A Guide To: Challenging Beneficiary Designations in Michigan

by Clark Hill PLC
Contact

Most individuals own assets that will pass upon the death of that individual pursuant to a beneficiary designation. In fact, in many instances, these types of assets make up a large portion of an individual's net worth. Examples of beneficiary designation assets include IRAs, company-sponsored retirement plans, life insurance policies, annuities, college savings accounts, health savings accounts, or bank accounts and brokerage accounts set up as "transfer on death" accounts. In order for the asset to pass to the intended beneficiary or beneficiaries, the account owner will need to complete and submit to the financial institution servicing and/or otherwise acting as the custodian of the asset a "beneficiary designation form" naming the individuals, trusts, or entities who will receive the asset upon the death of the account owner, or the death of the insured in the case of life insurance. The beneficiary designation forms, which are not standardized, are not typically required to be completed in the presence of witnesses, a notary public, or an attorney. In some instances, these forms can be completed and submitted online. Consequently, disputes over the execution of these forms can arise following the account owner's death when family members or loved ones discover that the account owner did not provide for them as they had expected. 

What is a Beneficiary Designation?

The custodian of the account or life insurance company (for ease of reference hereinafter referred to as the "financial company") will usually provide the account owner with a beneficiary designation form upon establishing the account. In most instances, the beneficiary designation can be changed by the account owner at any time during the account owner's lifetime.[1] A beneficiary designation form will request the account owner to designate a primary beneficiary or beneficiaries and a contingent beneficiary or beneficiaries. The primary beneficiary will inherit first, and if the primary beneficiary is not then living or no longer in existence, the asset will instead pass to any contingent beneficiaries that the account owner has designated. The account owner will also identify the percentage of the asset to be distributed to each beneficiary.  If the individual fails to designate any beneficiaries, then the asset will pass to the individual's estate or potentially the surviving spouse, depending on the terms of the contract.   

How Does a Beneficiary Designation Work?

Assets with beneficiary designations are generally governed by contract between the account owner and the financial company. Thus, when the account owner or the insured in the case of life insurance dies, the asset passes directly to the beneficiaries named in the beneficiary designation form pursuant to the agreement between the financial company and the account owner or the insured. Assets that pass upon death by beneficiary designation operate independently of an account owner's Will or Trust Agreement. In other words, the beneficiary designation of an asset will not be subject to the dispositive terms of an account owner's Will or Trust Agreement unless the account owner's estate or trust is specifically named a beneficiary in the beneficiary designation. Often times, individuals use beneficiary designations as a way to avoid probate and to pass assets directly to the beneficiaries in a quick, easy and less expensive manner.

When Do Problems Arise with Beneficiary Designations?

The simplicity of passing assets by beneficiary designation comes with drawbacks. There are typically two scenarios that result in disputes related to a beneficiary designation: (1) challenges based on errors, omissions, or outdated forms that involve no malicious intent by a third party; or (2) challenges based on lack of mental capacity to execute the beneficiary designation, or claims which involve a third-party actor, such as undue influence, duress, forgery or fraud.

Often times, disputes arise out of an account owner's failure to update his or her beneficiary designation. For example, suppose an individual obtains a life insurance policy on his own life and designates his parents as the primary beneficiaries. The individual later marries and has a child, and even executes a Will or Trust, wherein he names the spouse and child as beneficiaries. If the beneficiary designation of the life insurance policy is not updated, the individual's parents, and not his spouse or child, will inherit the proceeds of this policy. Another common situation in which a dispute will arise is when the account owner makes a mistake on the form and unintentionally disinherits a family member. For example, suppose an individual named her two children as the primary beneficiaries of her life insurance policy.  If the individual does not specifically indicate on the form that the descendants of a predeceased child will receive such child's share, then the descendants of the predeceased child will not receive any proceeds from the life insurance policy. Beneficiary designation forms may contain legal terms like "per capita" and "per stirpes" which can easily confuse the person completing the form.  It is difficult to successfully challenge beneficiary designations based on errors, omissions, or outdated beneficiary designations because courts typically honor the contractual terms.

Challenges are not always based on innocent mistakes or the failure to update a beneficiary designation. Disputes might arise if the account owner lacked the sufficient mental capacity to execute a beneficiary designation, or if the beneficiary designation was the result of fraud or undue influence of a third party. Some of the common grounds for challenging a beneficiary designation involving a third-party actor include: (i) the beneficiary designation was a result of "Undue Influence," coercion or duress by a third party (e.g., the account owner was pressured or forced into signing the beneficiary designation through the acts of a third party); (ii) the change in beneficiary designation was induced by fraud or misrepresentation; and (iii) forgery. Challenges based on the foregoing typically occur when the account owner deviates significantly from his or her previous estate plan or beneficiary designation. These drastic changes usually arise later in the account owner's life when he or she is elderly and vulnerable.

What is the Legal Process to Contest a Beneficiary Designation?

Depending on the facts and circumstances, an action to challenge a beneficiary designation will be initiated in either a civil court or probate court. It is important that the appropriate court is chosen to avoid jurisdiction issues.  The individual seeking to challenge the beneficiary designation must also have standing to bring the challenge. A person with standing to challenge a beneficiary designation might include: beneficiaries named in a previous beneficiary designation, heirs of the estate, beneficiaries of a trust, the trustee, or the personal representative of the estate. The person seeking to challenge the beneficiary designation must set forth the factual and legal issues supporting the challenge in the initial pleadings. If an individual has standing and the facts and circumstances warrant a challenge, the potential challenger should consider retaining an experienced probate litigator to perform initial due diligence to determine the validity of the claims. 

Contesting a beneficiary designation is a complex and difficult process. Litigation can be costly, time consuming and emotionally exhausting. The assistance of an experienced attorney is essential in order to provide you with the guidance, advice and expertise required to contest a beneficiary designation in court.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Clark Hill PLC | Attorney Advertising

Written by:

Clark Hill PLC
Contact
more
less

Clark Hill PLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.