This is a common estate question we get asked at Landskind & Ricaforte Law Group, P.C. And the answer is yes. Even if you’ve listed your adult child or another person as the beneficiary of your life insurance policy, 401K, or some other account, your spouse can still claim those funds under certain circumstances and under New York’s Elective Share Rules.
Our experienced estate planning attorneys understand the complex problems that can arise when there’s a conflict between spousal inheritance rights and beneficiary designations. We’ve helped many New Yorkers handle these issues to ensure their assets are distributed according to their wishes while avoiding unintended consequences. Here, we discuss what it means to be the designated beneficiary of a financial account and how and why a spouse can override that beneficiary designation.
New York's Elective Share Rules and Your Estate Plan
In New York, surviving spouses have special protections under the state's elective share statute. This law prevents one spouse from disinheriting the other by giving the surviving spouse the right to claim a certain percentage of the deceased spouse's estate, regardless of what a will might say.
The elective share in New York is $50,000 or one-third of the net estate, whichever is greater. The net estate includes almost all of the deceased spouse's assets, whether passing under the will or outside it. This means that even if you leave everything to your children in your will, your spouse can still claim their elective share.
Assets Included in the Net Estate
The New York elective share statute expands the definition of what is included in the deceased spouse's estate to prevent disinheritance through non-probate assets. These assets may include the following:
- Assets held in a trust
- Life insurance proceeds where the surviving spouse is not the beneficiary
- Retirement accounts (IRAs)
- Other investment accounts
- Gifts made with the intent to defeat the surviving spouse's right of election
It’s important to talk to our estate planning attorneys to fully understand the assets included when calculating your net estate. We are knowledgeable in New York law and can help you establish a plan that distributes your assets the way you want.
Understanding Beneficiary Designations
Beneficiary designations are a way to transfer certain assets outside of probate. When you name a beneficiary on a life insurance policy, retirement account, or payable-on-death bank account, those assets pass directly to the named beneficiary when you die.
This can be a useful tool to avoid probate and ensure those assets get to your intended recipients quickly. Typically, beneficiary designations override any contrary instructions in your will.
Types of Beneficiaries
- Primary beneficiary. The first person or entity named to receive the asset.
- Contingent (secondary) beneficiary. The backup recipient who inherits the asset if the primary beneficiary is deceased or unable to receive it.
There are key advantages to designating a beneficiary on your accounts. These include:
- Providing for a direct inheritance. It ensures your assets go directly to the people you want to receive them.
- Bypassing probate. It saves time and money by avoiding the court-supervised probate process for those specific assets.
- Providing estate planning coordination. It allows you to coordinate your estate plan by directly assigning assets to specific individuals, even if they differ from your general will.
Spousal Rights vs Beneficiary Designations
In some situations, the rights of the spouse conflict with beneficiary designations, and many New Yorkers are confused about whether a beneficiary designation can override a spouse's elective share rights.
It’s important to understand that a surviving spouse's right to claim an elective share takes priority over beneficiary designations. If a deceased spouse's non-probate assets, such as life insurance or retirement accounts, are needed to satisfy the surviving spouse's elective share, those assets can be pulled back into the estate for that purpose.
For example, consider if Steve dies with a $500,000 estate and leaves everything to his adult son in his will. Steve also has a $100,000 life insurance policy naming his son as beneficiary. John's wife, Mary, decides to claim her elective share.
Mary is entitled to one-third of Steve’s net estate, which would be about $200,000 (one-third of $500,000 plus $100,000). If the probate estate isn't enough to satisfy Mary’s elective share, the life insurance proceeds can be used to make up the difference, even though the son was named beneficiary.
Creating Your Estate Plan: Beneficiary Designations and Spousal Inheritance
When creating an estate plan, it's important to consider how beneficiary designations align with your overall goals and your spouse's inheritance rights. Some key things to keep in mind:
- Update your beneficiary designations. Be sure to review and update beneficiaries after major life events such as marriage, divorce, or the birth of a child. Outdated beneficiary designations can lead to unintended results.
- Consider getting spousal consent. In some cases, it may be advisable to get your spouse's written consent when naming someone else as beneficiary on retirement accounts or life insurance. This can help avoid confusion or challenges down the road.
- Establish greater control with a trust. If you want to provide for beneficiaries other than your spouse while still ensuring your spouse is taken care of, consider using a trust. A properly structured trust can help you achieve your goals while navigating spousal inheritance rights.
Let Landskind & Ricaforte Law Group, P.C. Help Create Your Estate Plan
At Landskind & Ricaforte Law Group, P.C., we understand the complexities of spousal inheritance rights and beneficiary designations when you’re estate planning in New York. Our knowledgeable Brooklyn estate planning lawyers can help you craft a plan that protects your loved ones, honors your wishes, and minimizes the risk of unintended consequences. Let us help you review your beneficiary designations for all accounts, policies, and plans that are not controlled by your other estate planning documents. Read our testimonials to see how we’ve helped other New Yorkers with situations involving elective share rules. Contact us today to discuss how we can help you achieve your estate planning goals.