keep your beneficiary designations up to date

Dear Len & Rosie,

My aunt passed away. She left a will leaving her estate to my son and my half-brother and I. Her will even spelled out that we were to receive her 401k. My sisters haven’t had any contact with my aunt in over 20 years. She made it quite clear to me, and to others that she would not leave them a dime.

The problem is that my aunt had also signed a beneficiary form in 1974 leaving the retirement account to my father, who is deceased. My two sisters and I were named as the alternate beneficiaries. Now my sisters are after the 401k money that they feel is owed to them! The total amount of the 401k is about $270,000.

I do not speak to my sisters unless absolutely necessary, we do not get along. Should I hire a lawyer and fight my sisters? I know my Aunt would be furious over this! When NY Life contacted me about this they called it An Employee Progress Sharing Plan. I did not realize that it was her 401k and I gave NY life the names and addresses of my two sisters. I contacted my sisters as well. I thought is was some small insurance plan for a small amount of money. I was then told that it was her 401k and flipped. The attorney for my aunt’s estate requested an interpleader, which was granted. My sisters have retained an attorney. What should I do?

Deborah

Dear Deborah,

There are two sets of people claiming your aunt’s retirement account: The heirs of her will and the account’s designated beneficiaries. The 401k custodian, New York Life, did the right thing by filing an interpleader. The last thing they want is to get sued for giving the money to the wrong people. To avoid that, they turned the money over to the court, where you and the other claimants can fight it out. That’s an interpleader.

You can fight your sisters, but we don’t have good news for you. Your aunt’s retirement account beneficiary designation trumps her will. Any accounts owned by your aunt with designated pay on death beneficiaries are not subject to probate and are not subject the terms of her will. That’s the basic rule.

Can you get around this? Yes, but it’s a long shot. The only way it would work to your favor is if you can prove that your aunt “substantially complied” with New York Life’s procedures to change her beneficiaries, and, through no fault of her own, it didn’t work. To win, you would have to prove your aunt filled out a change of beneficiary form, sent it to New York Life, and for some reason, they failed to update the record.

We don’t like your chances very much, but there is a lesson to be learned here. It is very important for everyone to keep their beneficiary designations up to date. Otherwise, your retirement accounts, and your life insurance policies, may go to the wrong people.

Len & Rosie

Properly Administering a Trust

Dear Len & Rosie,

My mother named my sister and me as successor co-trustees in her trust; and co-executors of her will.  We are the only heirs and will split her property 50/50. My question is, upon my mother’s passing, do we need to register with the probate court to be able to disburse her property?  Her estate is less than $3 million (that includes her home owned free and clear) and there’s no dispute as to who inherits what.  We’d rather do this ourselves and not use an attorney.

Dear Joy,

When your mother passes away, you and your sister should see an attorney. While it is possible for you to do much of the work itself, it’s impossible for us to tell you precisely what you have to do in order to properly administer your mother’s trust. Every case is different and depends not only on the exact terms of your mother’s trust, but also on exactly how each of her assets are titled. You can’t get to Point B (final distribution to you and your sister) without first identifying Point A (where everything is upon your mother’s death).

In general, the first step is to get everything in your and your sister’s names as trustees. That usually requires affidavits of death to be prepared and recorded for your mother’s home and any other land she owns. Complicating this is the property tax paperwork that you need to submit to the County Assessor to avoid losing your mother’s Proposition 13 protected assessment. Don’t try this unless you know what you are doing, because if you make a mistake your property taxes may skyrocket in comparison to what your mother pays today. It’s also important to note that depending on what your mother’s assets are worth, her home may be able to fit into one daughter’s share - maybe your sister will get the home and you’ll get cash and stock of equal value. If it’s done correctly, 

Non-real property assets have to be transferred to you and your sister as trustees, under a taxpayer identification number obtained from the Internal Revenue Service. Usually a summary of the trust document, called a Certification of Trust, is also required. Stocks and other securities also have special transfer documents to prepare. So do mobile homes.

Now would be a good time for you to examine all of your mother’s assets and make sure they are held by her as the trustee of her trust. Otherwise there could be a probate upon her death. Your mother should also verify that she has named beneficiaries on all of her retirement accounts. Everything should be in the trust except for her vehicles (they don’t trigger a probate), retirement accounts (she should name the two of you as beneficiaries) and her checking account (she should add you now to this account so you can sign checks immediately in an emergency).

Can you do this on your own? You could do it, but you would have to educate yourself first, and it’s more complicated than you think. People think, “But trusts are supposed to be easy!” ought to understand that while trusts are less expensive and time consuming to administer than an estate in probate, it’s just as complicated.

Len & Rosie