As estate planning attorneys, we know how beneficiary designations can be an important part of the estate planning process. A large portion of our clients’ wealth is controlled by beneficiary designations. Some of it is in qualified plans. In those plans, the beneficiary designation determines the speed at which distributions must be taken by the beneficiary. Some of the client’s wealth controlled by beneficiary designations may be in life insurance.
Some of the wealth may be in financial accounts that have a beneficiary designation or “Transfer on Death” (“TOD“) or “Pay on Death” (“POD”) designation. Some of the wealth might be in real estate controlled by a “beneficiary deed,” something similar to a TOD.
We know that beneficiary designations need to be updated periodically. Things change.
Circumstances change. Lives change. The client may have new beneficiaries. They may have gotten married or divorced. In many states, state law will attempt to revoke a beneficiary designation made, prior to the divorce, in favor of the ex-spouse. However, in many circumstances, the state law will not be valid because of federal pre-emption. We all know that this is the case with ERISA plan beneficiary designations. Recently, the Supreme Court also ruled that a life insurance beneficiary designation, which would have been revoked by operation of state law, must stay in place by reason of federal pre-emption.
In the case, Hillman v. Maretta, the insured was a federal employee who named his spouse. Years later, they divorced and he remarried. He did not change the beneficiary designation prior to his death. The Supreme court held that the designation controlled, notwithstanding the state statute which would have provided otherwise. Here is an article about the case.
Beneficiary designations are exceedingly important. A large portion of our clients’ wealth is controlled by beneficiary designations. Many of these designations may be long-forgotten. A client may have made a designation early in life and it may not have been updated.
Sometimes, a state statute may step in to save the day. Other times, it may not. Make sure your clients’ beneficiary designations are up-to-date.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
www.aaepa.com
- Double Your Gifting with Spousal Gift-Splitting - January 11, 2022
- Tax Planning for 2022 - December 28, 2021
- Donor Advised Funds: Too Good to Be True? - August 10, 2021
