Recently, a friend of mine sighed deeply while having coffee. After her father passed away, she discovered that one of his bank accounts was about to be transferred to the wrong person.

She said that the will clearly stated it was to be left to her mother. However, the beneficiary section of that account still had an old name on it.

After hearing that, I searched for a long time when I got home. To cut to the chase, the most easily overlooked aspect for retired couples is this beneficiary designation.

Accounts like 401(k), IRA, life insurance, and those with POD or TOD do not follow the will. They go directly to the person listed on the beneficiary paperwork submitted to the company.

So, no matter how meticulously you revise the will, if you leave the beneficiary paperwork unchanged, it's pointless. I was honestly a bit surprised by this.

The scariest scenario is when an ex-spouse's name remains on the account. The U.S. Supreme Court addressed this issue in the 2001 case Egelhoff v. Egelhoff.

For plans governed by federal law ERISA, like company retirement plans, state laws that automatically cancel beneficiary designations upon divorce do not apply. As a result, the ex-spouse listed on the paperwork ended up receiving the funds.

New Jersey does have a law (N.J.S.A. 3B:3-14) that considers the designation of an ex-spouse canceled upon divorce. This provision may apply to personal life insurance, for example.

However, for ERISA plans like a company 401(k), the situation is different. This means you cannot rely solely on state law and be complacent.

For reference, the Supreme Court ruled in the 2018 case Sveen v. Melin that such state laws can be applied retroactively to designations made before the law was enacted. Still, since outcomes can vary by plan type, directly updating the paperwork is the most reliable approach.

If you are a remarried couple, there's another thing to keep in mind. For 401(k) plans governed by ERISA, the current spouse is generally entitled to the death benefits.

If you want someone other than your spouse to be the beneficiary, your spouse must provide written consent and sign in front of a notary or plan administrator. You cannot just change the paperwork on your own because you want to leave it to your children.

On the other hand, there are no federal spousal consent requirements for IRAs. Even though they are both retirement funds, the rules differ by account, which can be confusing.

The second common mistake is leaving the beneficiary section completely blank or writing "my estate." This means that the money will go through probate.

This process takes time and costs money, and most importantly, the records become public. Money that could have been transferred easily ends up going through the court unnecessarily.

It can also be a tax disadvantage. If the IRA owner dies before the required minimum distribution start date and the beneficiary is the estate, the rule typically requires the account to be emptied within five years.

The third mistake is not designating a contingent beneficiary. If a couple only lists each other, and both pass away around the same time, there will ultimately be no one to receive the funds.

Then it will revert to the estate, leading to the same issues mentioned earlier. It's standard practice to list both primary and secondary beneficiaries.

When passing on to children, it's also good to be aware of the SECURE Act regulations. Starting in 2020, most beneficiaries who are not spouses must withdraw the inherited IRA within ten years.

Spouses are an exception and have more options. Minor children of the deceased are also exceptions, but once they turn 21, the ten-year rule applies, and grandchildren do not fall under this exception.

So, depending on whose name you put in which order, the tax burden can vary significantly. This is a part that requires numerical calculations, making it a bit challenging to decide on your own.

The fourth mistake is naming minor grandchildren directly as beneficiaries. Since children cannot manage money directly, there may be a court process to appoint a guardian.

In such cases, many people consider options like trusts or UTMA accounts. The right method varies from household to household.

The way to check is simpler than you might think. You can verify who the current beneficiaries are by checking the websites or calling the financial institutions, and get a confirmation letter.

It's good to review this whenever there are major life events like marriage, divorce, remarriage, childbirth, or death. Even if nothing happens, it's wise to check every few years.

Make sure to take care of old 401(k) accounts left behind when changing jobs. Surprisingly, those accounts often have old names still attached.

However, inheritance and tax outcomes can vary greatly depending on the size of the estate, family relationships, and account types. Since it differs based on personal circumstances, be sure to consult with an estate planning attorney or tax professional.

Fortunately, my friend's family communicated well and didn't have major disputes. Still, she mentioned that if her father had just updated one piece of paperwork, her mother wouldn't have had to go through so much distress.

If it were me, I would probably sit down with my parents over coffee this weekend and start listing out the accounts together. Ensuring that your loved ones receive your intentions clearly often starts with a seemingly small piece of paperwork.