Life Insurance
There are two types of primary life insurance policies: term life and whole life. Term life is a policy where you pay for typically around 20-30 years and is cheaper. Whole life is more expensive because you are buying guarenteed money upon death. That is, whole life is permanent, the policy remains until the death of the purchaser. If the policy owner dies, there is a settlement option where the insurance company and beneficiary will determine how the policy will be paid (lump sum or payments). Life insurance does not need to follow the Wills Act to be effective.
Cook v. Equitable Life Assurance Society
428 N.E.2d 110 (Ind. App. 1981).
Facts
Mr. Cook was married to Doris and took out a whole life insurance policy naming her as the beneficiary. Later, the couple divorced and Mr. Cook married another and had a child in that relationship. The insurance company notified Mr. Cook that a change had occurred affecting the policy but Mr. Cook did not take any action to amend the beneficiary. Instead, he left a will leaving his new wife and child everything, including the life insurance policy.
When Mr. Cook died, his wife and son sought to receive the proceeds from insurance. However, the life insurance policy noted that Doris was the listed beneficiary. So, an interpleader occurred to determine whether the proceeds should go to the widow and son or Doris.
Analysis
The general rule is that an attempt to change a beneficiary of a life insurance policy by will alone is not enough to be successful. Instead, there must be some showing of an attempt to amend the beneficiary. (1) The company could have waived the compliance procedures, (2) it was impossible to comply with the procedures, or (3) the insured did everything possible but died before the change took place.
Here, Mr. Cook had ample time to adjust the beneficiary and failed to do so. The policy had a method of adjusting the beneficiary and no attempt to act was taken. Although the court is sympathetic to the widow and son, Mr. Cook “slumbered on his rights,” leaving them with no recovery.
Retirement Accounts
- Defined Benefit Plans (Pensions)
- Typically provided by public providers where the employee receives an annuity. If the benefit has been annutized, no remainder will pass to others upon death of the employee.
- Defined Contribution Plans (Such as 401(k))
- Typically provided by private employers where the employee owns a specific account and how the money is to be invested. Private employers will contribute to the plan. Any remainder passes outside of probate to a designated beneficiary.
- Individual Retirement Account
- Essentially the same as a defined contribution plan. Most 401(k)s will rollover into an IRA. The only limitation is that the account is subject to the custodianship of the instution.
Nunnenman v. Estate of Grubbs
374 S.W.3d 75 (Ark. App. 2010).
Facts
Donald Grubbs had an IRA and named Jeannie Nunnenman as the beneficiary if he died. Later, he executed a will that did not mention the IRA. In this will, the only beneficiary was Donald’s mother. After his death, his mother claimed to find a note in a bible listing the mother as the beneficiary of the IRA. This note was dated before the new will was executed.
The question is, who gets the money in the IRA, Jeannie or the mother?
Analysis
Arkansas goes against the general rule, allowing a will to change the beneficiary designation of a life insurance policy in a will. Although this is not a life insurance policy, the court considers it the same way and adopts the rule.
Here, the beneficiary designation did not change. The will did not address the IRA and could thus not change the beneficiary. As for the note discovered, this would have been revoked by the new will (encompassing all previous wills). Even if it wasn’t revoked, the note would not have worked because it did not do enough to change the beneficiary designation.
Pay or Transfer on Death (POD or TOD) Contracts
This is an account where the account owner tell the bank who is to take the account after their death. The person who is to receive the account does not have access to the money until the death of the original account owner. Most states have passed a statute stating that POD and TOD contracts are nontestamentary (even though the are intended to be testamentary).
Varela v. Bernachea
917 So. 2d 295 (Fla. App. 2005).
Facts
Varela and Bernachea were both Argentinean citizens who developed a romantic relationship. Bernachea was a wealthy attorney who provided for Varela’s needs. Together they opened a joint account in the United States. The account details were explained to Bernachea in Spanish and he had no questions regarding how the account would function. Varela was given a debit card where she had free access to the funds. Apparently Bernachea believed Varela had restricted access.
Bernachea had a heart attack. While he was recovering, Varela transferred 280,000 from the joint account to her personal checking account. Once Bernachea recovered, he challenged the transfer.
Analysis
The main issue here is whether there was donative intent. The court says there was. Bernachea was a wealthy attorney who had the details of the account explained to him in Spanish. There was no excuse for not knowing Varela had unrestricted access to the account. As there is a presumption of donative intent, and there was insufficient evidence to rebut that presumption, the transfer to the new account was valid.
Additional Notes
The account in this case was a checking account. This means both Varela and Bernachea had unrestricted access to the account. Although the court gives her 50%, she was entitled to 100% as a matter of law. In other words, the court got this case right and wrong.
