The MLO Minute: By Lesley Mehalick, J.D., LL.M., Jessica Wilson, Esq., and Dennis McAndrews, Esq.
In our Estate Administration practice, one of the most difficult, and usually unnecessary, issues involves dealing with assets that have not been properly designated on beneficiary forms, and which are payable to designated beneficiaries outside of the will. These assets can include life insurance policies, pension benefits, and annuities, etc. One particularly common area for these issues to arise is where a decedent was divorced after creating the particular beneficiary form, but failed to adequately revise the beneficiary designation after the grounds for divorce were established or the divorce was finalized, with the divorced spouse remaining on a beneficiary designation without alteration. In some cases, it is the intent of parties to the final divorce that the surviving spouse continue to benefit from the policy in question, but in other cases the divorced surviving spouse simply remained as a designated beneficiary through neglect or inadvertence.
We routinely recommend to our clients that they periodically review these designations, especially where life-altering circumstances suggest the need to do so. This is a particular issue in our practice where a child with disabilities should receive all assets in a specific type of special needs trust, and allowing the child to directly receive monetary benefits from one of these policies can vitiate some of the estate plan, and require extensive post-death additional planning, which may not achieve the full benefits from previous proper pre-death planning for the child with disabilities and other heirs.
The Pennsylvania Superior Court recently addressed this issue in a unique setting where a decedent actually intended that his divorced spouse continue to receive the proceeds of his life insurance policy, but failed to formally change the designation after the divorce. In State Farm Insurance Company v. Kitko, the decedent spoke with his insurance agent and expressly stated that he wished to retain his ex-spouse as the beneficiary of his life insurance policy, but the estate (which benefited other heirs) argued that Pennsylvania law, which presumes that post-divorce an ex-spouse generally may not obtain such benefits, should apply and that the ex-spouse could not receive these benefits. However, the Pennsylvania Superior Court found that under the unusual facts in this case, where the decedent was advised by his insurance agent that no further designation form need be signed, and that his existing designation of the ex-spouse would suffice, coupled with the clear statements of the decedent regarding his intent that his ex-spouse receive these benefits, was sufficient to allow her to receive the life insurance proceeds.
Of course, if a new designation form had been drafted and signed by the decedent, expensive and unnecessary litigation in this matter would not have been necessary, which depleted assets from the estate and therefore to the beneficiaries of the estate. Our Estate Administration practice encourages a frequent review of beneficiary designations and we can assist in this process as part of our estate planning process with you. We are ready to assist you in these matters to avoid needless expense and heartache.