Many of us think about how we will care for our loved ones after we die.
We purchase life insurance policies for them. We create an estate plan with our will. We speak with our Human Resources department to update our retirement beneficiaries. Our lives change as we age, marry, divorce and have children. But the immediacy of those events often means we fail to change our paperwork to reflect those life changes.
I met Daniel after his husband Ethan died. Ethan was always the organized partner—spreadsheets for the household budget, calendar reminders for birthdays, neat folders for every document. Daniel was the more social partner.
Ethan was so organized that Daniel could not believe the mistake Ethan had made in his beneficiary paperwork.
When Ethan set up his 401(k) at his first job out of college, he named his parents as beneficiaries. In the years following, Ethan met Daniel. They married in a small, beautiful ceremony after Marriage Equality became the law of the land. Ethan and Daniel’s families stood with them toasting champagne proudly, except Ethan’s only sibling Claire. Claire did not believe Ethan’s lifestyle, marriage or love for Daniel was valid.
Time moved fast. Ethan’s parents passed away within a few short years of each other. Grief blurred the months. The mundane paperwork of life piled up. Updating Ethan’s 401(k) never crossed his mind.
Then came the unthinkable—Ethan’s sudden death in a car accident at just 48. Daniel was shattered. Their home felt hollow, his world rearranged by loss.
As the executor handled the estate, the 401(k) surfaced. Daniel assumed, naturally, that as Ethan’s legal spouse, he would inherit. Daniel was named as the beneficiary on all other legal and financial paperwork since the wedding.
But the 401(k) beneficiary paperwork told a different story. Ethan’s Human Resources Department had a copy of the form Ethan had incorrectly filled out after his marriage to Daniel. Since Ethan had not correctly updated the paperwork, the original beneficiary form was valid.
The original 401(k) beneficiary form named Ethan’s parents as their beneficiaries. When Ethan’s parents died, their parents’ estate left everything equally to Ethan and Claire.
Claire filed a lawsuit claiming the 401(k) as hers because she was the sole living beneficiary of her parents’ estate.
401(k) accounts follow their beneficiary designations often passing outside a will or estate. In this case, the beneficiaries Ethan named were his parents.
However, since the parents both predeceased Ethan, the estate beneficiaries (Ethan and Claire) received their inheritance and the parents’ estate had been closed by the Probate Court; neither the parents nor the estate could inherit Ethan’s 401(k).
Since the 401(k) funds had not entered the parents’ estate while they were alive or while the estate was active, the 401(k) could not be inherited by Claire through the estate.
There were no contingent (alternate) beneficiaries named by Ethan on the beneficiary form.
Claire’s attorneys tried another tactic—invalidate the marriage because the beneficiary form predated Marriage Equality.
Most 401(k) plans, including Ethan’s, are governed by federal law under ERISA (Employee Retirement Security Act), include spousal protections. If no valid beneficiaries exist, the surviving spouse (Daniel) generally inherits. Claire’s attorneys argued that the 401(k) form Ethan filled out predated Marriage Equality, and therefore, Claire was the relative who should inherit. Even though the form was outdated, ERISA’s spousal protections still governed and the court found for Daniel.
Daniel received the 401(k) proceeds, which were reduced by the legal expenses incurred fighting Claire’s lawsuits.
In the end, Daniel settled with Claire out of court to prevent her from causing more legal headaches, either with more lawsuits or by appealing the decisions made by the courts.
Ethan never would have wanted Daniel to endure this prejudice, animosity and heartache.
The moral of the story—update your beneficiary forms and legal paperwork after every major life change (marriage, childbirth, divorce, and death).
John Kohlhepp is the owner of A Secure Plan, LLC, an End-of-Life Planning and Death AfterCare company. After the death of his mother, John chose a new career path to help people and families making end-of-life plans and completing the paperwork after a loved one dies. Previously, John worked in progressive politics for labor unions, immigrant rights and marriage equality.