Estate of William E. Kensinger, Jr. , Appellant, v. URL
Pharma, Inc.; Adele Kensinger,
United States Court of Appeals, Third Circuit. No. 10-4525
March 20, 2012.
The Court of Appeals for the 3rd Circuit ruled that an ex-spouse who waived her ERISA rights as part of her divorce settlement (a “Property Settlement Agreement”) can be sued by the estate of her deceased husband to recover the funds already distributed to her as the named beneficiary.
Although she waived her ERISA rights, her ex-husband neglected to remove her as his plan beneficiary. He died nine months after the divorce and she received the plan funds as the named beneficiary. The Court ruled that the estate can sue her to enforce her waiver and recover the funds.
This option was left open by the U.S. Supreme Court Justices in the KENNEDY case where the facts were similar (Kennedy v. Plan Administrator for DuPont Savings and Investment Plan,
(No. 07-636, Decided January 26, 2009).
What to do Now
We have been saying this for years, but now ALL of the U.S. Supreme Court Justices are saying it. Check beneficiary forms!! And don’t just check the forms for assets you have under management. Check all the beneficiary forms for your clients.
Beneficiary forms trump ALL other estate planning documents. The beneficiary forms must be checked to be sure that they carry out the account owner’s wishes and that they are in agreement with other estate planning documents such as pre- or post-nuptial agreements, divorce decrees, trust documents, etc.
How to Fix the Problem
Lucky for you, this amazing phenomenon is easily corrected. Here’s what to do for yourself and every client with a retirement account.
Get a copy of the beneficiary form for every IRA and other retirement account you own and for those of your clients.
Make sure you check that a beneficiary is named in writing. Go one step further. Make sure a secondary or contingent beneficiary is named in case the first one predeceases or to take advantage of post-death estate planning and disclaimer opportunities now available under the IRA rules.
Make sure that when there are multiple beneficiaries, each name and share is clearly stated. The form must identify each beneficiary and his share, by using either a fraction, a percentage or the word “equally” if that is applicable. Otherwise some beneficiaries may be left out or it may be unclear what their portion is. There should be no question as to who gets what. This includes contingent beneficiaries as well.
Massachusetts Case Cites Supreme Court Ruling and Awards 401(k) to Ex-Spouse
Staelens v. Staelens, D. Mass., Civil Action No. 08-30159-KPN,
January 11, 2010
Similar to the Kennedy case just about a year earlier (U.S. Supreme Court – January 26, 2009), the ex-spouse (Nadine Staelens) was awarded her ex-husband’s 401(k) because she was the named beneficiary on the plan beneficiary form. They were divorced in 2004, after 15 years of marriage. Aaron Staelens (the deceased ex-husband) died in 2008. He not only never changed the beneficiary form to remove his ex-wife but told his employer that he wanted to keep his ex-wife as the named beneficiary on his 401(k). Aaron’s mother, Karen Staelens, the administratrix of Aaron’s estate, sued for the benefits claiming that the 401(k) should go to Aaron’s estate and not to his ex-wife, Nadine.
Their divorce order provided that each spouse would keep their own pension benefits and that Aaron would control who would get his retirement account at death. Aaron could control who would inherit his retirement funds by naming the beneficiary of his choice, but he never made a change to the beneficiary form, keeping his ex-wife as beneficiary. He could have changed it, but he didn’t.
Judge Kenneth P. Neiman relied on the 2009 U.S. Supreme Court ruling in Kennedy, where the ex-wife was awarded the retirement benefits because she was named on the beneficiary form, despite the fact that she gave up her rights to the funds.