The law gives spouses equal rights to designate death beneficiaries to community property assets that pass without probate to designated beneficiaries (so-called, “nonprobate community property assets”). Such nonprobate community property assets include retirement annuity policies, and employee benefit or retirement plans where the participant contributed marital (community property) earnings to such investments. Let’s examine the legal requirements for designating beneficiaries and for changing such designations.
The law recognizes that nonprobate assets act as will substitutes even though the testamentary formalities associated with a Will are not required with respect to designation of beneficiary forms. Accordingly, a married person can only bequeath (gift) his one-half of the community property interest in a nonprobate asset upon the death of the participant spouse (whose life span dictates when the nonprobate asset in question passes to someone else). That is, both spouses must sign the designation of death beneficiary form in order to control the disposition of 100% of the nonprobate community property asset (such as an annuity or retirement plan) upon the death of the participant spouse in question. By signing this form, the non-participant spouse is consenting to the designation of beneficiary.
If the participant spouse later signs a new designation of death beneficiary form, without obtaining the consent of the non-participant spouse, then the outcome depends on whether or not the non-consenting spouse is alive. If he is still alive, the new designation of death form controls the disposition of only one-half of the nonprobate asset.
For example, say the original (consented-to) designation of beneficiary for a retirement plan provides that the couple’s daughter receives 75% and their son receives 25%; and thereafter the participant spouse signs a new designation of beneficiary form (a modification) without the consent of the non participant spouse and changes the distribution to 50% to each child. That second (modified) designation is only effective as to the one-half community property interest controlled by the participant spouse. And, the earlier signed consent by the non-participant spouse on the original designation of beneficiary form is revoked, which means that the other half of the nonprobate asset passes pursuant to the “will” of the non-participating (now non-consenting) spouse, and may entail a court probate of the non-consenting spouse’s will.
If the non-consenting/non participant spouse is not alive when the modification was executed, then the outcome depends on whether the deceased non-participant spouse revoked original consent and gave his community property rights to his surviving spouse (to allow him or her full control). That is, did the deceased non-participant spouse sign a Will (or other written document) that revoked consent and gave away the rights and interest to such nonprobate community property asset? If so, the modification will control the entire the nonprobate community property asset. In our example, the retirement plan would then pass equally to daughter and son alike.
Otherwise, where the modification is signed after the spouse has died, the original (consented to) designation of death beneficiary form becomes irrevocable and so remains effective as to non-consenting spouse’s one-half interest in the community property asset. In our example, this means half of the retirement plan still goes 75% to daughter and 25% to son (as originally agreed), while the other half goes 50% to each child (pursuant to the modification).
As a rule, if husband and spouse each have the same children and are in agreement, I recommend that each spouse allow the other full control over nonprobate community property assets. If, however, the spouses have separate children and so have different testamentary intentions, I caution against each spouse granting the other full control.
Editor’s Note: Dennis A. Fordham is an attorney licensed to practice law in California and New York. He earned his BA at Columbia University, his JD at the State University of New York at Buffalo, and his LLM in Taxation at New York University. Dennis concentrates his practice in the areas of estate planning and aspects of elder law. His office is at 55 1st Street, Lakeport, California. He can be reached by e-mail at email@example.com or by phone at 707-263-3235.
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