It Really Does Matter!
A number of years ago, a woman’s husband died leaving a will, some assets, and a 401k. The marriage was his second and he had two sons from his first marriage. While he was single, he had changed the beneficiaries of his life insurance and 401k plan to his sons when he also redid his last 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 a new will. The husband listed for his attorney the assets he wanted to pass to his sons and which assets 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 his sons from his first marriage.
When the husband died, the wife received a big shock when she was told that she had no right(s) to the $500,000 401k. That’s because a will does not always control the distribution of all assets. Property such as life insurance, annuities and retirement accounts pass in accordance with whom you have designated as a beneficiary on the beneficiary forms filed with the life insurance and annuity companies or retirement account custodians. Some types of property pass by operation of law such as joint accounts with right of survivorship or real estate that is owned jointly. When one owner dies, the property by law automatically passes to the surviving owner. It does not matter what the will says.
That is what happened in this case. 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. She did recover about half of the account balance in a litigation settlement, less fees and costs.
The moral of the story is that although many people think drafting a will is simple and often undertake to do it themselves with a “will kit” or ask an attorney to do a “simple will”, they may not understand legal principles. The result is a big financial and/or legal mess.
To learn about these and other estate planning issues, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Wills Attorney