Three months after a Las Vegas man became a widower, he began spending like there was no tomorrow. He bought a car for a cocktail waitress and put a putting green and an infinity pool in his backyard. He died at age 89, three months after marrying a woman younger than his 56-year-old daughter. According to the article “3 Simple Steps to Avoid IRA Inheritance Disputes” from AARP Magazine, he also left a $69,000 IRA for his daughter held at Wells Fargo.
When his daughter sought to access the account, the bank refused to release it without approval from his second wife. The daughter believed the law was on her side, knowing she was the named beneficiary. The bank refused and invited her to hire an attorney.
The person named as a beneficiary on a retirement account is the one who receives the account. The assets in the retirement account aren’t subject to instructions in the will and are transferred directly to the beneficiary from the financial institution. They don’t go through probate.
Beneficiaries can be anyone you want. If you’re married and want someone who is not your spouse to be the beneficiary, your spouse needs to sign a form consenting to another beneficiary under federal law.
As it turned out, the bank was technically correct. This is a crucial consideration for individuals residing in community property states as they develop their estate plans. Nevada is one of nine community property states, and assets acquired during the marriage are considered 50/50 property. If the man contributed to his IRA during the three-month marriage, half of the IRA belonged by law to his second wife. She could sign a spousal waiver, but given the circumstances, it’s not likely that the spouse of three months would have handed over the account.
However, the daughter knew no new money had been contributed in the three months of her father’s late-in-life marriage. Institutions are quick to freeze assets at the slightest hint of controversy, and Wells Fargo was no exception. The daughter wrote numerous letters to the bank, but it didn’t budge.
At a certain point, the daughter informed Wells Fargo that she was not going to court, but rather to the media. Wells Fargo suddenly changed its mind and released the funds, eight months after her initial request.
Three steps to avoid this problem for your heirs:
Name beneficiaries on all accounts. Many people neglect this important step, and the assets are included in the probate estate. If there is no will, the state decides how assets will be distributed.
Update forms and estate planning documents when divorce, marriage, or death occurs. If you want your new spouse to receive assets, update the beneficiary designations after the divorce is final. Ask an estate planning attorney if your state has a “revocation upon divorce” laws that negate exes’ status. However, don’t count on this to protect your new spouse.
Check all beneficiary forms, especially if the bank is acquired or merges with another financial institution. Transitions are not always smooth, and paperwork from ten years ago may no longer be acceptable, even if it was the original bank’s own form. If there is a change with your bank, make sure the distribution forms are still valid.
Legacy One Law Firm, APLC is an estate planning and probate administration law firm in Los Angeles, California, serving families throughout the State. Schedule a quick and easy consultation with our estate planning attorney, Sedric E. Collins, Esq., or call 323-900-5450.
