There are three ways that ownership of an asset is transferred at death – by law (a joint tenancy arrangement for example), by bequest (through a will or trust) and by contract (through the use of a beneficiary designation). The Appeals Court of Oregon’s recent decision in the case In re Marriage of Keller (232 Or.App. 341) reminds us that an individual that is planning on transferring assets through the use of beneficiary designations (primarily insurance proceeds and IRA/pension benefits) must make sure that the beneficiaries stated on the plan or the policy match up with his or her planning objectives.
In Keller, the court was presented with a complicated (but not uncommon) family situation. A man and his wife agreed to a divorce decree in which the husband retained ownership of a number of assets, including several insurance policies. The divorce agreement contained a provision which read, in part, “each party releases and relinquishes any and all claims or rights which he or she may now have, may have had, or may have in the future against the other as a result of the marriage of the parties, including but not limited to spousal support.”
After the husband’s death, the executor of his estate determined that the decedent’s ex-spouse was still listed as a beneficiary on one insurance policy. The executor asked the ex-spouse to disclaim the insurance proceeds, the ex-spouse refused, and the executor sued the ex-spouse for violating the clause spelled out above. Three-and-a-half years later, the parties have received two judgments and are still fighting. The trial court ruled in favor of the ex-spouse and the Appeals Court of Oregon recently remanded the trial court decision and sent the case back to the lower court for a more detailed analysis of the divorce agreement entered into by the parties.
The moral of the story? When developing (and revising) an estate plan, it is important to pay particular attention to the individuals that you have named as beneficiaries on insurance policies, IRA accounts and pension plans. Incorrectly naming the beneficiaries on these accounts can leave to prolonged court battles and unexpected (and expensive) results.