Valley Humane Society's Experience Leads to New California Law on Beneficiary Designations

A two-and-a-half-year effort by the Pleasanton-based Valley Humane Society to claim a deceased donor's IRA assets has resulted in new California legislation designed to ensure beneficiaries are notified of their intended inheritance. Governor Gavin Newsom signed Senate Bill 1288, known as the Legacy Act, which addresses a critical gap in the state's system for transferring assets outside of probate.

The law specifically targets a loophole where financial institutions holding beneficiary-designated securities or retirement accounts were not required to inform named beneficiaries of their inheritance, even if the institution was aware of the account holder's death. Meanwhile, privacy restrictions often prevented executors or family members from obtaining this beneficiary information.

Valley Humane Society's own experience became the catalyst. The organization was named as one of nine nonprofit beneficiaries of a donor's IRA. However, they only learned of the gift because the donor's sister discovered paperwork and contacted the designated charities. Even with this discovery, administrative hurdles delayed the distribution of funds for approximately 30 months.

"Most people who name a beneficiary reasonably believe the financial institution will contact that person when they die," said Melanie Sadek, President and CEO of Valley Humane Society. "But we discovered that wasn't necessarily happening. The institution could have the beneficiary's name in its records while the beneficiary had no idea the asset even existed."

SB 1288 now requires financial institutions, upon receiving notification of an account holder's death, to make a reasonable effort to notify all named beneficiaries within 60 days. The law does not alter existing beneficiary designations but establishes a process to ensure they are executed as intended, preventing assets from eventually being transferred to the state's unclaimed property program.