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The Danger of Not Updating Beneficiaries


Most people have no desire to give their ex-spouses large sums of money years after the divorce. However, as the USA Today explains in "Your ex could get rich if you don't update your beneficiaries," it is actually a fairly common occurrence and not because the person is forced to do it by a court.

This unexpected consequence occurs because people do not change the beneficiaries on their retirement plans and life insurance policies after they get divorced.

For many people those beneficiary designations were made with little thought on the first day of a new job. They are just part of the paperwork new employees fill out. Typically, married people tend to designate their spouses.

If those designations are not changed after a spouse becomes an "ex-spouse," then the accounts automatically go to the ex-spouse when the person passes away.

To make matters worse, even if the ex-spouse is friendly and wants to give the money to other family members, such as children or a new spouse, it is not that simple. Doing so would be classified as a gift and only $14,000 can be given to any individual per year without incurring a tax penalty.

Since retirement plan and life insurance policy beneficiary designations are such an important part of most people's estate plans, it is vital that changes be made after any major change in life circumstances.

A divorce is certainly such a change. Other such changes include the birth of a child or the death of a previously named beneficiary.

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