You may not realize why it is so important to periodically review your estate plan. All too often I find that a client’s existing Will and other estate plan documents control the disposition of only a small fraction of their entire asset base.
A recent Supreme Court case highlights the tragic consequences where the decedent incorrectly assumed that his Will would govern the disposition of his pension plan. In Kennedy v. Plan Adm’r for Dupont Sav. & Inv. Plan, the decedent and his ex-wife entered into a property settlement agreement as part of their divorce. In the agreement, Mrs. Kennedy waived all rights to receive any portion of her ex-husband’s substantial retirement assets.
Mr. Kennedy passed away several years later. The executor of Mr. Kennedy’s estate assumed that the retirement assets would pass to the beneficiaries named in decedent’s will.
However, there was one little problem. It appears that Mr. Kennedy neglected to prepare a new beneficiary designation form in order to remove his ex-wife as the named beneficiary of the retirement plan assets.
The Supreme Court ruled that the administrator of the retirement plan was compelled to distribute the retirement plan assets to Mr. Kennedy’s ex-wife. Although she waived her right to receive the assets, it was incumbent on Mr. Kennedy to affirmatively name a new beneficiary in her place.
This case highlights that a Will only governs those assets included in your probate estate. The disposition of the following assets is not governed by your Will:
- Jointly held assets which pass automatically to the surviving joint tenant.
- Marital home held jointly as tenants by the entirety.
- Life Insurance which has named beneficiaries.
- Annuities with named beneficiaries.
- IRAs, 401(K)s and other retirement assets with named beneficiaries.
Failing to coordinate the beneficiaries named in these nonprobate assets with the beneficiaries named in your Will can result in unintended consequences:
- One beneficiary receives a greater share of the estate to the detriment of other beneficiaries.
- Property passes outright to minors or to persons who are not competent to handle financial matters.
- Property passes to a second spouse to the detriment of children from a prior marriage.
- Over a million dollars of extra estate tax liability in the case of a husband and wife when the surviving spouse dies.
- One beneficiary bears the estate tax liability for assets passing to other beneficiaries.
A comprehensive estate plan requires that all of your assets be examined to ensure that they pass to the appropriate beneficiaries in the most tax efficient manner.
I urge you to call my office today to arrange an appointment to review your estate plan.
Kenneth R. Cohen, Esq.