Marcus died last month aged 62. He divorced Karen nine years ago and married Sofia seven years ago. His will, signed after that second marriage, leaves his entire estate to Sofia and appoints her executor. His 400,000 dollar rollover Individual Retirement Account still carries a beneficiary designation naming Karen, signed before the divorce and never changed, and the divorce decree said nothing about the account. Assume no state statute revoking a designation on divorce reaches this account and that Sofia never signed a waiver. Who is entitled to the 400,000 dollars, and on what basis?
- AKaren, because the designation is a contract with the custodian and passes outside the will Correct
- BSofia, because the later will revokes the earlier beneficiary designation as to all his property
- CSofia, because a surviving spouse's rights override a designation naming a former spouse
- DThe estate, because the divorce voided the designation and left no valid beneficiary
Why A is correct: The account is a contract between Marcus and the custodian, so it passes by designation directly to the named beneficiary and never enters the probate estate the will governs.
Why B is wrong: A will is tempting here because it is the later document, but a will disposes only of probate assets, and an account with a valid living beneficiary is not a probate asset for the will to reach.
Why C is wrong: Spousal consent rules of this kind apply to qualified plans governed by federal pension law rather than to an Individual Retirement Account, so Sofia has no automatic claim to this particular account.
Why D is wrong: Some states do revoke a designation in favour of a former spouse on divorce, which makes this plausible, but the stem removes that statute, so the designation stands and the estate takes nothing.