IRA and beneficiary designation

[Guest eazycool]

Here are the facts. Husband and wife are married at the time of the husbands death. This is his second marriage. His will states that the new spouse should receive an amount equal to the elective share in NJ of his estate. The only real asset the husband had is an IRA. However, the IRA lists his children as the beneficiaries. The children were listed as the beneficiaries prior to his new marriage and the new spouse has no idea about the children being named.

Can augmenting the husbands estate make the spouse eligible for 1/3 of the IRA or do the prior benefit designation forms rule on this.

Any help would be great. Thanks in advance.

[Appleby]

Beneficiary form rules.

IRA is not considered part of his estate.

[BPickerCPA]

Actually state law trumps the beneficiary designation. If state law allows the surviving spouse to have a certain percentage of the husband's assets, the IRA can be used to satisfy that obligation.

The answer is to speak to a qualified attorney.

[mbozek]

State law can include an IRA in determining the elective share due the spouse. NY law includes certain non probate assets. Last time I looked NJ law did not clearly indicate whether an IRA was included or excluded as part of the spouse's elective share. The more complicated question is whether an individual can designate an IRA beneficary in a will which supercedes the bene designation in the IRA. There is a NY case which has allowed such a designation. I dont know about NJ law. You need to consult with counsel.

[Appleby]

See Bruce Steiner's comment at the following URL

http://benefitslink.com/boards/index.php?s...st=0entry8369

[Appleby]

Got an e-mail that the link does not work. It seems to be working now, but just in case, here is Bruce's post

Bruce Steiner Mar 26 2000, 01:35 AM There was a case about a year ago in which the New York County Surrogate's Court allowed a provision in a Will to override the default provision in the IRA, where the IRA custodian waived strict compliance with the terms of the IRA agreement.

This is still two steps away from allowing the Will to override a beneficiary designation. In the court case, the Will was overriding a default provision rather than a specific beneficiary designation. Also, in the court case, the IRA custodian waived strict compliance with the terms of the IRA agreement (though it's hard to see why this should matter, since the IRA custodian is really just a stakeholder with no economic interest in the outcome other than to make sure it's protected against having to pay out twice).

An argument could be made that it might be useful to be able to override beneficiaries by Will. An ill person needing to revise his/her estate plan quickly might not be able to obtain beneficiary designation forms for all of his/her nonprobate assets, and it would be simpler if he/she could override his/her beneficiary designations by Will. If the IRA (or other nonprobate asset such as qualified plan benefits or life insurance) is sufficiently flexible, the owner could change the beneficiary by letter, but some IRAs, etc., might not be sufficently flexible.

The concern may be that IRA custodians ought to be able to rely upon the beneficiary designation in their records. However, this concern could be alleviated by protecting the IRA custodian who pays out to the beneficiary on its records, and leaving the beneficiary under the Will to pursue the designated beneficiary.

A similar issue arises upon divorce. In many states, a divorce revokes the provisions for the former spouse under the Will, but does not revoke nontestamentary dispositions for the former spouse. Some states are considering legislation to have divorce revoke nontestamentary dispositions for the former spouse.

Except in the case of qualified plan benefits (under the Supreme Court decision in Boggs), a similar issue can arise in community property states, where nonprobate assets may be payable to a designated beneficiary, but the spouse may have a community property interest in the benefits.

[mbozek]

Under the NY cases a designation of a beneficiary in a will can override an IRA bene designation if the language in the will unambiguously disposes of a specifically identiified IRA. In re Trigoboff, 669 NYS 2d 185. The override has nothing to do with whether the bene designation in the IRA is a default designation but whether the will provides the best indication of the decedent's intent to dispose of the IRA. In Trigoboff the decedent designated his three children as the bene of the IRA in his will which was held to be unambigious over the default provision in the IRA designating his spouse as the bene where the IRA was opened while the decedent was single and before the will was executed. In Freedman, 116 F.Supp 2d 379, a designation of the spouse as bene in an IRA prevailed over the testators disposition of his residuary estate to his children because there was no unambiguous disposition of the IRA stated in the will.

In some states (CA,HI) a spouse is automaticaly removed as a bene from all interests upon divorce including LI and retirement benefits. In any dispute over an IRA the custodian will waive the bene provisions and seek a court resoluton of the conflict.