Category Archives: trust and estate

What Happens When A Pay-On-Death Account Holder Mistakenly Appoints the Wrong Person as its Beneficiary?

In Stephenson v. Spiegle, Jack M. Murray (“Murray”) executed a Will prepared by an attorney, William E. Spiegle, III (“Attorney”).  See Stephenson v. Spiegle, 429 NJ Super 378 (App. Div. 2013) at 380. The Will left his estate to his family. It stated that any assets he had – whether owned by him directly or through a trust that he might create for the benefit of his family – should pass to his family.

The Pay-On-Death Account

About two months later, Murray went to a bank and opened a pay-on-death account (“Account”). Id. A pay-on-death account is one that directs who will receive its balance when the account-holder dies, the beneficiary. Initially, Murray wanted his family trust to be the beneficiary of the Account. That would have meant that the balance would go to the trust and in turn (as stated in the Will), to his family members. Id.  Unfortunately, a bank representative dissuaded Murray from including this instruction because he did not have the trust documents with him at that time. Id.  Accordingly, Murray took the interim step of naming his Attorney as the beneficiary, with the intent that Murray would change it to the trust at a later time. Id.

Unfortunately, Murray did not do so before he passed away less than a year later. Murray left approximately one-third of his estate, $143,151.26 (“Balance”), in the Account. Id.  This meant that  the Attorney – rather than Murray’s family – was technically entitled to receive the Balance.

The executor (“Executor”) of Murray’s estate (the person in charge of distributing Murray’s estate assets) discovered the Account. Id.  He contacted the Attorney who understandably took the position that the Attorney was the Account’s sole beneficiary.

I have no idea why this [Account] was established. It was established approximately six weeks after [Murray] executed his will in my office, which leads me to believe the intent of this [Account] was clearly to take it outside the estate itself. I have no idea what motivated this action. I was completely unaware that this had occurred. I had not seen nor talked with [Murray] since the day he left my office December 16, 2006. I can only surmise that something happened on his way to Florida or after he got to Florida for him to take this action…

…I have looked at this situation from various points of view seeking to fathom the intent of this [Account]. I come back to the only conclusion that I can draw, which is—for whatever reason—[Murray] wanted me to have [the Balance].

Id. at 381.

The Executor disagreed. He initiated a lawsuit in the Chancery Division of the Superior Court of New Jersey (“Chancery Court”) to preclude the Attorney from receiving the Balance and to ensure that it was utilized for the benefit of Murray’s family. Id.  The Executor argued that Murray made a mistake when he named Attorney as the beneficiary of the Account Id.

The Court’s Ruling

The Chancery Court agreed,findingthat it was “virtually inconceivable” that Murray intended to benefit Attorney rather than his family. Id. at 383.  In support of that position, the Chancery Court specifically pointed to the fact that Murray made a Will that left his entire estate to his family members less than two months prior. This showed his intent to care for his family. Id. at 382-383.

Accordingly, the Chancery Court held that notions of fairness required it to grant rescission of the Account. Id. at Id. at 381. Rescission is a legal remedy rendering a contract (in this case the one governing the Account) null and void. In this case, rescission of the Account allowed the Balance to go directly to Murray’s estate and hence, his family.

The Attorney appealed the Chancery Court’s decision to the Appellate Division of the New Jersey Superior Court (“Appellate Court”) claiming that the grant of rescission of the Account was improper. Id.  The Appellate Court disagreed. Id. at 387.

The Appellate Court explained that it was proper for the Chancery Court to grant rescission of the Account because it was clear that Murray created the Account to pass to his family members and mistakenly thought that designating his attorney as the “pay-on-death” beneficiary would accomplish that. Id. at 384-385.  In other words, regardless of the mistaken idea that designating the attorney would effectively mean the money would go to his family, the obvious intent was that Murray wanted his family to receive the Account balance.  Id.

Accordingly, the Appellate Court upheld the Chancery Court’s rescission of the Account. Id. at 387. Therefore, despite the fact that Attorney was technically named as the beneficiary of the Account, the Balance was given to Murray’s family members instead of Attorney. Id.

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