November 15, 2011 In Estate Planning
How does Property Pass to Beneficiaries?
Do you know who your beneficiaries are? When we ask clients this question, their first response is often quick and affirmative. However, we frequently discover through the estate planning process that the beneficiaries listed on our clients’ life insurance policies and retirement accounts are not who they think they are, nor are they the intended recipients of the property.
One of the most common misconceptions we see is how property passes at someone’s death. Accounts that have beneficiary designations pass to the beneficiary or beneficiaries named on the beneficiary designation form for that account regardless of what your will or trust says. So, for example, if my Will says that everything passes to my spouse at my death, but my beneficiary form on my life insurance names my children as beneficiaries, my life insurance proceeds pass to my children and not to my spouse. Here are some examples of accounts that typically designate beneficiaries:
- life insurance
- retirement accounts
- transfer on death accounts (TOD)
- payable on death accounts (POD)
Periodically Review Your Beneficiary Designations
The Supreme Court case of Kennedy v. Plan Administrator of DuPont highlights the unintended results that may occur if your beneficiary designations are not reviewed periodically. In this case, William Kennedy named his wife, Liv, as the sole beneficiary of his pension and retirement savings plans at DuPont. When the couple later divorced, the Qualified Domestic Relations Order (QDRO) provided that Liv gave up her rights to receive any benefits from William’s pension and retirement plan. Unfortunately, however, the court order was never submitted to DuPont and the beneficiary was never changed. When William later died, DuPont paid out the plan benefits to his ex-wife, Liv. Their daughter, Keri, was appointed as Executor of William’s Estate and filed suit claiming that the Estate should receive his retirement benefits because the QDRO clearly provided that Liv had waived any interest she might have in those benefits. The Supreme Court upheld the ruling of the Circuit Court in saying that DuPont properly paid the benefits to Liv and that Liv was entitled to the pension and retirement funds even though the parties were not married at the time of William’s death and the QDRO clearly provided otherwise.
Moral of the Story
The moral to the story is that the beneficiary designation governs. Thus, it is very important that you know who is named on your various beneficiary forms so that your property goes to the beneficiary or beneficiaries that you intend for it to go to. It is clear that William did not intend for his benefits to go to his ex-wife instead of his daughter, but the Supreme Court held that the beneficiary designation governed and that DuPont properly paid the benefits to Liv.
Tips for Beneficiary Designation Forms
Here are some tips and common problems to watch out for with your beneficiary designation forms:
1. Do you know where the form is? Generally, employers maintain records of the form, but if they cannot find their form when the time comes, the burden may be on you to produce a copy of the form.
2. Is the form up to date? Changes in your life may require you to review the forms periodically. If you have had a recent marriage, divorce, birth or death in your family, it is important to review your beneficiary designations. And remember, your Will does not change who the beneficiary is on an account or insurance policy.
3. Do you have a contingent beneficiary named? If the beneficiary you have named dies before you or is involved in a common accident with you, you may not know who the benefits will go to if you do not name a contingent or secondary beneficiary.
4. Have you named a minor as a beneficiary? Minors cannot legally hold title to property, including these benefits. If you have named a minor, a guardianship may have to be established and administered through the Probate Court concerning applicable funds.
Want to talk it over with an Estate Planning and Probate Lawyer?
If you have questions regarding your beneficiary designations and how they factor into your Estate Plan, please call us at 901-372-5003 or email us today. We’re ready to help you plan for the future.