How Failing to Update Beneficiary Designations Can Cost You Millions
Avoid This Common Estate Planning Mistake
As an estate planning attorney, I cannot express enough how important it is to name beneficiaries on your investment accounts. But, just naming a beneficiary is not enough. Yo need to review those beneficiaries on a regular basis. As your life changes, so may your intended beneficiaries. Yet people forget to change those designations. Read on to learn how failing to update beneficiary designations can cost you millions.
Could a Million Dollar Mistake Really Happen?
Imagine this: You're in your twenties and just starting your career. You fill out a form at work and name your significant other, who lives with you, as the beneficiary of your retirement account. You start contributing to your retirement account. Your account starts to grow. Fast forward 28 years. You ended that relationship a long time ago. But you never changed your beneficiary designation. After living a full life, you die. Now, your ex-partner gets your million-dollar retirement nest egg. Your family, or worse yet, your current spouse, gets nothing.
Sound far-fetched? Unfortunately, this actually happened when Jeffrey Rolison, a long time Proctor and Gamble employee died. After his death, a high-profile lawsuit was filed involving his former partner, Margaret Losinger, his estate and Proctor and Gamble, the Company he worked for during those 28 years.
Here’s a closer look at this shocking real-life story and the lessons we can learn. Having a trusted advisor at every stage of life can protect you from making a million-dollar mistake like this. They can also help you avoid other mistakes that you might be overlooking. Read on and learn.
So What Really Happened?
In the 1980s, Jeffrey Rolison dated Margaret Sjostedt dated during the 1980’s. During that time, the two lived together.
Rolison worked at a Procter & Gamble (P&G) plant, where he signed up for a profit-sharing and savings plan. In 1987, he listed his then girlfriend, Margaret Sjostedt, as the sole beneficiary of his retirement account. Two years later the two broke up and moved on to other relationships.
Although they broke up, Rolison forgot to update his Proctor and Gamble beneficiary designation. Although Sjo Sjostedt eventually married, taking on the last name Losinger Rolison did not. When he died in 2015, Rolison was single, childless and had no estate plan in place. His retirement account, which had grown to $1.15 million, was still designated to Losinger, nee Sjostedt.
Fast forward to his Death
Rolison’s brothers, Brian and Richard, were shocked when they learned that Losinger was the beneficiary of Rolison’s retirement account. They believed their brother wouldn't have intended for his long-ago ex-girlfriend to receive his retirement savings. The brothers filed a lawsuit against P&G and Losinger in 2017, trying to get the money directed to Rolison’s estate.
On April 29, 2024, an appeals court issued an order, ruling that Losinger was entitled to the money. After fighting for four years, Rolison’s family lost their claim, the million dollars in Rolison’s retirement account, and all the legal fees and court costs invested in the fight. Because we have no doubt you wouldn’t want this to happen to your family, read on …
Why Even “Simple Estates” Require Trusted Guidance
Before we go on, I’ll clarify what estate planning is and how beneficiary accounts factor in to your planning. I’ll also explain why you likely need the guidance of a trusted advisor. Even if you think you don’t have an estate, believe your estate is "simple," or feel you don’t really need an estate plan, a trusted advisor can be invaluable.
What estate planning is.
Many people consider that only the wealthy or eldery people need estate planning. As you can see from this case, that’s just not true. Rolison wasn’t wealthy when he chose to name Losinger as the beneficiary of his retirement account. And he probably wasn’t wealthy when they broke up eventually.
Unfortunately, we now know he didn’t have an estate plan in place to protect his assets. We also can assume he had no trusted guidance to avoid making his ex-girlfriend a very wealthy woman at the expense of his family.
Estate Planning At Its Basic Level
Estate planning makes sure everything you own goes to the people you choose. It helps you do this with as little trouble and cost as possible. If you get too sick to make decisions, it ensures people know and follow your wishes. This way, your wishes are respected with the least cost and most privacy.
Most importantly, estate planning is about your choices and your freedom. So, how important is it to you that you have a say in what happens to you, your hard-earned assets, and your loved ones when the time comes? If it’s important, you need an estate plan. It’s truly as simple as that. Otherwise, the government gets to decide on your behalf. When you create an estate plan, your wishes override the government’s plan for you and your loved ones.
How Beneficiary-Designated Accounts Factor Into Your Estate Plan
Beneficiary-designated accounts - like retirement accounts or life insurance - are part of your estate plan. Beneficiary designations override the government’s plan for you, and they also override whatever you might have written in your will or trust, if you created one.
From the case I shared here, we learn that Rolison did not have a will. However, even if he did, it would not have made a difference. Why? Beneficiary designations trump any designations you have made in your will or trust. This is true even if you made the designations years ago before you made your estate plan.
Beneficiary forms are powerful documents. They alone determine who gets your retirement accounts, life insurance policies, and bank accounts. If you filled out a beneficiary form years ago and haven't updated it, the person named on that form will likely receive the assets, regardless of your current wishes. So the biggest takeaway from the Rolison/Losinger story is that beneficiary accounts are an integral part of your estate plan.
Review, review and review
You need to review those designations on a regular basis. This is why we include a review of all of your accounts, your beneficiary designations and an inventory of all of your assets in all of our estate plan. .Plus we have updating programs for ongoing review of your plans as you age.
Why You Need Regular Reviews of Your Accounts and Beneficiary Designations
Rolison’s case highlights the fact that it’s easy to forget about your beneficiary designations, especially if they were filled out years ago. However, the case also tells us that neglecting to update your accounts can lead to unintended consequences and legal battles for your loved ones.
In Rolison’s case, his brothers argued that P&G failed to adequately inform him about his beneficiary designation. They claimed the company provided insufficient warnings when it changed service providers and in its monthly statements. However, most companies do not remind you to review and update your beneficiary accounts.
Think about it. When was the last time your bank reminded you to review the beneficiary designations on your checking account (if ever)? What about your life insurance company? And if not, have you taken it upon yourself to check your beneficiary designations regularly? Your life is busy enough. Is this a priority?
If not, it should be. In its decision, the court stated that it ruled in favor of P&G and Losinger because the responsibility for keeping beneficiary information current rests on the individual.
How Accountability Makes All the Difference
Your life is busy. Sometimes, just making it through the day with all your responsibilities can be a challenge, right? Probably the last thing on your mind is planning for your death and incapacity. And maybe the second-to-last thing is reviewing and updating your beneficiary accounts. You’re probably thinking you can do it later.
But the truth is this: “later” could be tomorrow. We all know we will die; we just don’t know when. Death doesn’t care about your age or how busy you are. I’m not saying this to scare you. It’s a fact, and I want you to be prepared so that what happened to the Rolison family won’t happen to yours. Death doesn’t have to be scary. When you plan for it, you’ll find that you can live your life with more purpose and peace of mind, knowing you’ve done the right thing for your loved ones.
How We Differ
If this sounds good to you, know that having a trusted advisor who is there for you throughout your lifetime can make all the difference. That’s why my process includes regular check-ins and reviews of your plan, including your beneficiary accounts. The best part is you never have to think about it on your own!
Unlike most lawyers who do estate planning, I want to keep in touch with you after your plan is completed. I will remind you on a regular basis to update your plan - and keep you accountable for doing so. I’ll also be there for you as life changes so your plan reflects your current wishes. Together, we’ll make sure your family inherits your accounts, not an ex-girlfriend you dated 40 years ago.
We Do the Heavy Lifting So You Don’t Have To
When it comes to planning for your death and incapacity, we do the heavy lifting for you, freeing you to concentrate on your responsibilities to your family, your work, and yourself. We help you create an estate plan so that your loved ones stay out of court and conflict and that your plan works when you need it to. Once you’ve created your plan, you can rest easy knowing your wishes will be honored, your loved ones cared for, your property protected, and your plan updated throughout your lifetime.
And if you’ve already created your estate plan with us, keep an eye out for our reminders to review and update your plan. If you know now that you need to update your plan due to a life change, don’t hesitate to call us right away.
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This article is a service of Kristen N. Mackintosh, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Life & Legacy PlanningⓇ Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life & Legacy Planning SessionⓇ.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
