Dispute Over a Retirement Account (Part 1)

A recent Wall Street Journal article about a fight over a $1 million dollar retirement account reminded me of a similar case I had in my office 25 years ago.  First about the case highlighted in the Journal.

To summarize, Jeffrey, single with no children died in 2015.  He had no will.  The majority of his estate consisted of a retirement account that is now worth $1,000,000.  That is the subject of a legal battle between his brothers and his ex-girlfriend from more than 40 years ago.

The back story is that when Jeffrey first set up his retirement account at Proctor and Gamble, he designated his then girlfriend as the beneficiary on that account.  In the mid 1980’s this was done by completing a paper document that he signed and submitted to the company.  Jeffrey and his girlfriend split up a few years later and she went on to marry and have children.  Jeffrey did not, however, ever change the beneficiary form.

When he died, the ex-girlfriend was still listed as beneficiary on the original form Jeffrey had completed in 1987. The form was clear and unambiguous.  It also is clear that the retirement account is considered what is called “contract property”.  

The retirement plan custodian has a contractual obligation with the account owner to pay the balance of the account to the designated beneficiary.  Only if there is none does the account typically pass to the owner’s estate.  In that case, designated beneficiaries in the will – if there is one – or the beneficiaries as designated under intestacy laws – which determine who inherits when there is no will – would receive the account proceeds.   Jeffrey’s closest relatives under the intestacy laws were his 2 brothers.

After reading the first sentence of the article, I didn’t need to read the rest to know the outcome.  The brothers filed suit in federal court and lost but are now appealing the lower court’s decision.   Their arguments in support of their position are weak and not likely to result in the case being overturned.  Next week I’ll share more.