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Tillem & McNichol

Len Tillem and Rosie McNichol

Dear Len and Rosie,

My husband’s mom passed away recently and the only asset she owned was a 401(k).

Unfortunately, she did not name a beneficiary. She does have a last will and testament that leaves everything to her husband, but she divorced her husband after she made the will.

The 401(k) came from her husband when they got divorced. Is there anyway that he’ll get the money?

My mother-in-law racked up a lot of medical bills in the last year of her life, and we know it would be gone if it went to the estate. The 401(k) has less than $30,000, so it’s not a whole lot of money by any means.

Thank you for your time and help!

Krista

Dear Krista,

First, check with the 401(k) plan administrator. Some 401(k) plans have default beneficiaries if there are no designated beneficiaries. You may be lucky.

If that doesn’t work, however, there’s no good news.

If your mother-in-law had named her son, or anyone else for that matter, as her 401(k) beneficiary, then the retirement account would pass free to the beneficiary outside of probate, it wouldn’t have to be used to pay her medical bills, and her beneficiary could have rolled over the account into an Inherited IRA, allowing the beneficiary to stretch out IRA distributions over his or her life expectancy. That would have been nice.

If the 401(k) pays into your mother-in-law’s estate, it will be subject to the claims of her creditors.

If there’s anything left over after her creditors are paid off, the money should go to the persons named as beneficiaries of her will, except for her ex-husband.

He was disinherited from her will automatically because of the divorce.

What can you do?

Not much. The best you can probably do at this point is to ignore your mother-in-law’s creditors.

If your husband is the sole beneficiary, he can collect the account outside of probate using a Small Estate Affidavit under California Probate Code section 13101.

Your husband would have to pay the income tax on $30,000 all at once, and he will become personally liable for his mother’s debts up to the value of the account.

The only hope is that her creditors may not make that much of an effort to collect what’s due to them. Regretfully, we don’t have better news for you than that.

For those reading this column, consider this a cautionary tale.

All of you need to review and update the beneficiary designations of each of your retirement accounts, even if you think it was done right the first time.

If you don’t, you could make a very expensive mistake for your family.

Len and Rosie

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Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at 707-996-4505.

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