Eric and Kay worked at the Post Office together. For a short time, Kay was actually Eric’s direct supervisor. But that didn’t stop the two of them from starting to date. Things moved quickly and early the following year, Eric went to the Human Resources (HR) office and made Kay the beneficiary on the account of his Federal Employee Life Insurance policy. He told Kay, he wanted to make sure his ex-wife never received any of his life insurance benefits.
Sadly, by the following year; Eric and Kay weren’t a couple anymore. You see, Eric ran into Patricia, an ex-fiance, and that old spark stilled burned brightly. So now Eric and Patricia are a couple again, and a few months later; they were married.
Five years pass, and Eric dies. Patricia, through her grief, submits all the proper paperwork to MetLife to claim Eric’s Federal Employee Life Insurance proceeds. Metlife sends back its form letter informing Patricia that it can not pay any benefits to her because she isn’t Eric’s listed beneficiary on the account. Kay is still listed as the beneficiary on the policy.
Patricia files a lawsuit against MetLife hoping the court will fix this wrong and get MetLife to pay her Eric’s death benefits. As is common in this kind of case, MetLife paid the $270,000 into the registry of the court and said, “Judge, we don’t know who legally owns this money, and that’s not our job to figure out anyway. Here’s all the money at issue. Why don’t you figure out who it should go to–Kay or Patricia.”
Patricia’s mind spins and races. This can’t be. She remembers Eric changing the beneficiary from Kay to her and there were even two witnesses who saw him do it. Eric and the two witnesses signed the change of beneficiary forms shortly after Eric and Patricia were married. In fact, Patricia even submits the actual signed Change of Beneficiary document to the court where Eric removed Kay and named Patricia the new beneficiary. See the image below for yourself.
Patricia even testified she remembered times when Eric had spoken to his employer and referred to her as his beneficiary. She even explained that four years after they got married, Eric had increased the life insurance policy from $69,000 to $270,000 expressly so that Patricia could pay off the mortgage on their house.
Kay, for her part, didn’t offer any real help or sympathy to Patricia. Why should she? She was being told that a man she dated for about a year had died and that she was entitled to $270,000. And despite all the evidence Patricia produced to show that Eric intended to make Patricia his beneficiary; all Kay had to say was, “My name is there in black and white. And if you can’t believe what you see with your own two eyes, then what has the world come to?”
The court reviewed all the documentation and found that Kay and not Patricia was the actual beneficiary and entitled to the entire $270,000. Do you know what ended up being the one thing that won the case for Kay?
Take a look at the image again. You see that highlighted part in the top right corner? It says, “Please check all three.” For some reason, Eric only checked two of the boxes. And simply because the document was not filled out properly by Eric, he did not effectively change the beneficiary on the account from Kay to Patricia.
There’s no one alive who can explain why Eric failed to check that top box. Maybe he didn’t understand the question. Maybe he had already assigned the insurance to someone else. Maybe he just missed the box.
In the end, it didn’t matter, the court required a strict compliance with the procedure of filling out the form and so Patricia lost and Kay got a huge tax-free gift from her ex-boyfriend.
Think about all the different kind of accounts you have right now
Each one of these likely requires you to name a beneficiary in the event of your death. That designation is made by contract between you and the financial institution. Because of this contract relationship you made, that designation controls who gets your account when you die.
Think about this, even if you have a will that says, “I leave everything to my spouse,” those accounts are still going to go to whomever you designated as the beneficiary. Those accounts pass OUTSIDE of your will and probate.
Now go back and think about those accounts again. Do you know who your beneficiary is for each of those accounts? If so, are they still the right people or is it the right person at this time?
There are many reasons why beneficiaries can and should change. The story of Eric, Kay and Patricia is an obvious one. But what about other reasons.
Take some time today, over the holiday season and make sure all your accounts accurately name and identify your desired beneficiaries. Make it a yearly occurrence. The holidays can be a good time to do this but it may not be the best. Maybe on your birthday every year works better. Maybe you can do it when we set our clocks to Fall Back or Spring Forward. The point is to pick a time when you or someone you trust can review your beneficiaries and make any changes that are necessary. It’s the only way that you’re going to avoid the heartache and expense Patricia went through only to end up with nothing. It’s the one thing your ex-wife or ex-husband is hoping you don’t do today.
I always say to my clients, “If your beneficiary is important enough to you that you’re making this gift to them, make sure that gift doesn’t come with a headache as well.”