to the wise: keep beneficiary forms up to date. To change a beneficiary — for
example, if you get married or divorced or your spouse dies — make sure to file
an amended form. Even if your state has a law designed to cover oversights (or
procrastination), you can’t always count on it to work.
While an up-to-date beneficiary
form avoids uncertainty and probate, and oftentimes taxation, an out-of-date
beneficiary form can induce controversy and distress. This teaching point was
outlined in Hillman v. Maretta, a very
recent case on beneficiary forms and the disaster that went all the way to the
The case is considered in a
recent Forbes article titled [spoiler
alert] “Supreme Court Favors Ex-Wife Over Widow In
Battle For Life Insurance Proceeds.”
You see, Warren Hillman left a
life insurance policy behind amongst his other assets. Much of the estate
simply passed to his then-current wife. Unfortunately for the current Mrs.
Hillman, the life insurance policy was subject to a beneficiary designation
form that still named his previous Mrs. Hillman, Judy Maretta. Judy and Warren
had been divorced for some 10 years.
Despite the pleas of the current
Mrs. Hillman, the court had to do it: they gave it all – every penny – to the
ex-wife named as beneficiary.
Unlike a retirement account, the
singular purpose of a life insurance policy is to provide financial protection
to those depending on your life and income. This would seem to exclude a 10
years divorced spouse, absent an alimony requirement in the divorce decree.
Bottom line: the beneficiary
form is a matter of contract between the policy owner and the insurance
company. The courts can do nothing but enforce that contract.
Are your beneficiary forms ready
to be followed to the letter? How will the rest of your estate keep out of the
Reference: Forbes (June
3, 2013) “Supreme Court Favors Ex-Wife Over Widow In
Battle For Life Insurance Proceeds”