Don’t Accidentally Leave Your Retirement Account to Your Ex Girlfriend

The Oregonian published an article on Saturday on the topic of beneficiary designations for different investment/savings vehicles. This article was written around a case where the father, Timothy Freed died intestate (without a will) and inadvertently left his entire IRA account to his ex-girlfriend of many years. He had broken up with her in a “very bitter parting” eleven years before his death. After their split, he revoked the will that left her some of his property and he even had a court order stating that she had “no right or interest” in Freed’s retirement account. Given all of these measures, how does one inadvertently leave someone their entire IRA account? The answer is by not updating the beneficiary designation that is made on the account when it is created.

A beneficiary designation is a very common probate avoidance tool that is used to keep property out of probate. You want to keep property out of probate because probate significantly delays the distribution of that property, sometimes well over a year, and can cost a lot of extra money. How it operates is that assets with a beneficiary designation immediately transfer to the beneficiary on your death and therefore aren’t subject to the terms of your will or intestacy statutes. Other similar vehicles are joint tenancies with the right of survivorship and pay on death accounts (PODs). This is how the IRA’s beneficiary designation superseded the intestacy procedure. If Freed had made a new will then it would have still gone to his ex.

This is why you should make sure to keep your beneficiary designations on IRAs, insurance, 401(k)s, etc. up to date. The man or woman you were dating 15 years ago may have been the love of your life then but you may hate their guts now and you don’t want $150,000 of your hard-earned dollars going to them when you die because you didn’t take a few minutes to fill out a form.

This situation is less likely for those who are married and then get divorced as a lot of plans and accounts have options to immediately eliminate the spouse as the beneficiary upon divorce. This should be checked though to make sure that your account has that in place and it would probably even be worth your while to double-check when you get divorced anyway. Freed was not married to his ex girlfriend so he did not have the benefit of such a provision and same-sex couples in states where rights of marriage aren’t given will likely have this issue as well.

The other question that you may be asking is how this superseded the court judgement that gave her “no right or interest” in the account. This interest is interpreted as being a property interest in the account, which both the trial court and the appellate court distinguished from the expectancy interest that one has as the beneficiary. The court determined that “there is no indication in the 1998 judgment or in this record that the judgment was intended to encompass any expectancy interest that Gomes might have as a beneficiary of the IRA.” Martin v. Gomes at 5. Therefore the elimination of the property interest by the judgement did not eliminate the ex girlfriend’s expectancy interest.

The moral of this story is to keep your documents and estate plan up to date!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>