In the Lyon family’s case, big tax benefits are at stake. Ed died in 2019, when rules let people take minimum distributions from inherited retirement accounts over their lifetimes, allowing the balances to grow tax deferred for decades.
Under federal law, employers are generally required to pay out workplace retirement accounts to a surviving spouse, or the last recorded beneficiary if the spouse has signed a waiver forgoing the funds. In most cases, these designations trump what’s spelled out in a will or trust.
That can result in protracted legal fights among competing heirs.
In one recent case, for instance, a man’s $1 million-plus 401(k) went to an ex he had split from decades earlier instead of his brothers, because her name was on a 3×5 card. In another, an electrical engineer’s four children were listed as the designated beneficiaries for his $3 million 401(k), but his new wife’s spousal rights took precedence and she got the money.