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Part I: Was a pay-on-death decision a mistake?

A recent Colorado Court of Appeals illustrates what can go wrong following the death of a loved one. From determining whether what a parent did was a mistake or part of a plan to flawed attempts to avoid litigation, the case raises issues about pay-on-death designations, special needs trusts and conservatorship fiduciary responsibilities.

Because the number of topics, this case warrants a two-part post. We’ll go into more detail about the facts in this post and describe breach of fiduciary duty in the next.

 

Updated beneficiaries

These facts from the case (In the interest of Black) involve expectations about an inheritance.

The story started with the death of an elderly mother in 2012. An adult son expected that he and his children would inherit one-third of his mother’s estate through a trust. An adult daughter suffered from chronic schizophrenia, so the mother had created and devised two-thirds of her estate to a special needs trust to benefit her.

Not long before her death, the mother updated the pay-on-death (POD) beneficiary designation on a Roth IRA to name her daughter. On other accounts, she left her daughter 95 percent with one percent going to each of the children from her son’s first marriage.

Most of the estate assets were contained in these accounts (approximately $3 million).

These pay-on-death accounts transfer automatically at death outside of the probate process. They effectively bypassed the trusts. The remainder of the estate was divided between the two trusts.

Siblings with conflicting priorities

It should not come as a surprise; the adult son and his second wife were unhappy with the result. He considered litigating the POD designation. 

Was this was a mistake? The case doesn't answer the question. Ultimately, he decided on another possible way to fix the “mistake” to obtain his fair share.

To get around intra-family litigation, he sought to be named conservator over his sister. Then he could “disclaim” the amounts in the POD accounts on her behalf and those assets would flow to the estate be divided into the two trusts.

This is where we will pick up with our next blog discussing breach of fiduciary duty. A bit of a spoiler is that this plan actually lead to drawn out litigation, subsequent appeal and loss at the Colorado Court of Appeals. The seemingly private family matter is now public record.

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