Major life events – such as the birth of a child, marriage or divorce – cause significant changes for anyone, but aside from the emotional upheaval, people often forget to tend to the mundane life administration jobs – such as updating the details of how their death benefits should be distributed.
“In the midst of significant life events, it is often not a priority for many people to review and update the beneficiaries they have nominated in their insurance policies or retirement benefits,” says Andrew Edwards, Consultant at wealth and financial advisory firm GTC.
He warns that failure to update these details, to accurately reflect your wishes and circumstances, often leads to added unhappiness at an already emotional time for a family, and can be the cause of unnecessary executor fees.
“Many people first buy – or get added to an employer’s – life insurance policies or retirement plans when they start working at a relatively young age and go on to nominate their parents or siblings as beneficiaries. However, in our experience with clients, we all too often see clients neglect to review the appropriateness of this cover and their related beneficiary nominations, as their lives change with marriage, childbirth or divorce,” he says.
It goes without saying that neglecting to add or remove an important beneficiary can cause a great deal of unintended unhappiness for the surviving family, especially in the case where the excluded recipient is a young child in need of ongoing income provision and assistance, or a divorced spouse who unintentionally benefits in the place of a more appropriate beneficiary.
“In the event of a policyholder’s death, their nomination forms are the official documents which reflect their wishes. More importantly, all policies supersede a last will and testament, so regardless of what the deceased may have determined in a will – even pertaining to policies – these stipulations will not hold if the instructions contained therein differ from the nomination forms.”
According to Edwards there is no recourse for beneficiaries who feel they may have been unintentionally disadvantaged through a mistake or neglect of the policyholder.
“This is especially challenging in circumstances where someone has remarried, but forgotten to remove the former spouse or add the new spouse and/or subsequent children as beneficiaries,” he says.
Retirement funds’ trustees
The exception to disputing a beneficial allocation, is the case of retirement benefits (including annuities), which are governed by the Pension Funds Act, where the beneficiaries – or those who believe they have a right to be a beneficiary – may challenge the nomination forms and the subsequent decisions made by the Trustees of the Fund.
“The board of trustees has the power to consider deviating from the nomination forms by considering the nominated beneficiaries and the actual dependents of the deceased. In some cases, the dependents have a greater right to the benefits than the nominated beneficiary, and the trustees may then consider re-allocating the benefits according to a needs analysis.”
However, this process may take years to be concluded, causing unnecessary emotional and financial distress.
“Therefore we urge policyholders with dependents to review and update the information determining their loved ones’ benefit allocations, as soon as there is a change in their circumstances,” Edwards concludes.
In order to change details, members should contact their financial advisor or life insurance company to update their beneficiary nomination form and any other relevant documentation. GTC has a team of highly qualified wealth managers who are able to assist with this process.