Review and Update Retirement Beneficiaries!

Death, inevitable as it is, remains a topic most prefer to avoid. Yet, as my father often quipped, "Nobody escapes this life alive." Failing to prepare for the end, especially during a spooky Halloween season, might leave your loved ones to face a financial horror story. Sure, many advisors stress the importance of a will, a living trust, or medical powers of attorney—but how many urge you to revisit and verify the beneficiaries on your retirement accounts? Ignoring this critical detail could unravel your intentions and create unintended chaos for your heirs. A pair of recent court cases starkly underscores the risks of neglecting beneficiary updates.

Consider the case of Sherry Yali Liu v. Kaiser Permanente Employees’ Pension Plan (#23-cv-03109-AMO). The June 2024 decision reveals a common pitfall: reliance on default beneficiary rules. Ya-Xia Liu, a dedicated Kaiser employee of 20 years, verbally promised her sister Sherry the inheritance of her retirement account. But Ya-Xia, unmarried and without children, never completed a formal beneficiary designation. By default, the plan dictated no spouse, child, or dependent meant no inheritance for Sherry. Though Ya-Xia began the designation process online, she tragically passed away before finishing. Sherry argued her sister had "substantially complied" with the rules. However, the court deemed the plan’s requirements clear: complete every step, or the designation remains invalid. As a result, Sherry’s claim fell through.

Contrast this with the more convoluted drama of The Procter & Gamble U.S. Business Services Co. et al v. Estate of Jeffrey Rolison (Case #3:17-cv-00762). Here, Jeffrey Rolison’s 401(k)—valued at over $750,000—was at the heart of a dispute. In 1987, Rolison named his then-girlfriend Margaret as the sole beneficiary. Their relationship ended in 1989, yet for decades, Rolison ignored repeated reminders from P&G to update his designation. Despite logging into the new online system multiple times, he never altered the original paperwork. When Rolison passed in 2015, his estate contested that P&G failed its fiduciary duty by not providing personalized instructions. The court, however, ruled otherwise: Rolison was informed repeatedly, and his inaction left Margaret as the rightful heir.

Both cases highlight a sobering truth: your designated beneficiaries carry more weight than your will or living trust when it comes to retirement accounts. Plans follow the last recorded designation on file—period. Any lapse in updating your beneficiaries could lead to outcomes far removed from your wishes. Whether through marriage, divorce, death of a loved one, or job changes, your life evolves, and so should your designations. This becomes especially crucial when transferring accounts between trustees; a designation at one institution doesn’t automatically transfer to the next.

Ask yourself: can you truly rest in peace knowing your lack of planning might sow discord among your family? Avoid the unnecessary drama. Regularly update your beneficiary designations—it’s a small step that ensures your final wishes are carried out without question. Peace of mind isn’t just for the living; it’s your legacy. If you are still unsure about your situation and want help, you can click this link to set an appointment to speak with an expert at Lisa Brugman, EA & Associates.