A Dallas Court of Appeals decision offers an important reminder for everyone to consider…be sure to check your beneficiaries designated to receive payment upon death for items like life insurance policies, pensions, or Transfer on Death accounts. Failure to do so can lead to unintended and unfair consequences for the loved ones left behind.
Switzer v. Vaughan
In this case, a dispute arose when David Eric Switzer passed away in 2014. From 2007 to 2009, Eric dated a co-worker named Kay. During that time, Eric designated Kay as his beneficiary to receive a life insurance policy that he had with his employer, the United States Postal Service. In early 2009, the two ended their relationship. After that, Eric rekindled a prior romance he had with Patricia. Patricia and Eric were married in late 2009 and remained so at the time of his death.
When Eric died, Patricia filed a claim with the administrator of his life insurance policy. Much to her surprise, her claim was denied because it was Kay, not Patricia, who was listed on the form as Eric’s beneficiary. Patricia filed suit against the administrator and Kay, claiming that Eric had completed the form to change policy beneficiaries from Kay to Patricia. She testified she saw Eric and two witnesses sign the form and he had increased the coverage amount to ensure she would be able to pay off the mortgage. The administrator had no evidence of this form being submitted.
Upon doing some digging, Patricia found the original form, signed by Eric and two witnesses changing his beneficiary. Although it had been submitted by Eric, it was returned because he failed to check a box affirming that he had not assigned the insurance. Eric failed to check that box and resubmit the form.
The trial court and Court of Appeals both held that because the form was not properly completed and submitted as required by federal statute (governing the life insurance policy), the proceeds legally belonged to Kay, not Patricia. [Read opinion here.]
Take Away Lessons
It is critical to remember that there are numerous assets, like life insurance policies, that pass by contract, rather than through a will or intestacy laws. This means that even if a person makes clear in his or her will that everything should go to a certain person, that is trumped by the contractual designations made on other documents. Here, even if Eric’s will had given everything to Patricia, or even further, had the will specifically said the life insurance proceeds were to go to Patricia, that would have been irrelevant as the insurance policy passed by contract outside the will. Additionally, the fact that a person is subsequently married to someone else or otherwise estranged from the listed beneficiary does not change the contractual obligation for the administrator to pay the proceeds according with the designation.
Because of this, it is extremely important that people periodically review all of their beneficiary designations to ensure no changes are necessary. Such changes should, at a minimum, be made after major life events–marriage, death, divorce, having children, ending of a relationship. I recommend that folks review their beneficiaries and their estate planning documents once a year. The New Year or a person’s birthday are great times to make a habit of reviewing these documents.
Simply taking the time to review and confirm the folks listed as beneficiaries can save those left behind a great deal of heartache and trouble.