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Beneficiary Designations Need to Be Updated

Serving Clients in the Gilbert, Arizona Area

Beneficiary Designations Need to Be Updated
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A recent New Jersey Appellate Division decision should remind you to keep track of the designations of all non-probate assets to ensure that they pass in accordance with your testamentary intentions.

This case illustrates why updating beneficiary designation is essential, and while it takes place in New Jersey, it applies to any person in any state. The National Law Review article, “Estate of Michael Jones: A Reminder to Keep Designations of Non-Probate Assets Consistent with Your Testamentary Intentions,” presents a strong case for annual updates.

Michael D. Jones and his spouse were separated for several years and eventually divorced. Their divorce agreement called for Mr. Jones to pay his former spouse $200,000 in installments of $50,000 per year. If he died before his former spouse, his estate was to compensate her for the remainder of the balance.

When Mr. Jones died, he had only paid her $110,000. She filed a creditor’s claim against the estate, seeking the remaining balance. The estate opposed her claim, saying she had already received more than $77,000 through the decedent’s federal bonds, designating the spouse as the POD (payable on death) beneficiary.

The case went to court, where the trial court found the POD designation was presumptively revoked based on a law providing that a divorce automatically revokes a disposition of property to a former spouse in a governing instrument.

She appealed the decision and won.

The appellate court said the bond was subject to federal regulation, which had specific procedures for revising the beneficiary of a federal bond. Case law from around the country supported this decision, noting federal regulations preempt state laws that conflict with them.

The appellate court found in her favor, and the bond proceeds belonged to the former spouse and passed outside of the estate. They were not considered part of the payout required under the divorce settlement agreement. They belonged to her.

This decision should be a wake-up call to anyone with assets they expect to pass outside of their estate, including federal bonds, insurance policies, IRAs, 401(k)s, pensions, bank accounts with beneficiaries, or any account with a payable on death designation.

An annual review of beneficiary designations should occur while you and your estate planning attorney review your estate plan. It’s a simple task. However, it can significantly affect how your assets will be distributed if overlooked.

To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.

Reference: The National Law Review (Dec. 7, 2023) “Estate of Michael Jones: A Reminder to Keep Designations of Non-Probate Assets Consistent with Your Testamentary Intentions”