Understanding Contract Provisions as a Component of an Estate Plan

Reviewing contracts that control our accounts and asking questions about those agreements has become a necessary component of estate planning.

Two examples occur with bank and financial advisor accounts. A review should include under which state’s laws is the agreement drafted, interpreted and enforced and will any fiduciary ie a Power of Attorney have the exact same rights and privileges that you, the owner has.

Posthumously, my office recently was asked to review a financial advisor contract governing an IRA account. The agreement was signed in Maryland. The account only named the owner’s spouse as the beneficiary. No contingent beneficiaries were named. The named beneficiary died at least three years before the surviving spouse’s death.
Under Maryland law that account would be included in the second spouse to die’s estate. However, the contract was not drafted, interpreted or enforced under Maryland law, but the laws of a different state. The contract’s provisions and the laws of that state mandated that the account would pass to the second spouse to die’s living descendants per stirpes. That disposition also differed from the estate plan of the second spouse to die as established in their Last Will & Testament. However, the terms of the contract as opposed to the contents of a Will were enforced and shall continue to be enforced.
Some account agreements also limit the ability of a fiduciary, such as Power of Attorney, to conduct certain business such as adding Pay on Death or Transfer on Death beneficiaries to existing accounts opened without those designations. In such instances, the legal department normally will not allow a fiduciary to add those designations.
A similar anomaly occurs after spouses divorce. On occasion one spouse, for whatever reason, fails to re-title account ownership and change beneficiary designations to remove their former spouse.  If that person dies, with the former spouse still named as an owner or beneficiary, the contract that created those account designations is enforced over the terms of a Will, separation agreement etc. The long-standing precedential case law views these situations as the dying spouse purposefully not changing the designations therefore intending the former spouse to inherit under the contract.
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