Beneficiary designations are a critical component of the estate planning process that often is not given proper attention. Beneficiary designations exist as part of certain financial and other asset ownership instruments, whereby the holder of the asset will designate to whom the asset will pass at their death. Beneficiary designations are most commonly found in retirement accounts and life insurance policies, but also are present in some bank accounts and real estate titles. Critically, regardless of a person’s intentions or whom they designated in their estate planning documents (a will and/or revocable trust), an asset with a beneficiary designation will generally pass to the person or entity named therein. But there is one important exception – divorce.
In a recent South Carolina decision, the life insurance beneficiary was challenged after death when the beneficiary was not changed after a divorce resulting in an expensive and lengthy situation for both parties.
The South Carolina Court of Appeals filed an opinion on September 28, 2022, discussing the application of South Carolina’s version of a revocation-upon-divorce statute (S.C. Code § 62-2-507). In Estate of Meier v. Burnsed, the facts are relatively simple. William Meier and Mary Burnsed married in 1997. In 1998, William Meier obtained a $250,000 life insurance policy and designated his then-wife, Mary Burnsed, as the primary beneficiary to collect the proceeds on his death. William Meier and Mary Burnsed divorced in 2002. William Meier continued to pay the premiums on the life insurance policy after his divorce but never removed Mary Burnsed as the primary beneficiary. When William Meier died in 2017, Mary Burnsed claimed that she was entitled to the life insurance proceeds. Richard Meier, William’s brother who was named as the contingent beneficiary on the policy, argued that he was entitled to the proceeds because of the revocation-upon-divorce statute.
The revocation-upon-divorce statute provides, in relevant part, that “the divorce or annulment of a marriage ... revokes any revocable ... beneficiary designation made by a divorced individual to the divorced individual’s former spouse in a governing instrument.”
This statutory language seems to unequivocally state that the life insurance proceeds should be paid to Richard Meier, and not to Mary Burnsed. But, as often is the case, things were not as easy as they seemed. The effective date of the statute was January 1, 2014, which was after William Meier obtained the policy, after William Meier named Mary Burnsed as the primary beneficiary, after William Meier and Mary Burnsed divorced, but before William Meier died.
The South Carolina Court of Appeals, in a lengthy opinion examining cases from other jurisdictions, found that the statute applied and revoked William Meier’s designation of Burnsed as the beneficiary of the policy. The Court of Appeals reasoned that since William Meier died after the statute was enacted, the statute applied.
While this outcome is consistent with how the legislature has decided to treat these situations going forward, it did not come without cost. Both parties were forced to expend significant time and money litigating this matter and could face more if Burnsed seeks review from South Carolina Supreme Court. The surest way to avoid such a situation is to revisit beneficiary designations periodically and ensure that they are in accordance with planning goals.
Work with your attorney to review and discuss beneficiary designations as a critical component to the drafting of an estate plan.
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