Keeping Your Estate Plan Current

In 2013, the U.S. Supreme Court issued a ruling that sent a clear message how important it is to keep your estate plan up to date. The case centered on a dispute between the widow of Warren Hillman and his ex-wife. Hillman, a federal employee, owned a Federal Employees Group Life Insurance (FEGLI) policy with a death benefit of $124,558. Hillman neglected to change the beneficiary designation on the policy following his divorce and remarriage, and when he passed away in 2008 his ex-wife Judy Maretta collected on the policy. Hillman’s widow, Jacqueline Hillman, sued to recover benefits.

The subsequent court battle lasted five years and went all the way to the Supreme Court. The widow argued that Virginia law revokes a divorced spouse’s beneficiary in favor of a widow or widower (Va. Code Ann. §20–111.1(A)), but the Court ruled that a federal employee’s choice of beneficiary cannot be overridden by a state statute. Hillman’s ex-wife was therefore entitled to keep the money.

The importance of beneficiary designations

Many people take out life insurance policies and set up retirement accounts, never giving a second thought to their named beneficiaries. These policies and accounts should name not only a primary beneficiary, but also an alternate/contingent beneficiary who will collect the proceeds if your primary beneficiary predeceases (dies before) you.

If you pass away without a living designated beneficiary on a life insurance policy or retirement account, the account will be paid out to your estate and will be subject to probate. Your estate will not only incur unnecessary probate fees, but your beneficiaries will be unable to roll over the retirement proceeds to their own retirement accounts – as a result, additional taxes may be assessed on the distribution.

Updating your estate plan

When your living trust is established, it will be accompanied by a schedule of assets held in trust that should be updated at least once a year. It is generally a good idea to review all of your documents every few years to ensure that they consistently reflect your wishes. As can be seen by the results of the Hillman case, documents and beneficiary designations should be updated after every major life event, such as:

  • Marriage
  • Divorce
  • Birth or adoption of a child or grandchild
  • Illness, disability or death of a spouse, child or other relative
  • Receipt of a large gift or inheritance, opening or closing a business, buying or selling a house or other major asset, or any other major change in assets and investments
  • Death or change in circumstance of your executor, trustee, or choice of guardian for your minor children

California estate planning attorneys

The estate planning and tax attorneys at Moskowitz, LLP routinely work with existing estate plans and with the development of new ones. Call our San Francisco offices at (888) 829-3325 for more information.