North Carolina Estate Planning Blog

Get Your Social Security Statement Online

Greg Herman-Giddens — Wed, 16 May 2012 06:32:39 -0500

Remember those statements you used to get every year from the Social Security Administration with your earning history and estimated benefits at retirement? Well, most of us will no longer receive them. The has moved into the digital age and no you will need to create an account on the SSA website to check on your account. Here's the link - My Social Security.

As a "young" baby boomer, I certainly hope that Social Security is still around when I want to start drawing benefits in 20 years! For folks of any age, of course, it's best not to rely solely on social security and save as much for retirement as possible. With longer life spans and the high cost of long-term care, post-retirement living can take a lot of resources.

Most Americans Die Wihout a Will

Greg Herman-Giddens — Mon, 14 May 2012 10:05:15 -0500

I came across a recent article in the Yahoo Finance Blog, Half of Americans With Kids Set to Die Without a Will. If you are a North Carolina resident, what happens to your estate if you don't have a will (you die intestate, in legal terms)? Here's a link to the NC law on Intestate Succession: N.C.G.S. Section 29-13 et. seq.

If you have a spouse and children, you might be surprised to learn that your spouse will not necessarily get your entire estate. This can can be especially problematic if you die owning real estate in your sole name and have minor children. Guardianships would have to be established and authority granted from the court before the property would be able to be sold. There are also a whole host of other potential problems that can be avoiding by having a will or living trust.

Bad things happen to the families of good people who die without a will. Don't let this happen to you.

The John Edwards Case - What About Gift Taxes?

Greg Herman-Giddens — Wed, 09 May 2012 13:29:19 -0500

Yesterday I blogged about North Carolina's controversial Amendment One, which ended up passing by a large margin. I also have some thoughts about another matter in the headlines - the John Edwards trial. I have not been following the case closely, but I do know that central to the case is the money received in 2007 from wealthy donors Fred Baron and Bunny Mellon, Edward's knowledge of the donations, and whether they constituted campaign funds or simply gifts. Edwards former speechwriter Wendy Button testified that Edwards told her that the money was legal because the donors had paid gift taxes.

However, the matter of the gift taxes is not so simple. In 2007, the federal gift tax exemption was $2 million, meaning the Baron and Mellon could have each given someone that amount without paying any tax, provided they had not previously used up the exemption. In any event, a federal gift tax return would be required to report the gift to the donees since it exceeded $12,000 per person. But exactly who were the donees? John Edwards? He certainly benefited from the gifts, since they helped hide Hunter's pregnancy, even if he didn't receive anything himself. Rielle Hunter was certainly a donee, as she received. at least, free rent and a BMW. Andrew and Cheri Young? They apparently kept most of the money to build themselves a house.

So, if Baron and Mellon filed gift tax returns as required, whom did they list as donees? Somehow I doubt the correct names and amount were on the returns. Were the returns later amended to correct the information?

And what about subsequent gifts of the same money? Did Edwards effectively make a gift to Hunter? To the Youngs? Was there a gift from the Youngs to Hunter? Any such gifts in excess of $12,000 would also required to be reported, and the estate tax exemption of the donors would be reduced by the amount of the gifts..

Edwards and anyone else considered to be a North Carolina resident would also be required to report the gift to the North Carolina Department of Revenue, as North Carolina still had a gift tax in 2007 and 2008. In fact, North Carolina's lifetime exemption was just $100,000, and that only applied to close relatives. That means North Carolina gift tax would have been due.

Only a tax lawyer would think about such things - but, the tax laws are laws too, and they should be enforced. I would like to see how this would all unravel if the IRS and NCDOR conducted audits of those involved.

NC's Amendment One and Estate Planning

Greg Herman-Giddens — Tue, 08 May 2012 08:19:35 -0500

Today is election day in North Carolina, and I'm sure every North Carolinian, and many others across the country, know that the controversial Amendment One is on the ballot. Amendment One states that "Marriage between one man and one woman is the only domestic legal union that shall be valid or recognized in this State. This section does not prohibit a private party from entering into contracts with another party; nor does this section prohibit courts from adjudicating the rights of private parties pursuant to such contracts."

There has been a lot of discussion about the potential impact of the Amendment should it pass, and I think it's safe to say that much of it is not entirely true. This morning a client called to ask what would happen to the estate planning she and her partner had done in the event the Amendment passes.

Here's my take: First of all, I think the Amendment is poorly worded and unnecessary. The sentence about contracts between private parties was added in the second version of the bill, and makes the Amendment somewhat less restrictive of the rights of the citizens of this state. In terms of estate planning, however, this sentence means nothing. Black's Law Dictionary defines a contract as "an agreement between two parties which creates an obligation to do or not do a particular thing. Its essentials are competent parties, subject matter, a legal consideration, and mutuality of obligation." Clearly the standard estate planning documents - wills and powers of attorney - do not qualify as contracts. Perhaps a trust might under certain circumstances.

Nevertheless, it is my opinion that the Amendment itself would not invalidate existing estate planning documents or bar future documents naming a unmarried partner as a fiduciary or beneficiary. What I am concerned about however, is that such documents may be more subject to contest by disgruntled relatives, who would have another reason to argue why an estate planning document naming an unmarried partner should not be respected by the court. It would also make it easier for a conservative judge who disapproves of gay and lesbian (or even unmarried heterosexual) couples to side with the relatives of incapacitated or deceased partner, to the detriment of the surviving partner.

If the Amendment passes, only time will tell how these and other issues possibly affected by the Amendment will play out the courts. If I were to bring litigation to try to invalidate estate planning documents of unmarried partners, I would certainly use the Amendment as one of my arguments - "Your honor, the constitution of this state provides that this relationship was not valid, and should not be recognized in this state - if the relationship is not valid, how could any documents recognizing that relationship be valid?"

If such arguments were to be successful, that would be a travesty of justice. I believe in equal rights for all North Carolinians, and the freedom to plan with and for the benefit of whomever they choose. Let's hope the Amendment fails.

7 Big Estate Planning Mistakes

Greg Herman-Giddens — Sun, 29 Apr 2012 11:26:12 -0500

This recent Forbes article 7 Major Errors In Estate Planning is a must read for everyone, and most errors discussed apply to those with estates below $1 million. Items 1 through 3 apply to virtually everyone, while those with large insurance policies, particularly couples with young children, need to consider item 4. Number 7 is something most do without thinking about the potential consequences down the road. I have even asked my parents not to leave their estates outright to me. I would rather have their legacies protected in a carefully drafted trust that I control.

If you have made any of these big mistakes, it's time to visit an estate planning attorney for advice and possibly a new estate plan:

1. "Not having a plan.”
2. “Online or DIY rather than professionals.”
3. “Failure to Review Beneficiary Designations and Titling of Assets.”
4. “Failure to Consider the Estate and Gift Tax Consequences of Life Insurance.”
5. Not “Maximizing annual gifts.”
6. “Failure to Take Advantage of the Estate Tax Exemption in 2012.”
7. “Leaving assets outright to Adult Children.”

While this list is a great start, it certainly doesn't cover all of the issues that should be considered in crafting a comprehensive estate plan.

How to Report Tax Scams

Greg Herman-Giddens — Thu, 26 Apr 2012 08:56:54 -0500

Promoters of tax avoidance scams are not only acting illegally, but they can put unknowing participants at risk of penalties and even jail time. The old saying "if it seems to good to be true, it probably is" certainly applies here, but plenty of celebrities have fallen prey to such schemes, including Wesley Snipes.

There are plenty of legitimate tax reduction techniques available, but when someone tells you he can help you avoid taxes altogether, I recommend running for the hills. You can also report the scam and its promoters to the IRS. Think of it this way - the less tax cheats out there, the more money our government gets, and theoretically, anyway, the less likely it is to raise taxes on the rest of us.

NC POA Case Shows it's Better to Plan in Advance

Greg Herman-Giddens — Tue, 17 Apr 2012 08:31:52 -0500

A recent North Carolina Court of Appeals decision affirmed the Superior Court verdict that an agent under a power of attorney did not breach his fiduciary duty to his aunt, Doris King or unjustly enrich himself at her expense. Albert v. Cowart, et al.

Even though the defendants prevailed in this case, proper advance planning by Mr. and Mrs. King would most likely have avoided the lawsuit. The use of powers of attorneys and perhaps trusts executed well in advance of incapacity, with a lawyer's counsel, does not completely avoid the possibility of litigation, but certainly reduces it considerably.

It appears that the lawyer that prepared a power of attorney for Mrs. King did so without first consulting with her. This goes against North Carolina State Bar rules, which require that an attorney must first communicate with a person before preparing legal documents for that person to sign. This helps ensure that the person signing the documents has capacity to sign the documents and is doing so willingly.

New Estate Planning Resource

Greg Herman-Giddens — Sat, 14 Apr 2012 15:29:35 -0500

The national estate planning attorney group WealthCounsel, LLC has introduced the new EstatePlanning.Com, which, no pun intended, contains a wealth of estate planning information for the general public.

Current featured resources are Understanding the Significance of Trusts, Planning for Pets, and Will Your Kids Be Unintentionally Disinherited?

Check it out - more content will be added regularly.

Estate Planning - Fast and Distant or Slow and Local?

Greg Herman-Giddens — Thu, 12 Apr 2012 17:02:14 -0500

I'm a member of WealthCounsel, LLC, a national organization of estate planning attorneys. Lately there has been a lot of discussion on the list serve about how the internet is affecting estate planning and what the future holds for the profession and the public.

It occurred to me this morning that one could draw a parallel between the evolution of the fast food industry starting several decades ago and what has been happening in estate planning over the last 10 years or so.

Before the 1950's, there was little in the way of fast food joints and instant and frozen foods. Food then was "slow," prepared in the home, from scratch, and local foods were most commonly used. Then came McDonald's, advances in food processing technology, transportation and the like, and the pace of life sped up. The U.S. started shipping in food from all over the world Fast, "distant" food was born.

Now, many years later, there is a backlash against fast food because it is making us sick, overweight, and harms the environment. There's a movement to "slow", local food. Many restaurants here in Chapel Hill now prominently feature such items on their menus. Local, fresh food helps support the local economy, tastes better, is often more healthful, and has less environmental impact. I think it's great - so what if it's old-fashioned?

Turning to estate planning, long ago anyone who wanted something other than a handwritten will had to sit down with a lawyer, discuss the terms, and then return a couple of weeks later to sign the will. Slow and local. This process worked fine, but the world is not static. Along came the internet and LegalZoom. Someone could prepare their will in their underwear in front of their computer at home on Sunday night. A completely different type of "legal" services - fast and distant. This is great for some people, because just like with fast food, there will always be those who value convenience and price over what's actually best for themselves and their families in the long run.

There's no question that the internet will forever change the delivery of legal services. But, just like with the current slow food movement, that doesn't mean that going to the lawyer's office and sitting down for a talk will become a thing of the past. I think there will always be some who prefer the benefits of slow and local over fast and distant.

College Expense Tax Benefits

Greg Herman-Giddens — Wed, 11 Apr 2012 16:54:48 -0500

The IRS has just issued a Last Minute Reminder to Parents and Student; Don't Overlook College Tax Benefits. It provides a good overview and lots of links to other resources.

I wish there was a special benefit for parents who have more than two children in post-secondary school at once - I have four in college for at least the next two years!

Why I Love LegalZoom

Greg Herman-Giddens — Tue, 10 Apr 2012 13:10:05 -0500

First, my ideal estate planning clients do not use LegalZoom for their estate planning. The people who use LegalZoom would never go to a lawyer who is not dirt cheap. Unfortunately, experienced estate planners are not dirt cheap. Therefore, LegalZoom certainly is not costing me any business.

Second, people who do their own estate planning, even with the help of some entity like LegalZoom, often don’t get their estate planning and funding right. These people typically never realize their own estate plan is defective, incomplete or unfunded.

Third, once someone dies with a defective or unfunded estate plan in place, the survivors soon realize they need expert help to clear up the problems a defective or unfunded estate plan creates. There is now a legal barrier between these people and their inheritance.

Fourth, at that point, the survivors become my ideal administration clients. My services have now gone from optional (as my services are sometimes seen in the planning stage) to required because the problem is now severe and there is urgency in solving the problem (the urgency is that people cannot get to “their” money!) Luckily for them, I have the skills to solve their problem. And because now I am fixing someone else’s mistakes, my fees are much higher than they would be if I had done the estate planning in the first place.

Yes, I love LegalZoom, I will just not let my friends and family use it, regardless of how much money I make from LegalZoom.

Source (and with thanks to): Kevin L. Von Tungeln's Trusts and Estate Blog.

Haven't Filed Your Taxes Yet? Here are Some Tips

Greg Herman-Giddens — Mon, 09 Apr 2012 13:22:33 -0500

While no substitute for the advice and assistance of a tax professional, The American Institute of Certified Public Accountants (AICPA) offers 10 Tips for Last Minute Tax Filers.

Remember, Failure to File and Failure to Pay penalties are 5% (each) of the amount of each due - if you wait five months, your total penalty could equal fully one-half of the tax due! And that doesn't include interest. Even if you can't get anything else done by April 17, the automatic extension could save you a lot!

Estate Can Sue to Enforce Waiver of 401(k) Benefits

Greg Herman-Giddens — Fri, 30 Mar 2012 07:05:38 -0500

The recent U.S. Third Circuit Court of Appeals case Estate of Kensinger v. URL Pharma, Inc. involved an lawsuit by a decedent's estate against an ERISA plan administrator and the decedent's ex-wife, who was beneficiary as beneficiary of her ex-husband's 401(k) plan, seeking a declaration that the decedent's estate was entitled to the funds in the 401(k) account because of a waiver signed by the ex-wife as part of a property settlement upon divorce. The court ruled that the district court's grant of summary judgment to the defendants was: 1) affirmed in part, since the plan was required to distribute the funds to the ex-wife as the named beneficiary; but 2) reversed in part, because the estate could bring an action against the ex-wife to enforce her waiver and recover the disputed plan proceeds.

Even though the result was favorable to the estate, it was not without significant cost. It is crucial to remember to change beneficiary designation for retirement accounts and life insurance after a divorce. Click "Continue Reading" for the text of the ruling.

ESTATE OF KENSINGER v. URL PHARMA INC

ESTATE OF William E. KENSINGER, Jr., Appellant, v. URL PHARMA, INC.; Adele Kensinger.

No. 10–4525.

Argued Dec. 8, 2011. -- March 20, 2012

Before HARDIMAN, BARRY, Circuit Judges and RUFE,District Judge.*

Lori M. McNeely, Esq. (Argued), McNeely McGuigan & Biody, Moorestown, NJ, for Appellant.Michael S. Rothmel, Esq. (Argued), Mount Holly, NJ, Daniel J. Bitonti, Esq., Cozen O'Connor, Cherry Hill, NJ, for Appellees.

OPINION OF THE COURT

This is a dispute over the disposition of proceeds from a decedent's ERISA-governed 401(k) plan. The decedent, William Kensinger (“William”) was married to Adele Kensinger (“Adele”) until their divorce in 2008. As part of their divorce decree, Adele waived her right to the proceeds of William's 401(k) plan. William, however, neglected to replace Adele as the designated beneficiary of his 401(k) plan prior to his death a few months after the divorce. His estate (“the Estate”) and Adele both claimed a right to the plan proceeds, leading to this litigation. In light of a recent Supreme Court case, there is no dispute that, notwithstanding Adele's waiver, the plan administrator is obligated to pay the 401(k) proceeds to her in accordance with the plan documents. The question before us, which is one of first impression in this circuit, is this: after the plan administrator distributes the funds to Adele, can the Estate attempt to recover the funds by bringing suit directly against Adele to enforce her waiver? For the reasons that follow, we hold that the Estate can sue Adele to enforce her waiver and recover the disputed plan proceeds. The District Court, however, held to the contrary. Accordingly, although we affirm in part, we will also reverse in part.

I. Background

A. Factual Background

The material facts in this case are straightforward and undisputed. In 2000, William enrolled in an employee-sponsored deferred savings plan (“401(k) plan”) through his employer, URL Pharma, Inc. (“URL”). The 401(k) plan was governed by the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§ 1001–1461. At the time of his enrollment, William was married to Adele, whom he designated as the plan's primary beneficiary. Their marriage did not last, however, and divorce proceedings commenced in 2008. On April 20, 2008, William and Adele entered into a Property Settlement Agreement (“PSA”), which, in relevant part, provided:

[T]he parties mutually agree to waive, release, and relinquish any and all right, title and interest either may have in and to the other's IRA account(s), or any other such retirement benefit and deferred savings plan of like kind and character, and neither shall make any claim to possession of such property as it is presently titled.

The divorce was then finalized in New Jersey state court, with a final divorce decree incorporating the PSA entered on July 10, 2008.

Nine months after the divorce, William died intestate without having changed the designated beneficiary of his 401(k) plan. Following his death, a dispute arose regarding distribution of the plan proceeds. Although Adele was still the named beneficiary of the 401(k) plan, the Estate argued that, given her waiver, it was entitled to the proceeds of the plan. Adele countered that ERISA, which requires that the proceeds be paid to the beneficiary named in the plan documents, trumped her common law waiver. On November 9, 2009, the Estate filed an action against Adele and URL in the Superior Court of New Jersey seeking a declaration that the Estate was entitled to the funds in the 401(k) account.¹ URL removed the matter to the District Court.

B. The Supreme Court's Decision in Kennedy

The leading case in this area is Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 U.S. 285 (2009). The facts in Kennedy are virtually identical to those in this case. In Kennedy, an employee participated in an ERISA employee pension benefit plan and designated his wife as the sole beneficiary. The couple subsequently divorced, and as part of the divorce decree the wife agreed to waive her interest in her husband's pension plan. However, the husband died without amending the pension plan documents to replace his ex-wife as the designated beneficiary. The husband's estate claimed a right to the plan proceeds, citing the ex-wife's waiver. The plan administrator, however, relied on the husband's designation form and paid the funds to the ex-wife. The husband's estate then sued the plan administrator to recover the benefits.

The district court granted summary judgment to the estate and ordered the plan administrator to pay the estate. The Fifth Circuit reversed, holding that the ex-wife's waiver was rendered void by ERISA's anti-alienation provision, which states that “benefits provided under the plan may not be assigned or alienated.”² 29 U.S.C. § 1056(d)(1). The Supreme Court affirmed, albeit on different grounds. Contrary to the Fifth Circuit, the Court held that the ex-wife's waiver “did not constitute an assignment or alienation rendered void [by ERISA's anti-alienation provision]” and therefore was not invalidated by ERISA. Kennedy, 555 U.S. at 297 (emphasis added). Nonetheless, the Court declared that a plan administrator is “obliged to act ‘in accordance with the documents and instruments governing the plan,’ “ and that “ERISA provides no exemption from this duty when it comes time to pay benefits.” Id . at 300 (quoting 29 U.S.C. § 1104(a)(1)(D)). Thus, although the ex-wife had waived her right to the pension, the Court concluded that the plan administrator “did its statutory ERISA duty by paying the benefits to [the ex-wife] in conformity with the plan documents.” Id. at 299–300. In adopting this so-called “plan documents rule,” the Court emphasized the desirability of a “straightforward rule of hewing to the directives of the plan documents.” Id. at 300.

Significantly, although the Supreme Court held that a plan administrator must distribute benefits in accordance with plan documents, it noted the open question of whether another avenue of recovery might be available to the estate. In a footnote, the Court made clear that its holding did not address the question of whether the estate could have sued the ex-wife to recover the benefits after she received them from the plan administrator. Id. at 299 n. 10 (“Nor do we express any view as to whether the Estate could have brought an action in state or federal court against [the ex-wife] to obtain the benefits after they were distributed.”). In light of this footnote, lower courts interpreting Kennedy have observed that “the Supreme Court may have closed one door to litigation against plan administrators but it may well have opened another to litigation between family or former family members.” Staelens v. Staelens, 677 F.Supp.2d 499, 507 (D.Mass.2010).

C. The District Court's Decision

Adele moved for summary judgment on the ground that she was entitled to the 401(k) proceeds as the named beneficiary. The Estate opposed the motion and cross-moved for summary judgment, arguing that the PSA was a valid contractual waiver and that the proceeds, therefore, belonged to the Estate. Properly relying on Kennedy, the District Court had little trouble concluding that, despite Adele's waiver, ERISA required URL to distribute the 401(k) funds to her, as the named beneficiary, in accordance with the plan documents. This conclusion is not challenged on appeal.

The District Court then turned to the question left open in Kennedy: whether, once the plan proceeds are distributed to Adele, the Estate may pursue a claim directly against her to enforce her waiver and recover the benefits.³ Concluding that allowing the Estate to sue Adele would undermine one of ERISA's “principal objectives”—namely, that “named beneficiaries actually receive the benefits of ERISA-governed plans”—the District Court held that “the Estate may not assert a claim against [Adele] regarding the 401(k) proceeds.” (App. at 7–8.) This appeal followed.

II. Jurisdiction and Standard of Review

The 401(k) plan at issue in this dispute is an “employee welfare benefit plan” within the meaning of ERISA, 29 U.S.C. § 1002(1). As such, the District Court had jurisdiction pursuant to 28 U.S.C. § 1331. We have jurisdiction pursuant to 28 U.S.C. § 1291, and exercise plenary review over this appeal from the grant of summary judgment. McGowan v. NJR Serv. Corp., 423 F.3d 241, 244 (3d Cir .2005), abrogated on other grounds, Kennedy, 55 U.S. at 291 n. 4.

III. Discussion

Enacted in 1974, ERISA remains a comprehensive and complex scheme for regulating employee benefits plans. “The statute, however, does not address many of the issues which arise in the normal course of the administration of such plans.” Teamsters Pension Trust Fund v. Littlejohn, 155 F.3d 206, 208 (3d Cir.1998). In such cases, “it is well settled that Congress intended that the federal courts would fill in the gaps by developing, in light of reason, experience, and common sense, a federal common law of rights and obligations imposed by the statute.” Einhorn v. M.L. Ruberton Constr. Co., 632 F.3d 89, 96–97 (3d Cir.2011) (citation and internal quotations omitted). Relevant to this case, ERISA does not address whether a waiver of benefits can be enforced through a direct suit against a named beneficiary once the benefits have been paid to that beneficiary. We, therefore, look to federal common law in answering that question and, as stated above, answer it in the affirmative.

A. ERISA's Policy Rationale

Kennedy produced what appears to be a somewhat odd result given that the Supreme Court held that a plan administrator must adhere to the plan documents and distribute plan proceeds to the named beneficiary even though that beneficiary had affirmatively waived any claim to those funds. The Court emphasized two important policy considerations in explaining its holding. First, it stated that ERISA's well-established policy favoring uniform and efficient plan administration would be undermined if employers had to consider benefits claims from sources extrinsic to the plan documents, and it stressed the desirability of a “straightforward rule ․ that lets employers ‘establish a uniform administrative scheme, with a set of standard procedures to guide processing of claims and disbursement of benefits.’ “ 555 U.S. at 300 (quoting Egelhoff v.. Egelhoff, 532 U.S. 141, 148 (2001)). Without such a simple rule, the Court explained, plan administrators would have to bear “the cost of less certain rules”:

Plan administrators would be forced to examine a multitude of external documents that might purport to affect the dispensation of benefits and be drawn into litigation like this over the meaning and enforceability of purported waivers․ [I]t would destroy a plan administrator's ability to look at the plan documents and records conforming to them to get clear distribution instructions, without going into court.

Id. at 301 (citation and internal quotation omitted); see also Egelhoff, 532 U.S. at 149–50 (discussing “the congressional goal of minimizing the administrative and financial burdens on plan administrators”).

Second, the Supreme Court explained that its holding was necessary in order to avoid subjecting plan administrators to potential double liability. As the Court noted, ERISA makes clear that plan administrators must pay benefits “in accordance with the documents and instruments governing the plan.” 29 U.S.C. § 1104(a)(1)(D). As such, allowing the estate in Kennedy to sue the plan administrator for disbursing plan proceeds to the named beneficiary would have placed the administrator in a hopeless bind: if it honored the waiver, it could be sued by the named beneficiary for disregarding the mandate of ERISA; if it honored the plan documents, it could be sued by the estate for disregarding a federal common law waiver.

These two concerns—the need for the straightforward administration of plans and the avoidance of potential double liability—while central to the Supreme Court's decision in Kennedy, are not implicated here. An action brought directly against Adele after the benefits have been distributed would in no way complicate URL's administration of the plan. Unlike in Kennedy, a post-distribution suit against Adele would neither “destroy a plan administrator's ability ․ to get clear distribution instructions, without going to court” nor subject URL to “litigation-fomenting ambiguities.” 555 U.S. at 301, 302 (citation and internal quotations omitted). Rather, a suit against Adele would simply require a court to determine the rightful recipient of the plan proceeds as a matter of contract law.⁴

Although the District Court understood that the concerns underlying Kennedy did not apply under the circumstances of this case, it stated that in addition to “tidy and cost-effective plan administration,” ERISA's statutory scheme also aims to “provid[e] certainty regarding the final distribution of ERISA benefits” to beneficiaries. (App. at 8, 10.) Accordingly, the Court concluded that the possibility of a post-distribution action against a beneficiary would be inimical to ERISA's purposes as it would undermine this “core objective [ ]” of the statute. (Id. at 8–10.) Although the Court's conclusion was not unreasonable, we believe that its assumption about ERISA's continuing solicitude for beneficiaries after the distribution of benefits was based on an overreading of Kennedy.

The District Court relied heavily on Kennedy's statement that the plan documents rule promotes “simple administration, avoid[s] double liability, and ensur[es] that beneficiaries get what's coming quickly, without the folderol essential under less-certain rules.” 555 U.S. at 301 (quoting Fox Valley & Vicinity Constr. Workers Pension Fund v. Brown, 897 F.2d 275, 283 (7th Cir.1990) (Easterbrook, J., dissenting) (emphasis added)). The emphasized portion of this statement should not, however, be read in a vacuum or divorced from the context in which it arose. Both Kennedy and Fox Valley involved suits against plan administrators who had yet to distribute benefits. When read with that in mind, the goal of ensuring that beneficiaries “get what's coming quickly” refers to the expeditious distribution of funds from plan administrators, not to some sort of rule providing continued shelter from contractual liability to beneficiaries who have already received plan proceeds. In this case, when URL pays the benefits to Adele, as it must, she will “get what's coming” under the plan. If, after distribution, her right to these funds is challenged because of her common law waiver, that challenge will be litigated as an ordinary contract dispute. Accordingly, to the extent that ERISA is concerned with the expeditious payment of plan proceeds to beneficiaries, permitting suits against beneficiaries after benefits have been paid does not implicate any concern of expeditious payment or undermine any core objective of ERISA.⁵

B. Analogous Case Law

Our conclusion finds further support in the decisions of state appellate courts and in analogous federal cases. The state appellate courts to have considered the question presented here—the Michigan Supreme Court, the Oklahoma Court of Civil Appeals, and the Court of Appeals of Georgia—have all held that an estate may enforce a common law waiver against a designated beneficiary once pension funds have been distributed. See Sweebe v. Sweebe, 712 N.W.2d 708 (Mich.2006); Pardee v. Pardee, 112 P.3d 308 (Okla.Civ . App.2004); Alcorn v. Appleton, 708 S.E.2d 390 (Ga.Ct.App.2011). In Sweebe, the Michigan Supreme Court not only anticipated the holding of Kennedy, but answered the question left open in Kennedy:

[W]hile a plan administrator must pay benefits to the named beneficiary as required by ERISA, this does not mean that the named beneficiary cannot waive her interest in retaining these proceeds. Once the proceeds are distributed, the consensual terms of a prior contractual agreement may prevent the named beneficiary from retaining those proceeds.

712 N.W.2d at 156. Similarly, in Pardee, the Oklahoma court held that a waiver could be enforced via a suit against a named beneficiary because the “pension plan funds were no longer entitled to ERISA protection once the plan funds were distributed.” 112 P.3d at 315–16. And in Alcorn, the Court of Appeals of Georgia relied on both Sweebe and Pardee to hold that a decedent's estate could bring suit against the decedent's ex-wife to enforce her waiver since she had already received the plan benefits from the plan administrator. 708 S.E.2d at 392.

That the Estate should be able to bring a post-distribution suit against Adele finds further support in a line of federal cases holding that creditors can sue named beneficiaries to recover plan benefits once those benefits have been distributed. A number of circuits, including our own, have held that even though ERISA prevents a creditor from encumbering pension funds held by a plan administrator, the funds are no longer entitled to ERISA's protections against the creditor's claims once they are paid to the beneficiary. See Trucking Emps. of N. Jersey Welfare Fund v. Colville, 16 F.3d 52, 55 (3d Cir.1994) (“We have recognized ․ a difference between funds remaining in the possession of an ERISA plan trustee and funds that have been distributed to the beneficiary.”); see also Kickham Hanley P.C. v. Kodak Ret. Income Plan, 558 F.3d 204, 211 (2d Cir.2009) (“Only once the proceeds of the pension plan have been released to the beneficiary's hands, can creditors and others pursue claims against the funds and the funds' owner(s).”); DaimlerChrysler Corp. v. Cox, 447 F.3d 967, 974 (6th Cir.2006) (“This circuit, along with a majority of the other circuits, has held that once benefit payments have been disbursed to a beneficiary, creditors may encumber the proceeds.”); Hoult v. Hoult, 373 F.3d 47, 54–55 (1st Cir.2004) (same); United States v.. Jackson, 229 F.3d 1223, 1225 (9th Cir.2000) (same), overruled in part by United States v. Novak, 476 F.3d 1041 (9th Cir.2007); Guidry v. Sheet Metal Workers Int'l Ass'n, Local No. 9, 10 F.3d 700, 716 (10th Cir.1993) (same). In each of these cases, the court held that once the benefits were distributed to the designated beneficiary in accordance with the plan documents, ERISA was no longer implicated. The same principle is equally applicable here. More specifically, if a creditor can enforce its rights against a beneficiary once pension funds have been distributed, we see no reason why the Estate should not be able to enforce its contractual rights against Adele once URL disburses the funds.

Despite this caselaw, Adele argues that the District Court should be affirmed in light of Boggs v. Boggs, 520 U.S. 833 (1997), and Staelens v. Staelens, cited earlier. We find neither case to be persuasive under the circumstances of this case. In Boggs, the Supreme Court held that ERISA preempted a state community property law, and stated that “the diversion of retirement benefits will occur regardless of whether the interest in the pension plan is enforced against the plan or the recipient of the pension benefit.” 520 U.S. at 853. The “interest” at issue in Boggs, however, was an “interest in undistributed pension plan benefits.” Id. at 836 (emphasis added). Here, of course, the question is whether the Estate can sue Adele after the funds have been distributed to her.⁶

Staelens is similarly inapposite. There, the District Court of Massachusetts held that a decedent's estate could not sue the decedent's ex-wife to enforce her purported waiver, but based its decision on the fact that the language of the divorce decree “lack[ed] the specificity” required for a valid common law waiver. 677 F.Supp.2d at 510. Prior to reaching this conclusion, the court did state that allowing a decedent's estate to sue a named beneficiary to enforce a waiver “would appear to go against the various interests which the Supreme Court [in Kennedy] deemed served by a uniform administrative scheme.” Id. at 508. The court, however, then “acknowledge[d] that the First Circuit itself ․ appears to have treated distributed funds differently, albeit in a somewhat different context.” Id. (citing Hoult, 373 F.3d at 54). Recognizing what appeared to be the law of the circuit in which it sat, the court avoided the question of whether the estate could sue the ex-wife directly and instead based its decision on narrow grounds related to the specificity of the contract language.

C. Adele's State Law Argument

Finally, Adele contends that even if we determine that the Estate can bring suit against her to enforce her waiver, we should nonetheless affirm the District Court because, despite the fact that she waived her right to the 401(k) proceeds,⁷ William, who died intestate, “chose to give his 401K to [her] after he died.” (Appellees' Br. at 5.) This argument was neither raised in the District Court nor mentioned in the Court's opinion, and we do not address it further.

IV. Conclusion

For the foregoing reasons, we will affirm in part and reverse in part the order of the District Court. The cause will be remanded to the District Court with instructions to assess the necessity of a further remand to state court to address the merits of any remaining state law issue.

FOOTNOTES

1. As of March 31, 2011, the balance of the 401(k) account was $76,242.41. On October 5, 2011, the District Court entered an order memorializing the parties' agreement that URL would deposit the plan proceeds with the Court and would thereafter be dismissed from the action.

2. By statute, this anti-alienation provision does not apply to a certain class of orders known as “qualified domestic relations orders” (“QDROs”). 29 U.S.C. § 1056(d)(3). To qualify as a QDRO, an order must satisfy certain statutory requirements, such as clearly specifying an alternate payee, the amount of benefits to be paid to the alternate payee, the period to which the order applies, and the specific plan impacted by the order. § 1056(d)(3)(B). It is undisputed that the PSA which contains Adele's waiver is not a QDRO.

3. Although the 401(k) proceeds have yet to be distributed by URL to Adele, this question is ripe for review because, under Kennedy and in accordance with the District Court's unchallenged holding, URL is obligated by law to distribute the funds to Adele pursuant to the plan documents. As such, Adele has a presently enforceable right to the plan proceeds, and the Estate has standing to challenge that right by seeking to enforce Adele's waiver.

4. Allowing a post-distribution suit to be brought directly against a named beneficiary would also make sense as a practical matter. First, it would permit the two interested parties to litigate against each other directly, without the plan administrator being caught in the middle. See Boyd v. Metro. Life Ins. Co., 636 F.3d 138, 144 (4th Cir.2011) (discussing the undesirability of plan administrators having to “throw[ ] themselves squarely into the center of contentious family disputes”). Second, it would avoid the anomalous scenario in which a valid waiver is rendered worthless because it cannot be enforced against anyone; indeed, the District Court acknowledged the argument that “it does not make sense that the Supreme Court would uphold the validity of common law waivers, but nevertheless hold that ERISA bars a claim to enforce common law waivers.” (App. at 12)(conceding that the argument “has merit”).

5. In support of its conclusion that ERISA continues to protect beneficiaries post-distribution, the District Court also relied on the following introductory language from ERISA's opening section: “It is hereby declared to be the policy of this Act to protect interstate commerce and the interest of participants in employee benefit plans and their beneficiaries.” 29 U.S.C. § 1001(b) (emphasis added); see also Boggs v. Boggs, 520 U.S. 833, 845 (1997) (“The principal object of the statute is to protect plan participants and beneficiaries.”). The mere mention of “beneficiaries” in the statute's introductory language, however, hardly leads to the conclusion that a contractual waiver of benefits cannot be enforced after a beneficiary has been paid the plan proceeds.

6. Other courts considering the question before us have held that Boggs is distinguishable for the same reason. See Pardee, 112 P.3d at 313–14 (“As Boggs involved pre-distribution funds as opposed to distributed funds, as in the present case, this Court finds Boggs distinguishable and, here, inapplicable.”); see also Sweebe, 712 N.W.2d at 713 (distinguishing Boggs on the ground that it involved “proceeds from an undistributed pension plan”); Alcorn, 708 S.E.2d at 392 (finding Boggs unpersuasive because it “involved pre-distribution funds still in control of the plan administrator”). Boggs is further distinguishable because it involved an attempted testamentary transfer of an interest in pension benefits that constituted “a prohibited ‘assignment or alienation’ “ under 29 U.S.C. § 1056(d)(1). 520 U.S. at 851. The Boggs Court explained that Congress prohibited such assignments out of a concern that “retirees could find their retirement benefits reduced by substantial sums because they have been diverted to testamentary recipients.” Id. at 852. In this case, however, Adele's waiver is a simple relinquishment of benefits and not an attempt to assign benefits to another party or to “divert” funds away from plan participants or beneficiaries. Thus, the concern of Boggs—“that retirement funds are there when a plan's participants and beneficiaries expect them”—is not implicated by a waiver that is no more than “a mechanism for simply renouncing a claim to benefits.” Kennedy, 555 U.S. at 296.

7. Although the District Court did not address whether the waiver contained in the PSA was valid as a matter of federal common law, Adele concedes its validity. (See Appellees' Br. at 5 [“Ms. Kensinger did indeed give up her right to Mr. Kensinger's 401K.”].) Moreover, the language of Adele's waiver is similar to waiver language that has been deemed valid in other cases, see, e.g., Altobelli v. Int'l Bus. Machs. Corp., 77 F.3d 78, 80–81 (4th Cir.1996), overruled on other grounds by Kennedy, 555 U.S. 285, and there is no suggestion that Adele's waiver was not knowing, not voluntary, or not made in good faith.

BARRY, Circuit Judge.

NC Legislature Examines Elder Abuse

Greg Herman-Giddens — Wed, 28 Mar 2012 15:53:28 -0500

The population of elderly persons is rising throughout the country, and North Carolina is no exception. The elderly are particularly vulnerable to abuse by relatives and others - increased awareness and prevention are crucial. North Carolina begins its Elder Abuse Awareness Campaign on Mother’s Day, May 13, 2012; it ends on Father’s Day, June 17. Everyone is encouraged to wear purple ribbons to offer support for this campaign.

From the National Academy of Elder Law Attorneys email newsletter:

Identifying and preventing elder abuse was the main topic of discussion among delegates to the North Carolina Senior Legislature during its first meeting of the year. Gov. Beverly Perdue reminded the group that by 2030, more than 80 counties in the state are expected to have more people age 60 and older than those age 17 and younger. Perdue urged state legislators to consider the importance of aging services and the need to maintain funding for vital programs, specifically identifying elder abuse as a developing problem in North Carolina.

According to Dennis Streets, director of the Division of Aging and Adult Services (DAAS), the number of Adult Protective Service reports to county departments of social services increased from more than 14,000 in 2006-2007 to nearly 20,000 in 2010-2011. Currently, DAAS is working with the North Carolina Conference of District Attorneys to improve access to justice for victims of abuse, neglect, and exploitation.

States Reconsider Death Taxes

Greg Herman-Giddens — Wed, 28 Mar 2012 08:03:51 -0500

North Carolina repealed its intangible, inheritance and gift taxes within the last decade or so, but still maintains an estate tax with an exemption equal to the federal amount (currently $5.12 million). These changes have made North Carolina more appealing to wealthy individuals, but our relatively high income tax still drives some folks to Florida, which has no income tax (or estate tax). A few of my clients have changed their domicile to Florida in order to save income taxes, particularly with regard to sale of a business or other event where a great deal of capital gain is realized.

Other states, such as our neighbor to the West, Tennessee, are also looking a repealing certain taxes to prevent flight of of wealthy residents to other states. See this Wall Street Journal article. Tennessee does not tax earned income, however, which might make it appealing to highly paid professionals who spend most of their income!

Executors Held Personally Liable for Unpaid Taxes

Greg Herman-Giddens — Fri, 23 Mar 2012 16:00:33 -0500

In a recent federal District Court case, the co-executors of a decedent's estate were held to be personally liable for the decedents unpaid income taxes under the federal priority statute because they distributed assets of the estate, the distribution rendered the estate insolvent, and it took place after they had actual knowledge of the decedent's liability for unpaid taxes. U.S. v. David A. Tyler and Louis J. Ruch, (DC PA 03/13/2012) 109 AFTR 2d ¶2012-583.

This case should serve as a reminder that serving as executor is not a job to be taken lightly, and that one must take great care to follow the law ensure that one does not become personally liable to acts or omissions as executor. In my admittedly biased opinion, lay executors should always hire counsel to assist them - and follow counsel's advice. In doing so, they will often save the estate and themselves money in the long run, not to mention increased peace of mind.

IRS Allows Rollover of IRA from Estate to Spouse

Greg Herman-Giddens — Wed, 21 Mar 2012 05:44:29 -0500

As I tell my clients and audiences during presentations, one should never name one's estate as beneficiary of an IRA or other retirement account. If the estate is the beneficiary, whether from a purposeful designation, failure to name a beneficiary, or failure update when a named beneficiary dies, the account must go through probate and stretching is unavailable. The result is more fees and more taxes.

However, in some cases, the IRS will allow a surviving spouse who is the sole beneficiary of the decedent's estate to effectuate a rollover. In Private Letter Ruling 201211034, the IRS stated that the surviving spouse and sole beneficiary of decedent's estate may either:

(1) by means of a trustee-to-trustee transfer, transfer the proceeds from the original IRA into an new IRA established and maintained in the spouse's name; or

(2) take a distribution of the proceeds of the original IRA and rollover the proceeds into a new IRA established and maintained in the spouse's name as long as the rollover transaction occurs no later than the 60th day from the date said proceeds of the original IRA are distributed.

The IRS further ruled that in either case, the proceeds in the trustee-to-trustee transfer or the timely rollover will be exempt from the withholding requirements under section 3405(c)(2) of the Code.

Ranking Domestic Asset Protection Trust States

Greg Herman-Giddens — Wed, 14 Mar 2012 10:11:12 -0500

Las Vegas asset protection guru Steve Oshins has updated his Domestic Asset Protection Trust (DAPT) State Ranking Chart. Steve obviously believes Nevada has the most protective laws, and I agree. I always use Nevada DAPTs - the only situation in which I would use another state's DAPT is for a resident of that particular state. This would prevent the argument that the DAPT laws of Nevada were against the public policy of the client's state of residence or were otherwise not enforceable.

The Importance of Planning for Young Families

Greg Herman-Giddens — Tue, 13 Mar 2012 15:34:47 -0500

Many folks have the misconception that legacy planning is only for the wealthy, or for the elderly. Young families often overlook the importance of planning in the event of a parent's incapacitation or death. Although tragedy cannot be prevented, careful planning can ensure peace of mind with regard to the care of their children.

In this very touching video, fellow WealthCounsel member Art Swerdloff shares a story of a young family who did place value on implementing a solid plan. At the passing of a young mother, her husband was able to pick up the pieces and provide the care his daughters needed at their tender age.

As Art says in the video, "the inevitable does happen, and when devastation hits, there is nothing like having the perfect plan in place." This story is a heart-wrenching illustration of the importance of estate planning, especially for young families.

Long-Term Care Insurance Industry Shakeout

Greg Herman-Giddens — Tue, 13 Mar 2012 07:47:12 -0500

Those considering long-term care insurance should be aware of recent several changes in the long-term care insurance industry. Guardian stopped offering the insurance as of December 31, 2011, and Prudential will no longer be offering individual coverage after March, 2012. MetLife exited the market at the end of 2010. In addition, John Hancock and UnumProvident are no longer offering group coverage. Consequently, underwriting is becoming more stringent.

Anyone in the market for long-term care insurance may not want to delay much longer, and should work with a long-term care professional to help ensure that they obtain suitable coverage with a financially strong company.

Note: Certain companies have "Partnership" status in North Carolina - the Partnership program allows those covered by long-term care insurance to protect the amount that will be provided by insurance from Medicaid countable assets.