The form you forgot about: Why your Will may not tell the whole story

By Alison De Jesus, In-House Attorney, BDO Wealth

Think back to your first few days at a new employee. Among the contracts, payroll information and retirement-fund documents was probably a form asking you to nominate beneficiaries.

Perhaps you put down your parents. Ten years later, you're married, have two children and have updated your Will  - but that beneficiary form hasn't crossed your mind since.

Beneficiary nominations are one of those financial decisions people often make once and forget. But your life doesn't stand still, and a nomination you made years ago may no longer reflect the family or financial responsibilities you have today.

Marriage, divorce, remarriage, children, retirement, a death in the family and changing financial dependencies are all what we at BDO Wealth call Life^Qs - life changes that should prompt people to reconsider the financial decisions around them.

Your Will doesn't necessarily decide everything

A common misconception is that once your Will is updated, everything you leave behind will automatically be distributed according to it.

Different assets and benefits can operate differently. For example, where there is a valid beneficiary nomination on certain life policies or living annuities, proceeds will generally be paid directly to the nominated beneficiary rather than being distributed through the deceased estate in accordance with the Will.

Retirement-fund death benefits are different again. For pension, provident, preservation and retirement annuity funds, trustees are required to identify dependants and nominees and distribute the death benefit equitably in accordance with section 37C of the Pension Funds Act. The nomination therefore provides important guidance, but it does not bind the trustees.

That's where confusion can arise. People hear ‘beneficiary nomination’ and assume the same rule applies to every benefit. It doesn't.

When life changes but the form doesn't

Consider an employee who nominates her parents when she starts working. Years later she marries and has children but never changes the nomination on her retirement fund.

If she dies, the trustees don't simply follow that old form. They must investigate her circumstances and consider her dependants. Her spouse and children may ultimately receive most of the benefit, despite what the old nomination says.

But another product or insured employee benefit may operate differently depending on its structure and rules.

In another scenario, someone divorces and updates his Will to leave his estate to his children – but forgets that his former spouse is still the nominated beneficiary on a life policy. If that nomination remains valid, the proceeds may be paid to the former spouse rather than the children contemplated in his Will.

A small piece of administration can therefore have significant consequences.

Employers have a role to play

For Employee Benefits this raises a broader question: do employees actually understand the financial protection contained within their remuneration and benefit structures?

Employers can help by making beneficiary reviews part of the employee benefits conversation. Regular prompts around annual benefit reviews, and education following common life events such as marriage, divorce and the birth of a child, can encourage employees to check whether their nominations still reflect their lives.

“Your Will, employee benefits, investments, insurance, retirement planning and family circumstances don't exist independently of one another; they form part of the same financial life.

This is where an accredited financial planner can help an individual step back and ask whether all the different pieces still point towards the outcome they actually want.

Updating a Will is important. But don't stop there. Marriage, divorce, children, retirement or changing financial responsibilities should be a cue to look at your financial plan as a whole – including the beneficiary forms you may have completed many years ago… because sometimes the most consequential financial document isn't the one you remember signing, it's the one you forgot about.