Bank may owe no duty to third parties unhappy with an IRA’s beneficiary designation

As discussed in previous posts, the beneficiary designation on an asset presumptively controls its disposition if the account-owner dies. Beneficiary designations are typically used on IRAs, 401Ks, annuities and life insurance policies, but sometimes people choose to place beneficiary designations on their bank accounts, CDs or brokerage accounts. Disputes may arise when the decedent’s children from his first marriage discover after his death that he named his second spouse, and not his children, as the beneficiaries of his IRA accounts. A recent “unpublished” decision (meaning, it is not precedential or binding on other courts) by the New Jersey Superior Court, Appellate Division, addressed this question in a case called  Estate of Pauli v. Wachovia Bank NA, App. Div. The deceased man’s daughters sued Wachovia Bank, and alleged that in the process of assisting Mr. Pauli to prepare his IRA forms, the bank personnel were negligent, breached their fiduciary duty to him, breached a contract between  him and the bank, and committed consumer fraud. There had been conversation between the daughter(s) and the bank in which the bank had erroneously informed her/them that the daughters were the beneficiaries. Estate of Pauli vs Wachovia.

The case was tried before a jury. All of the claims were dismissed by the trial court at the close of the plaintiffs’ case except the claim for breach of contract. The jury then deliberated on whether the bank breached a contract it had with its customer. The jury was also charged to decide whether the bank should be liable under a doctrine called “promissory estoppel,” which requires the plaintiffs to prove that certain promises were made and that the plaintiffs relied upon those promises or representations by changing their position “to their detriment.” If the plaintiffs had proved these elements, the court could bar or “estop” the bank from failing to fulfill the “promise.” The jury found that there was no breach of contract, but that the plaintiff had proved the elements of promissory estoppel. The Appellate Court sustained all of the dismissals and the finding of no breach of contract, and reversed the jury finding of promissory estoppel because there was no proof that the plaintiffs had changed their position in detrimental reliance on the misrepresentation that they were actually the beneficiaries.

The lesson of the case is that (1) it can be difficult to overturn a beneficiary designation unless it can be shown that the situation involved fraud, duress, undue influence, mistake, or incapacity at the time the designation was made, and (2) the written document generally supersedes intentions that were thought about but never acted upon. Of course, every case is fact-sensitive, and the precise facts and evidence in a different situation could lead to a different outcome.

 

For legal advice on elder estate planning including the coordination of beneficiary designations call … 732-382-6070

 

 

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