Legacy Assurance Plan: Don’t Leave Your Legacy to Chance… Always Make Sure You Have a Fully Updated Plan

Summary: Your estate plan is your legacy. Your legacy is too important to leave open to uncertainty. That’s why it is so important to make sure that you have a proper and complete estate plan in place and that you review (and update, as needed) your plan regularly. With periodic reviews, you can ensure that your plan, including not only your will and living trust, but also your powers or attorney, living will, pay-on-death accounts and transfer-on-death assets are sufficiently updated to ensure that all of them will work together harmoniously to carry out collectively the goals and desires that you want.

Here’s an example from Tennessee of the risk of uncertainty. The court case surrounding the estate of a man named Stephen contains a somewhat familiar estate planning lesson, but with a bit of a twist. In August 2001, Stephen enrolled a retirement plan for Nashville-Davidson County metro employees. Within his plan documents, Stephen designated his wife, Mary Beth, as the beneficiary.

Just eight months later, though, Stephen and Mary Beth divorced. As happens with many divorce cases, the spouses worked out something called a “marital settlement agreement,” which is a settlement of issues (such as, for example, property division or alimony) that would otherwise need to be decided by the judge. In this couple’s agreement, which the court approved, Stephen got “all right, title, and interest in ‘all retirement that he may have through his employment.’”

Almost 12 years after the divorce, Stephen died. In the intervening 12+ years between his enrollment in the retirement plan and his death, Stephen never executed a beneficiary form other than the original one that named Mary Beth as his beneficiary. So, when he died, two very distinct entities made claims to the retirement plan seeking to receive the payout: one by Stephen’s estate and one by his ex-wife.

The case went to trial and the trial ruled in favor of Stephen’s estate, concluding that the settlement agreement signed as part of the divorce had the legal effect of revoking the original beneficiary designation, which meant the proceeds belonged to the estate. (Whenever you have an account that allows you to name a beneficiary but you have no valid beneficiaries named, then it generally goes to your probate estate.)

The case wasn’t over, though. Mary Beth appealed… and she won. The appeals court explained that the only way to revoke a beneficiary designation was to use the process dictated by the plan. Stephen’s plan stated that, to make changes or revocations, the plan participant (in this case, Stephen) was required to send a written request to the plan administrator detailing the changes he wanted to make. In other words, Stephen’s plan had no provision for automatic revocations through court documents like divorce settlement agreements. That meant that the original beneficiary designation was still valid and Mary Beth was the rightful recipient of the plan proceeds.

Stephen may have not wanted Mary Beth to receive those funds. Stephen may have though that the resolution of his divorce case with Mary Beth took care of all that. One of the big “take aways” from this is… don’t assume. Make sure that you have a complete plan in place, including your will, powers of attorney, advance directive, living trust and non-probate transfer accounts. Also make certain that all parts of your plan, including your beneficiary designations, are routinely reviewed and updated as necessary to reflect your current wishes and life circumstances.

This article is published by the Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services-company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at www.legacyassuranceplan.com.