Go look at the form

A beneficiary form from years ago can beat your will and your divorce decree. Checking it takes fifteen minutes.

Drawn from the book: Chapters 9, 10 and 36.

Warren Hillman put his wife, Judy, on his federal life insurance in 1996. They divorced two years later, he remarried in 2002, and when he died in 2008 the form still said Judy. His widow, Jacqueline, sued under a Virginia law that let her recover the money. In 2013 the Supreme Court ruled that federal law overrides the Virginia law. Judy kept all $124,558.

Accounts like these pay whoever the form names. Go check yours.

The check

• Make the list. Every retirement plan from every job, IRAs, life insurance (the free policy at work counts), annuities, and any bank or brokerage account set up to pay or transfer on death.
• Log in and read the screen. Your memory of the form doesn’t count. Screenshot it.
• Add a backup name, for the case where you both die at once.
• Leave minor children off. Naming a child directly sends the money to a court-appointed manager. Set up a trust, or name a custodian under state law for transfers to minors.
• Track down old employers. A 401(k) from a job you left years ago still has a form behind it.
• Swap screenshots with your spouse. This is where most problems show up. Skip this step if you’re afraid of your spouse.
• Repeat it every anniversary.

Two moments when it matters more

You file for divorce. Until it’s final your spouse remains your spouse, with a spouse’s rights if you die. A new will can cut them to the minimum your state guarantees. New health care and financial powers can name someone else, and you can say in writing who runs your funeral. Talk to your lawyer before changing a beneficiary form: many states freeze finances as soon as a case is filed, the freeze often reaches these forms, and violating it can mean contempt of court. Wills usually aren’t frozen.

Your spouse retires. Someone may put a form in front of you and a notary and call it routine. It gives up your survivor benefit. In exchange the monthly check goes up, often 10 to 15 percent, but only while your spouse is alive. Live twenty years longer and you get twenty years with no pension. You might reasonably sign if you have a good pension of your own, if you’re much older or much sicker, or if the extra money pays for a life insurance policy you’ve confirmed exists and can’t be canceled. Congress made this your decision on purpose, and no one can require it. If you feel pushed, have a fee-only planner or a lawyer look at it before you sign.

Sources

• Hillman v. Maretta, 569 U.S. 483 (2013).