is the author of The Mindful Money Mentality: How to Find Balance in Your Financial Future (Porchview Publishing, 2013) and publisher of the award-winning monthly e-letter, "The View From the Porch." With a fully virtual practice in Seminole, Florida, she primarily serves clients located in the Tampa, St. Petersburg, and Clearwater areas. Holly will also work with clients who are a good fit located elsewhere in the United States.

Leave a Reply