Step-mom Gets Life Insurance Proceeds Meant for Sons
This Just In
This week, I read an interesting case about a husband and wife who were married for 32 years. I will call them Jack and Diane.* When the couple married in the 1980's, Jack had two sons from a former relationship. I will call them Ken and Joe. The boys were young and times being what they were, Jack only had visitation time with the boys every other week. Diane may have enjoyed the time when Ken and Joe came to visit with their father. Still, because Ken and Joe spent so little of their childhood with Diane, Ken and Joe do not appear to have formed a strong relationship.
Fast-forward to 1993, when his Jack's sons were or nearly were adults. In 1993 Jack bought a life insurance policy, naming Diane as the primary beneficiary. He named his sons as the contingent beneficiaries of the policy. This meant that Ken and Joe would only get the life insurance proceeds if Diane died before Jack. The policy was paid for by Jack and Diane for many years ahead.
Marriage Falls Apart
By 2013, Jack and Diane were having a rough time keeping their marriage together. Jack also had a will made in 2013. Their relationship did not survive and less than a year later, Jack and Diane's divorce was final. After 32 years, they were done. Their 2014 divorce judgment provided that Jack was awarded the life insurance policy.
After the divorce was final, Jack and Diane should have each hired estate planning lawyers to discuss their respective estates. By now they were approaching their “golden years.” Their estate planning lawyers should have urged them or better still, helped each of them, to update their life insurance policies. After a divorce, it is always a good time to ensure that the beneficiary designations are in line with your new life.
That policy which Jack bought in 1993 was still being paid for in 2013. Jack really should have changed the beneficiary designations, naming Ken and Joe, his sons, as the primary beneficiaries. For whatever reason, Jack did not get around to it.
Dad's Dying Wish
Then, on May 13, 2016, Jack hand-wrote an amendment to his will (in legalese, it's a “codicil”). In it, Jack specifically stated that he did not want Diane “inheriting anything from him under any circumstances by beneficiary designation or otherwise.” It was clear from those words what Jack's wishes were. Sadly, Jack failed to contact the insurance company and have the beneficiary designation changed at the same time he wrote the codicil.
Tragically, three days later, Jack died. After Jack's death, Ken and Joe attempted to collect the insurance proceeds from their father's policy. Well, the insurance company's information showed Diane listed as the primary beneficiary of that policy. When the insurance company realized that there was a potential lawsuit just waiting to happen, the insurance company demanded that a California court order it to pay either the Diane or Jack's sons. Alternatively, Diane, Ken, and Joe could reach a separate agreement and the insurance company said it would honor such an agreement.
Taking It to Court
Not surprisingly, when a lot of money is involved, the three of them could not reach an agreement. So Jack's sister opened a probate case, hoping to get a court to order the life insurance company to pay the insurance to Ken and Joe.
Since probate court is a very busy court, it wasn't until a year after Jack died that his sister had the opportunity to request that the court sign a court order which would state that Jack's sons and not Diane, were the rightful beneficiaries of Jack's insurance policy. Of course, Diane's attorney argued that there were plenty of legal grounds for why she should remain the beneficiary. I won't bore you with the details.
After Diane's attorney and the lawyer for Ken and Joe filed various papers with the court and appeared for a hearing, the probate court judge decided that Jack's sons were the rightful owners of the life insurance proceeds.
However, Diane was not happy with the court's decision, so she appealed the case to the Court of Appeals of California. The parties submitted their arguments to the appellate court, which decided in Diane's favor. Yes, the step-mom was awarded the life insurance proceeds regardless of Jack's last wishes. The order awarding the proceeds to Jack's sons was voided.**
While I do not know if Jack's sons will appeal the appellate court's decision, I can only imagine how costly this lack of estate planning has been for Ken and Joe. It would have taken Jack a few hours, at the most, to change those life insurance designations after he and Diane were divorced. Unfortunately, Jack postponed making the necessary changes with his life insurance company, until it was too late.
I believe this case is an important lesson for everyone. Proper estate planning is important to your beneficiaries. It is best to take the time to check on the beneficiary designations of your life insurance policy plus other accounts and policies after important life events and every few years. If you have other accounts with beneficiary designations, check them too.
If you are interested in estate planning advice, let's start a conversation. Feel free to send me a message using the form on the right side of the page or schedule a free phone call with me using the Schedule Appointment button on the right.
*I have added a few speculations about the relationships between the parties to make the story a tad more interesting compared to how it read in the court case.
**These events are based on a recent decision that published by the California Court of Appeals on June 22, 2018. The case can be cited as A151975. The appellate court decided that the probate court had no authority to make the decision it did. It said that the determination of who is entitled to life insurance proceeds is part of the Law of Contracts so the probate court has no jurisdiction over the dispute and no authority to make the decision. Names have been changed.