Retirement Horror Stories

retirementhorrorstories

If you have an IRA and you do not review it, horrible things can happen if you don’t update the beneficiary form!  1. Intended beneficiaries may be disinherited  2. No stretch IRA for the beneficiaries  3.  Five-year rule will apply to inherited IRAs  4.  It negates IRA trust planning  5.  Can unwind divorce agreements

After some research I want to show you some of the things that I found out. In Case one, Kennedy versus Plan Administrator for Dupont savings and investment plan. A couple got divorced and the wife waived her interest in the 401(k). The 401(k) beneficiary form was not updated to name the daughter as intended. The husband died and ex-wife battled her own daughter in court for eight years. The US Supreme Court unanimously ruled that the wife receives the retirement plan money because she was named on that beneficiary form.

Case two, Cajun Industries, LLC versus Robert Kidder, United States Court Middle District of Louisiana. Leonard Kidder updated his beneficiary form, naming his three children the beneficiaries after the death of his first wife, Betty. Leonard remarried Beth Bennett Kidder and died six weeks later. Kidder’s children asserted that they were entitled to the plan funds. The court ruled that the terms of Kidder’s plan call for a spouse to have an immediate vested interest in plans assets. The court rejected the notion that a waiver of spousal rights should not be required for a spouse of less than one year.

Case three, Herring versus Campbell US Court of Appeals Fifth Circuit. John Hunter named his wife, Joyce as the primary beneficiary of his retirement plan with no contingent beneficiaries. Joyce died in 2004 and John died one year later without updating his plan beneficiary form. With no named beneficiary, his plan defaulted to one of five beneficiaries in this order. 1.  Surviving spouse 2.  Surviving children 3.   Surviving parents  4.  Brothers and sisters 5.  His estate. Because Joyce was deceased, the plan’s next fall beneficiary was the surviving children, however, the plan determined his stepsons were not his children biological or adopted. Hunter’s six brothers and sisters received the entire $300,000 from the plan. The stepsons challenged the ruling but to no avail.

Case four, The Pension Pickle, New York Post, January 2005. A Brooklyn man married to his wife for 20 years was left destitute when her pension was awarded to his sister-in-law. The wife suddenly died of a heart attack with the husband seemingly entitled to nearly $1 million in a pension account. The wife had not updated her beneficiary form in 27 years, four years before meeting her husband in a 1978 blind date. The old beneficiary form awarded the pension assets to the wife’s mother, uncle and sister. The mother and uncle had died, so the sister collected the entire pension.

Case five, this is what can happen when you have an incorrect beneficiary form on your IRA. Estate beneficiaries are different than beneficiaries listed on the IRA beneficiary form. The IRA owner wanted his three children to share his IRA equally. He outlined those instructions in his will, but the beneficiary form listed only one child. A fix if possible is very messy and expensive.

Case six, an IRA beneficiary accidentally transferred funds to a non-IRA account while online. There is no rollover option for an inherited IRA. The tax on the accidental transaction was approximately $300,000.

In closing, make sure that you update your IRA beneficiary form, it is extremely important.

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