By Brian A. Boys
Having recently married Sarah, Rob recognized it was a good time to get their estate plan in place. Rob remembered seeing a lawyer’s office on the way to work, so one day over their lunch breaks, Rob and Sarah stopped by to talk with the lawyer to discuss the preparation of their wills. They explained to the lawyer that if something happened to one of them, they wanted to leave everything to each other. After the wills had been executed, they tucked the documents into their filing cabinet knowing that their affairs were now in order, and that they could rest easily.
Unfortunately, several months later Rob was involved in a tragic accident in which he lost his life. As his executor, Sarah began the process of administering Rob’s estate. She knew about the 401(k) plan that Rob had begun contributing to several years ago when he started his career, before they even knew each other. Rob had contributed the maximum amount possible, and his company provided generous matching contributions, and the account had grown to a sizeable sum. Sarah remembered the conversation during the car ride home from signing their wills, when Rob told her that he was happy to know that she would receive his 401(k) plan if something were to happen to him.
Sarah called the custodian of the 401(k) plan and was told that she was not entitled to the account. Sarah was shocked and wondered how this could be. She explained to the company about Rob’s will and its provisions. That’s when Sarah learned an important lesson: Even though Rob’s will said that his estate was to pass to his wife, the plan is a private contract between the custodian and the account holder. As such, the terms of Rob’s will did not control the distribution of the 401k plan assets and instead the company had to follow the beneficiary designation that Rob completed years ago in which Rob named his now-estranged father as his beneficiary.
As Sarah continued to check into Rob’s assets, she continued to find the same result. The life insurance policy that Rob’s company provided also named Rob’s father as the beneficiary. Rob and Sarah had not combined their assets, so Rob’s bank account that he established years ago as a joint account with his father also passed outside of his will. In the end, Sarah inherited much less from her late husband than she expected.
The lesson to be learned? Your will, while an extremely important document to have in place, only controls assets that are titled solely in your name and which are not controlled by a transferrable on death or payable on death designation. You may think that you have taken care of your loved ones by including them in your will, but as Sarah found out, that may not be the case.
The second lesson to be learned? The importance of hiring an experienced and knowledgeable estate planning attorney who can help you not only prepare estate planning documents, but also review your finances to make sure that a comprehensive estate plan is in place. At Oast & Taylor, when one of our attorneys meets with a new client, we ask the client to complete a financial questionnaire and to bring copies of account statements, deeds, etc., to the initial consultation. While this might seem overwhelming or intrusive to some, the purpose of these requests is to ensure that the lawyer has addressed all aspects of the estate plan, including the proper titling of accounts, beneficiary designations, and in many cases, helping our clients to get better control over their assets and simplifying their lives.