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A Will is Not the Only Way

Filing a Caveat - No Contest Clause in Will

Previous blog posts – like this one and this one – have described the limits of a Will. Wills dispose of assets titled solely in the name of the decedent (the person who died).  That’s it.  They do not control the disposition of assets that pass by beneficiary designation, such as retirement accounts (IRAs, 401(k)’s, annuities, etc.) and life insurance policies, nor do they control assets titled “joint-with-right-of-survivorship” or “pay-on-death.”  The named beneficiary of retirement accounts and life insurance policies receives those assets regardless of the provisions of a Will.  Likewise, the surviving joint owner of an asset held joint-with-right-of-survivorship or the beneficiary of a pay-on-death or transfer-on-death account receives those assets regardless of the provisions of a Will.

In many instances, a substantial portion of a decedent’s assets might be distributed completely outside of the provisions of a Will.  Beneficiaries must be aware of that, and make sure that their inquiry does not end at the decedent’s Will and the assets passing under it.

New Jersey law prescribes different rules for joint, pay-on-death and transfer-on-death accounts, versus assets that pass by beneficiary designation.  Joint accounts, pay-on-death accounts and in-trust-for accounts are governed by the Multiple Party Deposit Account Act (“MDPA”). The MDPA establishes formal requirements for changing account beneficiaries, requiring written notice to the financial institution to change the form of the account or to stop or vary payment under the terms of the account.  The notice must be signed by the party, received by the financial institution during the party’s lifetime, and not countermanded by another written order of the same party.

The Multiple Party Deposit Account Act (“UTSRA”) applies to “security accounts” which include brokerage accounts and, presumably, IRAs consisting of mutual funds or other securities.  Unlike the MDPA, there are no formal requirements for changing a beneficiary of a security account.  The law provides that beneficiary designations can be changed or cancelled at any time without the consent of the beneficiary.  Moreover, the act urges liberal construction, and allows courts to use “the principles of law and equity [to] supplement its provisions.”

As you might imagine, disputes can arise as to the identity of the beneficiaries of such accounts, just as disputes arise among beneficiaries under a Will.  In a recent New Jersey Appellate Division case, In the Matter of the Trust of Dr. Merritt Evan London, M.D., deceased, the court applied the UTSRA in rejecting a beneficiary’s claim that he was named as the beneficiary of his friend’s IRA.

The lesson for beneficiaries is clear: asserting your rights as a beneficiary under a Will may be only the beginning.  The way assets are titled and the beneficiary designations for “security accounts” and other assets are just as important as to who is named as the beneficiary of a Will.

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