Dear Len & Rosie,
My aunt passed away. She left a will leaving her estate to my son, my half-brother and me. Her will even spelled out that we were to receive her 401k. My sisters havenít had any contact with my aunt in over 20 years. She made it quite clear to me, and to others that she would not leave them a dime.
The problem is that my aunt had also signed a beneficiary form in 1974 leaving the retirement account to my father, who is deceased. My two sisters and I were named as the alternate beneficiaries. Now my sisters are after the 401k money that they feel is owed to them! The total amount of the 401k is about $270,000.
I do not speak to my sisters unless absolutely necessary; we do not get along. Should I hire a lawyer and fight my sisters? I know my aunt would be furious over this! When NY Life contacted me about this they called it an Employee Progress Sharing Plan. I did not realize that it was her 401k and I gave NY life the names and addresses of my two sisters. I contacted my sisters as well. I thought it was some small insurance plan for a small amount of money. I was then told that it was her 401k and flipped. The attorney for my auntís estate requested an interpleader, which was granted. My sisters have retained an attorney. What should I do?
There are two sets of people claiming your auntís retirement account: The heirs of her will and the accountís designated beneficiaries. The 401k custodian, New York Life, did the right thing by filing an interpleader. The last thing they want is to get sued for giving the money to the wrong people. To avoid that, they turned the money over to the court, where you and the other claimants can fight it out. Thatís an interpleader.
You can fight your sisters, but we donít have good news for you. Your auntís retirement account beneficiary designation trumps her will. Any accounts owned by your aunt with designated pay on death beneficiaries are not subject to probate and are not subject to the terms of her will. Thatís the basic rule.
Can you get around this? Yes, but itís a long shot. The only way it would work to your favor is if you can prove that your aunt ďsubstantially compliedĒ with New York Lifeís procedures to change her beneficiaries, and, through no fault of her own, it didnít work. To win, you would have to prove your aunt filled out a change of beneficiary form, sent it to New York Life, and for some reason, they failed to update the record.
We donít like your chances very much, but there is a lesson to be learned here. It is very important for everyone to keep their beneficiary designations up to date. Otherwise, your retirement accounts, and your life insurance policies, may go to the wrong people.
Len & Rosie
Dear Len & Rosie,
I am the custodian for a $55,000 UTMA account for my 16-year-old daughter. She is supposed to use it to pay for her education, but at this point she wants to buy a Camaro and move into an apartment on her own. And no doubt party till the cows come home.
I want to move as much of this money into an account that she cannot access when she turns 18. Iíve done some research and it appears that I can use the money for expenses such as education, camp, her car, medical expenses, and even general living expenses. My plan is to keep about $10,000 to reimburse myself for the car I bought her and her medical bills, and to put the rest into a savings account in my name to distribute to her as I feel appropriate.
Are there any time limits on how far in the past I can retrieve funds for reimbursement and stay within legal boundaries of the use of this fund?
As your daughterís custodian under the Uniform Transfers to Minors Act, you owe her a duty to hold the money and spend it for her benefit until she turns 18. Then you have to give her whatís left. Itís her money, not yours.
You can pay yourself reasonable compensation, but you cannot pay yourself retroactively, and you could not really justify taking a fee of more than about one percent per year, especially if the money is just sitting there. You also cannot rightfully reimburse yourself for your own money you have already spent on her. The UTMA account does not relieve you of the duty of support you owe to your daughter. You could have bought the car with money from the UTMA account, but you didnít.
Your daughter has the right to inspect the books and see what youíve done with her money. She can even petition the court to make you provide her with an accounting. What this means is that if your daughter gets mad enough at you, she will have a legal remedy against you.
There is something to be said for taking steps to protect your daughter from herself. There are not many people who would blame you (other than the judge) for keeping the money if your daughter was just going to spend it on drugs. Just keep in mind that if you do this, you will be violating the law. If your daughter takes you to court to enforce her rights, you will lose. You do not have the right to withhold your daughterís inheritance, even if you believe itís in her best interests.
Itís water under the bridge for you, but people who are creating their estate plans now should consider creating a trust for grandchildren and other under-age beneficiaries. The trustee of a trust can have much more flexibility in how and when to distribute money to young beneficiaries who may not be responsible enough to be entrusted with their own inheritance.
Len & Rosie
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, Noon-1 p.m. and Sundays, 4-7 p.m. on KGO Radio 810 AM.