REMINDER: Review your beneficiary designations to avoid unintended consequences | Kohrman Jackson & Krantz LLP

The Wall Street Journal recently published an article about a scenario that, while significant and possibly the worst-case scenario, is more common than you might think. Specifically, the article describes a scenario in which Margaret Sjostedt, the former girlfriend of a deceased husband, Jeffrey Rolison, would inherit Mr. Rolison’s entire $1 million retirement account, even though the couple ended their relationship nearly 40 years ago The death of Mr. Rolison.

That’s because when the couple were together in the 1980s, Mr. Rolison had listed Ms. Sjostedt as the sole beneficiary of his retirement account and then never updated the form to name a new beneficiary, even after their relationship ended. Therefore, when Mr. Rolison sadly passed away in 2015, Ms. Sjostedt remained the listed sole beneficiary of Mr. Rolison’s retirement account. As one can imagine, Mr. Rolison’s death came as quite a surprise to his surviving next of kin – namely his brothers – since Mr. Rolison and Ms. Sjostedt had ended their relationship almost four (4) decades earlier.

Avoid unintended consequences

Luckily, the solution is simple… if only one more thing to add to your inevitably endless “to-do” list. In particular, always review your beneficiary information on all bank accounts, retirement accounts and life insurance policies and update them as necessary. However, this is a particularly important step after a major life event, such as the end of a marriage or the conclusion of a prenuptial or postnuptial agreement.

Each of these two (2) major life events – and the reason why it is particularly important to review and update your beneficiary designations following them – are discussed in more detail below.

Ending a marriage

In Ohio, the termination of a marriage may automatically revoke or otherwise affect certain provisions of previously prepared estate planning documents. This applies regardless of whether the divorcing spouse intended these automatic effects to occur or not.

A marriage can also end under other circumstances not automatically affect other previously made end-of-life designations or elections, including beneficiary designations. Instead, modifying or otherwise altering certain other previously made end-of-life determinations or choices may require an additional, positive step on the part of the divorcing spouse. This applies regardless of whether the divorcing spouse intended these changes or modifications to be automatic or not.

Therefore, following a divorce or dissolution proceeding, it is always good practice for the parties to review and potentially reevaluate any previously prepared estate planning documents as well as any other end-of-life determinations or choices previously made, including beneficiary designations. In fact, this requires comparatively little effort and in return essentially avoids unintended consequences – and the possibility of litigation – in the future.

Marriage or post-nuptial agreement

A prenuptial agreement is a written contract negotiated and entered into by a couple before they are legally married. In contrast, a prenuptial agreement is a written contract negotiated and entered into by a couple after they are legally married. In general, a prenuptial agreement and a postnuptial agreement do the same thing: namely, to modify the rights that the parties would otherwise have to each other by virtue of their marriage, including financial and property rights upon termination of the marriage, and rights of descent and distribution in the event of the premature death of either party. A prenuptial agreement can also be used to modify and/or supplement the terms of a previously entered into prenuptial agreement before

Although neither a prenuptial agreement nor a prenuptial agreement is the appropriate legal tool for sound estate planning, such agreements can be a helpful way for future spouses or current spouses to get their future estate planning underway. In addition, depending on what has been agreed to in connection with a prenuptial and/or postnuptial agreement, it may be necessary for the parties to update their beneficiary designations after entering into such agreement in order to achieve the result intended in the terms of such agreement.

Importance of updating beneficiary designations

One of the most common decisions in connection with a prenuptial and/or postnuptial agreement is, for example, the classification of the increases in value that arise during the marriage towards the parties’ retirement assets. In particular, in the event of a future termination of the marriage, will the increase in value that accrues to such accounts during the marriage be classified as marital property (and thus fairly divided between the parties) or as separate property (and thus returned to the original party)?

Depending on the decision made in this matter, upon execution of the relevant prenuptial and/or postnuptial agreement, it may be necessary for the parties to execute certain spousal waivers and/or update the beneficiary designations for the relevant retirement assets in order to comply with the decision made are equivalent to. Otherwise, the parties may be left with beneficiary designations that are inconsistent with the terms of their prenuptial and/or postnuptial agreements – and thus the potential for future litigation.