Your ex-wife or ex-husband can inherit your life insurance proceeds if you fail to update your beneficiary designation prior to death – even if your Will explicitly states that you do not want your ex-spouse to inherit anything from you in any way, shape, or form after you die. How can this be? Shouldn’t your express written desire to cut off your ex-spouse from your estate be honored?
While this end result may offend your common sense, distribution of life insurance policies must follow the contractual agreement between the insurer and owner (i.e., beneficiary designation) rather than the laws of succession set forth in statute or in the decedent’s Will. Thus held the 5th District Court of Appeals in its recent decision in the Estate of Post (June 2018).
Jerome and Angela Post, during their 32-year old marriage, obtained a life insurance policy on Jerome’s life and designated Angela as the primary (first) beneficiary. Jerome’s 2 sons from a prior marriage were designated as the contingent (second) beneficiaries. When Jerome and Angela divorced, Jerome received the policy in full. However, Jerome failed to remove Angela as a beneficiary following the divorce – for 2 years.
Jerome finally thought to do something to change the beneficiaries, but instead of following the proper steps to accomplish this, Jerome handwrote a Codicil (an amendment to his Will) and told his attorney that he unequivocally did not want Angela to inherit anything upon his death. Jerome died a few days later. His ex-wife and 2 sons from a prior marriage claimed the policy proceeds – Angela relying on the beneficiary designation signed 23 years before Jerome died and Jerome’s sons Kenneth and Eric presenting evidence that he clear did not want Angela to receive any benefit from his estate and asking the probate court to exercise its equitable authority to enforce Jerome’s last wishes. The San Mateo Superior Court agreed with the 2 sons.
The Court of Appeals disagreed. Insurance policies are governed by beneficiary designations, not the laws of succession of California. Unless the policy named Jerome’s estate as the beneficiary, the policy proceeds could not be a part of the probate estate; thus, the court lacked subject matter jurisdiction to direct the distribution of the policy proceeds. Moreover, because life insurance policies are expressly carved out from Probate Code section 5040, the beneficiary designation benefiting Angela did not automatically terminate upon Jerome and Angela’s divorce. The Court of Appeals reversed the order in favor of the sons and presumably enabled Angela to inherit the proceeds despite the fact that Jerome and Angela were divorced at the time of his death.
The obvious takeaway is that divorced parties (and their attorneys) should be vigilant about updating beneficiary designations and re-titling assets in his or her individual names after divorce. But the message rings true for anyone who has beneficiary designations on their assets, whether they be life insurance policies, retirement accounts, IRAs, 401ks, annuities, certain savings accounts, and more. Major life events such as births, deaths, divorces and marriages should automatically prompt you to pause, take stock of your estate plan (including beneficiary designations) and make necessary adjustments in a timely manner to protect yourself and your loved ones. Take the real-life story of Mr. Post and his unfortunate sons to heart and act today.