Make sure your beneficiaries are up to date

Here's a true-life story with a message:

After more than 35 years of marriage, Carol and Jeff divorced.

Let's just summarize and say the vindictiveness that followed was another War of the Roses. The hatred simmered for years. It was so bad that they refused to attend big family events if the other ex was going to be there.

So imagine everyone's surprise when Carol died leaving her life insurance and brokerage account to Jeff instead of her adult children.

That happened only because after the divorce Carol forgot to update her beneficiaries. She got wrapped up making a new life for herself, forgetting to take her husband's name off her beneficiary forms.

What could her children do about that mistake? Absolutely nothing. The person named on a beneficiary form gets all the proceeds. It doesn't matter if a will says otherwise.

The beneficiary designation trumps a will, so it is the most important detail to double-check in estate planning. Yet, financial experts who handle estates every day say the most common mistake people make is not updating beneficiaries.

I had that happen in my own family. At 44, my sister didn't give much thought to estate planning, thinking she had years to take care of that.

When she started working, she opened retirement accounts and took out an insurance policy naming my father as beneficiary.

But my father died years before she did. After his death, she forgot to update her beneficiary. Although my sister never married, an ex-boyfriend entered the picture after her death, falsely claiming they had a common-law marriage. The two-year legal battle that followed gives me a headache just to recall that terrible ordeal our family faced.

It ended up that the lawyers were the only ones to benefit. Yet it all could have been avoided with updated beneficiary forms.

Here's the important message financial experts try to drive home: After every life-altering experience, it's important to review and update everything.

I just attended an estate-planning seminar on that very subject. I covered it for the newspaper because I think it's important information readers should be given.

"Change is certain in life, and some changes trigger the need to re-evaluate estate plans," says financial expert Christine House.

Changes such as establishing residency in a new state, a divorce, death, retirement, disability, bankruptcy, inheritance or change in the status of an adult child are examples where a complete review should follow, she said.

I live in Florida, a place to which many people move after retirement. But one thing many don't know is that each state has its own laws and the legal papers you did in your former state might not hold up in Florida. The only way to check is to have what Christine calls "a paper review."

If Carol would have made Florida her legal place of residence, her adult children would have inherited her estate. That's because Florida passed a law in 2012 that says a divorce now automatically invalidates beneficiary designations where a former spouse is named.

See why it's important to do an estate document evaluation if you change the state in which you reside?

The biggest problem for survivors, of course, is when there is no will or no estate plan. If that's the case, welcome to the expensive, time-consuming world called probate.

Even if you are conscientious and have made what you believe to be are good estate planning decisions, you still need to update after the death of a beneficiary, a divorce or changing family circumstances.

"And run your papers by a trusted financial planner to make sure it's done right," Christine says.

During a review she just did, Christine discovered the woman's will said she wanted everything divided among her three adult children. But all her accounts listed only one daughter as beneficiary.

"The woman thought that daughter would share equally with her siblings because the will said that. But the daughter can do whatever she wants because of how the assets are titled," Christine said.

In another true-life case, a woman we'll call Wilma was named as beneficiary of her husband's huge financial portfolio. His will said his estate was to be divided equally among his second wife and two adult children from a previous marriage.

But since Wilma was the only named beneficiary, she could do whatever she wanted with the money. And she did. She kept it all.

The lawyer told Wilma what she did was legal, but not ethical. She didn't care. The kids got nothing.

"When a second marriage is involved, it's especially important to have financial documents that guarantee your wishes will be followed," Christine stressed at the seminar.

Estate planning is complex, and in the case of second marriage, it requires even more diligence.

In November I'm covering a seminar devoted to the subject of estate planning for those with second marriages. I'll no doubt share what I learn with readers, doing my best to pass along helpful tips.

In the meantime, here's the most helpful tip of all: If you put off making a will, do it now. Now is also the time to double-check the way you have your beneficiaries listed on every bank account, insurance contract and brokerage account.

And to ensure your wishes are followed, make sure your beneficiary designations are current.