Many assets in an estate will avoid probate because a beneficiary has been designated on the account. Such assets are life insurance, annuities, IRAs, 401(k)s, Thrift Savings Plans. Two recent Supreme Court cases highlight the importance of updating the beneficiaries of these assets as life changes occur.
A Federal law, commonly referred to as ERISA, governs employer benefit plans even if state law differs. However, Federal law states that assets covered under ERISA must be administered according to the Federal law even if Federal law conflicts with state law. In Engelhoff versus Engelhoff, a court case decided in 2001, the ex-wife and the children of decedent David Engelhoff argued over who was entitled to the benefits of Mr. Engelhoff’s life insurance and retirement plan administered by his employer. Mr. Engelhoff resided in Washington State. The law in the state of Washington says that divorce automatically disinherits a spouse. Upon Mr. Engelhoff’s death, his ex-wife was listed as the beneficiary of the life insurance and retirement benefits administered by his employer. Since Mr. Englehoff did not change his beneficiary designation after his divorce, the former Mrs. Englehoff inherited those assets.
A more recent case, decided by the Supreme Court in 2008, made very clear the importance of checking and updating your beneficiary designations on employer benefit accounts. In the case, The Kennedy Estate versus Plan Administrator for the DuPont Saving and Investment Plan, Mr. Kennedy’s ex-wife was named the beneficiary of a substantial company savings and investment account. Upon Mr. Kennedy’s death his daughter sued to claim the account. However, since the ex-wife was listed as the beneficiary, the court ruled that the ex-wife would inherit the account even though there was a divorce settlement agreement in which the ex-wife waived her right to the benefit. Once again Federal law trumped state law.
Meeting with an estate planning attorney to create a comprehensive estate plan, including the designation of beneficiaries of your life insurance and retirement accounts, will assure your final wishes are met.
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