The details are extremely important, and you can’t depend on the law to do exactly what you want. These two truths were highlighted in a recent U.S. Supreme Court case titled Kennedy versus Dupont where a huge but common life and estate planning mistake took center stage. After reading this, run, don’t walk, to your financial advisor and insurance agent to check out your beneficiary forms.
“In 1971, William
Seems pretty clear, doesn’t it? It sounds like when William and Liv divorced, the court decree made it clear that Liv disclaimed any and all interest in William’s retirement accounts. William died, and with his ex-wife “divested” of her interest in the divorce decree, the money in the SIP account should go to his estate. Right? But here is where the details are important. The savings investment plan administrator with DuPont had an obligation to follow the written plan and its terms. That meant looking at the beneficiary form, determining whether or not the named beneficiary was still alive, and if so, give them the money. The ex-wife was the named beneficiary, so she should get the money. That is what the plan administrator did, and the money went to William Kennedy’s ex-wife.
But they were divorced! William didn’t want or intend for his ex-wife to get his retirement account! Doesn’t the law protect him?
In this case, the law did exactly what it was supposed to do even if it didn’t do what William’s daughter wanted it to do. This had nothing to do with a federal pension, social security benefits, or anything else from the government. It had nothing to do with Liv being able to garnish his retirement accounts or sue to get part of his savings investment plan even though they were divorced. If she had tried during his life, she would have failed. But the contractual terms of the plan provided very specific language that spelled out who gets the account if he died, the specific ways to change the person receiving the account upon his death, and the obligation to use that process if he wanted to make a change. William had seven years from the time of his divorce up until the time of his death to make the change to his beneficiary form, but he did not do that.
I’ve often written articles on how married couples who think they can depend on the law to provide full inheritance rights to the survivor are sadly, horribly mistaken. At the very, very, very least you need a Will. The law in North Carolina only provides a spouse around a third to a half under the law. A Will does direct where property and assets go when someone passes on (after going through the bureaucratic, court process known as probate), and a revocable living trust does the same (but without the court process). But in the case of retirement accounts, investments, bank accounts and insurance, these documents become irrelevant unless the ownership or beneficiary designations line up with estate planning documents. If it comes down to a battle between the terms of the Will or Trust and the wording of the contractual agreement opening the account or insurance, then the Will and Trust loses. (The most common mistake people make in this regard is listing an age of inheritance in their documents but listing underage children as beneficiaries of their accounts—the children typically inherit at age 18 regardless of what is in the Will or Trust.)
If you want to leave your spouse an account, you need to take the steps to plan ahead and have a comprehensive and accurate plan that includes checking your beneficiary designations. If you want a partner, or a child, or anyone else to inherit a retirement plan or life insurance upon your death, then you need to change the beneficiary and can’t even rely on the Will or Trust. If you don’t want an ex-spouse to get your retirement account, your life insurance, or anything else, then make sure those accounts are in order. Don’t just assume that the law will take care of you. It rarely does.