Beneficiary Forms

A recent Ohio Court of Appeals decision ignored a person's Trust that provided for a Charitable Bequest and gave all of the money to the surviving son.

If your Will or Trust says that you are giving your money to a charity, how could a court overturn that and give the money to the children?

Normally, if you follow the rules, this will not happen. However, in this recent case, there was sloppy paper work that resulted in the charity losing out on hundreds of thousands of dollars. Here is what happened, Mr. Kropf set up a Trust in 1991. He filled out Beneficiary Forms for his retirement accounts, providing that all of his retirement assets would pay into the 1991 Trust. In 2007, he cancelled his old Trust and set up a new Trust, which provided for the charity. However, he never changed his Beneficiary Form on his retirement accounts or IRAs, which still named the 1991 Trust. So on his death, the retirement accounts and IRAs had to pay to the 1991 Trust. Since 1991 Trust had been cancelled, the money went to the Contingent Beneficiary on the Beneficiary Form which was the son, not the charity.

What should the person have done to avoid this problem?

It is important to remember that a Will and Trust do not control the disposition of all of your assets. Any asset that has a Beneficiary Form supersedes the Will and Trust. You can have Beneficiary Designations for almost any asset including:

  • IRAs;
  • 401(k) plans or other retirement plans;
  • Bank accounts and CDs;
  • Brokerage accounts;
  • Life insurance and annuities;
  • Real estate

In this case, the Trust specifically mentioned that the retirement accounts were controlled by the Trust, but the Court held that it did not matter - the Beneficiary Form controlled.

How often should you review your Beneficiary Forms?

There is no hard and fast rule. Generally, you should review your Beneficiary Forms if something has changed in your life, such as the death of a Beneficiary, a divorce or as in this case, if you change your estate planning documents. For example, if you get divorced and you don't change the Beneficiary of your 401(k) plan, your ex-spouse will inherit your 401(k) plan. At a minimum, even if nothing has changed, you should review these Beneficiary Forms once every couple of years.