As long as I have been a probate paralegal, and even prior when I worked in financial services, I have spoken about assets with beneficiary designations, including life insurance, retirement accounts and annuities passing outside of probate as if they were a foregone conclusion. Period. End of Story. However, some recent situations have reminded me that the plot of the story may indeed have a surprise ending.
First of all, it bears reminding to our clients, that documents with beneficiary designations do not pass in accordance with the general instructions in the Decedent’s Will. I recently worked with a client that became concerned when we learned that an estranged family member received a portion of an IRA account due to the beneficiary designation. It was very confusing and upsetting to her that this family member received assets in addition to those provided for in the Will.
Secondly, there are situations where the beneficiary designation needs to be reviewed and confirmed, both at the time the designation is made and at the time of the claim.
Many states, including Colorado, have enacted statutes that provide that a dissolution of marriage between two individuals revokes any designation in a revocable governing instrument listing a decedent’s former spouse as a beneficiary. See C.R.S. § 15-11-804. Note that if the plan is governed by ERISA, then ERISA controls and not the state law. Recently we encountered a situation where a young man died unexpectedly and his former spouse was listed as the beneficiary of a retirement plan. At first glance, the financial institution wanted to simply pay out the account to the named beneficiary. When we pointed out that they were divorced, and after review by their legal team, they did agree that both Colorado statutes and their plan document treated that named beneficiary as if she had predeceased our Decedent, and in our case since there was no contingent beneficiary named, the proceeds paid out to the estate. Not only would this have been prevented if the Decedent had updated his beneficiary designation after the divorce, the end result would have been different if we had not reviewed and questioned the designation.
It is also important that clients follow the exact instructions listed in the plan for any beneficiary designations and changes to such. A recent decision of the Federal Court for the Middle District of Florida held in favor of the employer when a beneficiary designation change was made that did not comply with the requirements of the employer’s plan, even though the Decedent followed instructions purportedly given over the phone. Unfortunately the Decedent passed away the day after she mailed the attempted change and she never received notification that it was not going to be processed due to lack of compliance with the written instructions. Read a copy of the entire order in Ruiz v. Publix Super Market (Case No. 8:17-cv-735-T-24 TGW) here.
While it was not possible in the above case due to the timing of the death of the plan participant, it is imperative that the client, or law firm on their behalf, confirm in writing that the beneficiary designations have been made in accordance with their wishes. Beneficiary designations deserve a serious look to ensure that the story that the Decedent wanted is indeed the one that is written after their death.