Divorce and Beneficiary Designations

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Generally, we look to state inheritance law (i.e., NYS Estates Powers and Trust Law) to know who are the “distributees” of an estate. Distributees are those individuals who are entitled to inherit estate assets which do not contain beneficiary designations or are not disposed by will.

A recent case* addressed the issue of whether state law controls where a decedent died before changing his beneficiary designation on his 401(k) plan and life insurance policy (Both named his ex-wife.) The U.S. Supreme Court held that federal law controlled this situation. According to federal law, qualified retirement plans are required to pay the benefits to the designated beneficiaries.

The outcome of this case teaches us the importance of reminding our clients who are going through a divorce to change beneficiary designations on all assets, including retirement plans, IRAs, bank accounts and life insurance policies. Accordingly, these clients should also revise their estate planning documents, such as the Last Will and Testament, Health Care Proxy and Power of Attorney.

*Egelhoff S. Ct., March 21, 2001.

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