If you are unavailable due to injury or illness, is there a plan in place to protect a surviving spouse or your family? Sadly, the answer to this question is often “no.” The lack of an effective estate plan can result in unnecessary delays and financial hardships for your spouse and family. Depending on the circumstances, the impact of these problems can be substantial. A recent New Jersey Appellate Division case illustrates some of the problems caused by an incomplete estate plan and the losses it caused for a surviving spouse.

The facts of this case are relatively straightforward. The Decedent worked as an educator in the early 1980s and created three retirement accounts through his employer. At that time the Decedent was not married, and the Decedent named his sister as the beneficiary of all three accounts.

Decedent subsequently married in 1987. However, (i) the Decedent only updated the beneficiary designation for one of the three retirement accounts to name his wife; and, (ii) died intestate (without a Last Will and Testament). Since the Decedent did not update all of his beneficiary designations, two retirement accounts passed to the Decedent’s sister. The reported value of the accounts passing to the Decedent’s sister was about $114,000. Adding to the problems, the Decedent’s sister only survived the Decedent by about three years.

Not surprisingly, this plan resulted in a number of adverse consequences, including:

  • Costly litigation between the surviving spouse and the sister’s estate;
  • The loss of $114,000 in retirement accounts for the spouse;
  • New Jersey Inheritance Taxes on the retirement accounts passing to the sister’s estate;
  • Potential adverse impacts on the distributions from the retirement accounts.

This case illustrates some, but not all, of the problems caused by an incomplete estate plan. Each person’s situation is unique, and there are a number of factors that must be considered as part of every estate plan. As demonstrated by this case, failure to address the circumstances of each case can have major adverse consequences for a surviving spouse and other beneficiaries. It is important that you and your family have an estate plan and that your documents fit your circumstances.

If you have any questions about this case, or the planning considerations that may be unique to your situation, it is recommended that you speak with experienced estate planning counsel.