Recently, a federal circuit court faced the question of what happens when dealing with an Individual Retirement Account (IRA) for a husband who listed his four adult children from a previous marriage as sole beneficiaries. The husband died and his surviving spouse sought to collect the IRA funds instead of his four children.
The court ruled that the surviving spouse was not entitled to the IRA even though some of the funds may have originated from a pension plan in which the wife would have been protected. The court reasoned that once the husband terminated his participation in the pension plan, where wives are protected, and transferred the proceeds to an independent IRA prior to his current marriage, his widow’s interest was cut off in the IRA as compared to a named beneficiary.
The lesson from this case is that it is important to update benefit plans such as pension and IRA beneficiaries to make sure that the surviving spouse is correctly named and that children may or may not share in the benefit upon death. The time to take care of this is now to ensure beneficiary forms are changed to mirror what you really want done with those funds.