Beneficiary Distribution Options for Small Estates in California

A 401(k) Participant died in California, leaving behind few assets.  According to the plan, his benefit should be distributed to his estate.

However, in California, if a person dies with few assets, it is prohibitively expensive to open an estate.  Instead, "successors" of the decedent can sign an affidavit pursuant to CA Probate Code Sec. 13100 - 13116.  In the affidavit, the successor basically attests he/she is the "successor" of the decedent, has the best claim to the property, and is entitled to the property.

Our particular Participant has four sisters with equal rights to his property.  On sister has submitted an affidavit with the Plan, claiming 1/4 of his account balance.

Can we make a check out to this "beneficiary" by name?  It seems logical, but the plan says to distribute to the estate, so I don't want to violate the terms of the plan.  We've offered to make a check out to her as executor of the estate, but her attorney will not allow that.  What are our options?

There are default beneficiary designations but it goes spouse > offspring > estate.  Since the closest relatives alive are his sisters, the plan dictates the estate.  Do we amend the plan to revise the default beneficiary terms?  Is that our only option?

We do this all the time.  The "analysis" is that an "estate" is a creature of state law - usually created by probating the will or a formal administration of the assets of the decedent (and liabilities).  In some states, there is a "small estate" process that requires a simple filing with the probate court that dispenses with a formal administration, and directs holders of the assets to pay them per the filing.  Others,  don't require any filing, but allow claimants on the assets to do so by affidavit (which in theory protects the holders of those assets who distribute them to the claimant).  It is in fact the "estate" (although it may not be called that) operating through the claimants who sign the affidavit (or the simple filing in court) and we pay per the terms of the plan to those who "represent" the estate - or some portion of it.

Happens all the time with abandoned plans where participants has since died and we need to pay the bene's....

MoJo -

When you do this, how do you address the check?  Do you just make it out to "Jane Doe" or would it be to "Jane Doe, Successor of Participant Pursuant to CA Probate Code" or some other way?

Putting aside different levels of risk tolerance, an "estate" exists whether or not there is a probated will or letters of administration.  There may be creditors of the decedent who have the first right to any plan assets.  If there is an abbreviated statutory procedure that protects you if you pay it to the persons designated, great, but short of that you are taking a risk.  I doubt a post-death amendment to change the default beneficiaries would work if someone with standing to challenge it challenged it.  

On ‎12‎/‎22‎/‎2017 at 2:39 PM, ERISA-Bubs said:

MoJo -

When you do this, how do you address the check?  Do you just make it out to "Jane Doe" or would it be to "Jane Doe, Successor of Participant Pursuant to CA Probate Code" or some other way?

The check is made out to the claimant - with no further designation (although that is a topic for further discussion)

On 12/22/2017 at 2:41 PM, jpod said:

Putting aside different levels of risk tolerance, an "estate" exists whether or not there is a probated will or letters of administration.  There may be creditors of the decedent who have the first right to any plan assets.  If there is an abbreviated statutory procedure that protects you if you pay it to the persons designated, great, but short of that you are taking a risk.  I doubt a post-death amendment to change the default beneficiaries would work if someone with standing to challenge it challenged it.  

Yes, creditors have first claim to the assets of the ESTATE - but not to plan assets unless and until they become assets of the estate (i.e. a distribution has occurred).

We never distribute assets without the incorporate state law based documentation (whatever that maybe, and it's a PITA to keep checking on the state of state law in the various states (we have participants in all 50).

With the jurisdictions I am particularly familiar with (where I'm licensed...), you can't get the small state status without an affirmative declaration that there are no creditors of the estate - or that they have been paid.  Absent that, a "full" estate administration is required (although, where the estate is insolvent, I've refused to open an estate - let the creditors do it - at their expense).

A little bit of hair splitting, don't you think MoJo?  I think everyone knows what I meant when I said "first right to any plan assets."  Anyway, Happy New Year! 

2 minutes ago, jpod said:

A little bit of hair splitting, don't you think MoJo?  I think everyone knows what I meant when I said "first right to any plan assets."  Anyway, Happy New Year! 

Hair splitting, maybe - but the "precise" lawyer in me comes out sometimes.  Besides, you'd be surprised how many times we get requests to pay creditors directly from a plan.... Or to pay "heirs" directly when not named as bene's and not state process adhered to....  We currently have a "trust" named as beneficiary, and the trustee (without disclaiming) wants us to pay the surviving spouse directly (for trust tax reasons).  Uh, NO!

Happy New Year to you as well....