A number of years ago, I received a call from a potential client who had the following tale to tell. The woman’s husband had died leaving a will and some assets, one of which was a 401k. The marriage was a second for her husband, who had 2 sons from his first marriage. While he was single he had changed the beneficiaries of his life insurance and 401k plan to his sons and had redone his will.
After his second marriage, the husband and his new wife bought a new home together. They asked their real estate attorney, who handled the purchase for them, to draft new wills as well. The husband listed for his attorney the assets he wanted to pass to his sons and which to his new wife. The 401k he wanted to go to his wife. Unfortunately, the attorney didn’t understand the difference between probate and non-probate assets. So when he wrote a will that specifically left the 401k to the wife, he didn’t know that the will would have no effect on this asset because the beneficiary designations on file with the custodian of the 401k plan still listed the sons from the first marriage.
When the husband died, the wife received a big shock when she was told that she had no interest in the $500,000 account. That’s because a will doesn’t automatically control the distribution of all your assets. Contract property such as life insurance, annuities and retirement accounts pass in accordance with whom you have designated on the beneficiary forms completed and filed with the life insurance and annuity companies or retirement account custodians. Other types of property pass by operation of law such as joint accounts with right of survivorship or real estate that is owned by husband and wife. When one owner dies the property automatically passes to the surviving owner. It does not matter what the will says.
That is what happened in our story. The 401k is contract property so it passed according to the beneficiary designation form on file, not by the will. The wife tried unsuccessfully to get a court order directing the funds be paid to her.
The moral of the story is that although many people think drafting a will is simple and often undertake to do it themselves or ask the attorney who did other work for them to handle this task as well, they may miss important steps that must be taken that can save a lot of heartache and money.
This example is further reason why attorneys should reconsider doing “simple wills” when requested by a client. Simple does not mean right. For more information on this post, contact Fredrick P. Niemann, Esq. at firstname.lastname@example.org/.