Clients have a right to keep their IRA beneficiary designationsprivate. But you might want to advise them that this privacy canhave a high price for loved ones – as the case of the late WayneWilson shows.

In 2010, the 9^th Circuit Court of Appeals upheld thepriority of an IRA beneficiary designation over the claim made by awidow who asserted her rights to receive qualified retirement planbenefits under ERISA’s surviving spouse requirements. Thecase (Charles Schwab & Co. v. Chandler) was brought by the IRAcustodian, Charles Schwab, to resolve a dispute between the fourmarried children of Wayne Wilson and hiswidow, Katherine Chandler, to whom he had been married since2000.

Wilson had participated in his company’s 401(k) plan untilmaking a rollover to an IRA in 1994.He then continued to consolidate and move his IRA assets betweenaccounts and custodians until his accidental death in 2005, whenhis truck and horse trailer was washed away and overturned in aflash flood in Arizona.

READ: 5 things to know about retirement planrollovers

Rather than release Wilson’s IRA money to the four children whomhe had designated beneficiaries, Schwab asked the court to resolvethe disputed claims. The widow claimed ERISA had given herspousal rights to be paid Wayne’s 401(k) plan money through aQualified Joint and Survivor Annuity (QJSA), and she had not waivedthese rights.

Both the U.S. district and circuit courts rejected this claim,in part because she and Wayne had not been married at the time themoney in question was rolled over from the plan to an IRA.

Unlike ERISA plans, IRAs do not give spouses automatic rights toreceive distributions or annuities on death.

Had Katherine wished to create a valid claim to Wayne’s IRAmoney, she should have prevailed upon him to change his IRAbeneficiary designations.

Key Point: This case highlighted a keydifference between qualified plans and IRAs, for estate planningpurposes. Unlike qualified plans, IRAs give owners the option ofkeeping assets and beneficiary designations private.

However, unfortunate outcomes may occur when people marry laterin life without a clear mutual understanding of beneficiarydesignations. Wayne was a well known and widely admired civicleader when he died in a tragic accident at age 65. But because hiswidow challenged Schwab’s right to honor the beneficiarydesignation, his private estate planning requests became part of ahigh-profile public dispute, and his children experiencedadditional legal costs and delays in receiving their legacies.

It’s a good idea to periodically review clients’ IRA beneficiarydesignations to make sure they reflect current planning and wishes.This can be especially important whenever major lifestyle changesoccur, such as divorce or remarriage.

Read more about the Charles Schwab & Co. v. Chandler case.