Can you change beneficiary designations after your spouse's death?
A relatively minor topic that doesn't seem to get much coverage is one's ability to change death beneficiaries on nonprobate assets (e.g., life insurance policies, retirement accounts, etc.) after obtaining his or her spouse's consent to the transfer. This may come up for example, if you and your spouse decide on the beneficiaries of your life insurance policy, and subsequently your spouse passes away.
For this, we turn to California Probate Code Section 5023, which states:
(a) As used in this section “modification” means revocation of a provision for a nonprobate transfer on death in whole or part, designation of a different beneficiary, or election of a different benefit or payment option. As used in this section, “modification” does not mean, and this section does not apply to, the exercise of a power of appointment under a trust.
(b) If a married person executes a provision for a nonprobate transfer of community property on death with the written consent of the person’s spouse and thereafter executes a modification of the provision for transfer of the property without written consent of the spouse, the modification is effective as to the person’s interest in the community property and has the following effect on the spouse’s interest in the community property:
(1) If the person executes the modification during the spouse’s lifetime, the modification revokes the spouse’s previous written consent to the provision for transfer of the property.
(2) If the person executes the modification after the spouse’s death, the modification does not affect the spouse’s previous written consent to the provision for transfer of the property, and the spouse’s interest in the community property is subject to the nonprobate transfer on death as consented to by the spouse.
(3) If a written expression of intent of a party in the provision for transfer of the property or in the written consent to the provision for transfer of the property authorizes the person to execute a modification after the spouse’s death, the spouse’s interest in the community property is deemed transferred to the married person on the spouse’s death, and the modification is effective as to both the person’s and the spouse’s interests in the community property.
Reading through the code section above, generally reinforces the idea that absent some sort of writing by your spouse indicating that you may subsequently modify your beneficiary designations, you only have the ability to control the transfer of your 1/2 interest in community property.
Like most rules, however, there is an exception. Retirement plans that are subject to ERISA laws (2 common examples 401(k)s and 403(b)s) have particular rules. For divorce purposes, your spouse may have a community property interest in those accounts; however, for purposes of transfers upon death, if your spouse passes away before you, his or her community property interest in the 401(k) or 403(b) would pass to you.
Although this may seem surprising on the surface, in reality, I rarely see this become an issue. Very often spouses will name each other as the primary beneficiary on nonprobate assets such as retirement accounts and life insurance policies. That means that the surviving spouse will become the owner of the asset anyway. In fact, for retirement accounts, naming your spouse as the primary beneficiary may have some tax benefits such as the ability for your spouse to rollover your retirement account into a spousal rollover IRA so that he or she may continue to receive the tax deferred growth on the account.