Updating Beneficiary Designations: Why It's so Important

When you sign up for life insurance, 401(k), and some other types of accounts, you are required to list a beneficiary to receive the proceeds should you pass away. Oftentimes, people fill out the form and move on, maybe even forgetting about which beneficiary is on which account. In hindsight, that seems to have been the case for Warren Hillman, a retired federal employee.

Warren Hillman had been married three times. During his second marriage, he signed up for a life insurance policy and listed his then-wife, Judy Maretta, as the beneficiary of the policy. Some years later, he divorced and remarried.

Then in 2008, Warren Hillman died at the age of 66 from leukemia. Among the non-probate assets he left behind was his life insurance policy, valued at $124,558.03. Unfortunately, he had neglected to update his beneficiary designations. His ex-wife Judy filed for—and received—those benefits, despite being divorced from Warren for more than ten years.

The beneficiary battle—who wins

Normally, when a person who passes away neglects to update their beneficiary designations, the state can step in to help. Where there has been a change in a deceased person's marital status, but a contract does not reflect that change, many state statutes effectively revoke the old beneficiary designation that instructs the death benefit to go to a former spouse. But you shouldn't rely on that.

In Warren Hillman's case, his widow, Jacqueline Hillman, used this argument in state court to try to recover the benefits. However, the case didn't end there.

Enter the Supreme Court of the United States (SCOTUS)

Hillman vs. Maretta went all the way to the U.S. Supreme Court. Because he had been a federal employee, there was more to consider. In the end, the Supreme Court sided with Judy Maretta rather than Jacqueline Hillman and she was able to keep the benefits.

The importance of updating your beneficiary designations

While a relatively uncommon situation, Hillman vs. Maretta illustrates how important it is to update your beneficiary designations. What is common is that assets go to people we don't intend because many people have beneficiary designations that are out of step with changes in their lives. As with any insurance or investment account, keeping your beneficiary designations current is an important part of your family's future well-being.

What to do

What's the best rule of thumb? Check your beneficiary designations from time to time to make sure they are what you intend them to be. Also, ensure you have an alternate beneficiary in case your primary beneficiary predeceases you. You should check all of your estate planning documents every few years—and the same goes for beneficiary designations. Most importantly, when you get divorced or make significant life changes, you want to check and revise all these documents. In the case of beneficiary designations, it's always the employee or investment holder who is responsible for updating them. If you are unsure how to do it, it's best to contact your human resources department or financial institution to find out.

When you're spending the time to protect your loved ones, you want to protect the person and the people nearest and dearest to you. By keeping your beneficiary designations—and all your estate planning documents—current, that protection is guaranteed.

Have questions about these issues? Talk to a legal plan attorney for help.