401 not OK
Dear Len & Rosie,
My aunt passed away. She left a will leaving her estate to my son and my half-brother and I. Her will even spelled out that we were to receive her 401k. My sisters haven’t had any contact with my aunt in over 20 years. She made it quite clear to me, and to others, that she would not leave them a dime.
The problem is that my aunt had also signed a beneficiary form in 1974 leaving the retirement account to my father, who is deceased. My two sisters and I were named as the alternate beneficiaries. Now my sisters are after the 401k money that they feel is owed to them. The total amount of the 401k is about $270,000.
I do not speak to my sisters unless absolutely necessary — we do not get along. Should I hire a lawyer and fight my sisters? I know my aunt would be furious over this. When NY Life contacted me about this they called it An Employee Progress Sharing Plan. I did not realize that it was her 401k and I gave NY life the names and addresses of my two sisters. I contacted my sisters as well. I thought it was some small insurance plan for a small amount of money. I was then told that it was her 401k, and flipped. The attorney for my aunt’s estate requested an interpleader, which was granted. My sisters have retained an attorney. What should I do?
There are two sets of people claiming your aunt’s retirement account: The heirs of her will and the account’s designated beneficiaries. The 401k custodian, New York Life, did the right thing by filing an interpleader. The last thing New York Life wants is to get sued for giving the money to the wrong people. To avoid that, they turned the money over to the court, where you and the other claimants can fight it out. That’s an interpleader.
You can fight your sisters, but we don’t have good news for you. Your aunt’s retirement account beneficiary designation trumps her will. Any accounts owned by your aunt with designated pay on death beneficiaries are not subject to probate and are not subject to the terms of her will. That’s the basic rule.
Can you get around this? Yes, but it’s a long shot. The only way it would work to your favor is if you can prove that your aunt “substantially complied” with New York Life’s procedures to change her beneficiaries, and, through no fault of her own, it didn’t work. To win, you would have to prove your aunt filled out a change of beneficiary form, sent it to New York Life, and for some reason, New York Life failed to update its records.
We don’t like your chances very much, but there is a lesson to be learned here. It is very important for everyone to keep beneficiary designations up to date. Otherwise, your retirement accounts, and your life insurance policies, may wind up going to the wrong people.
Len & Rosie
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway in Sonoma, at 996-4505, or Lentillem.com. Len also answers legal questions each weekday via podcast, available at iTunes, Facebook and Lentillem.com.