Don’t Let Time Run Out on Updating Your Life Insurance Beneficiaries

Downey Brand LLP

Your ex-spouse may take under your life insurance policy if you do not change your beneficiaries and there’s nothing a California probate court can do about it.  So ruled the Court of Appeal last month in Estate of Post (2018) ____ Cal.App.5th ____.

What Happened?

Kenneth Post had two sons, then married Angela Post.  During their 32-year marriage, they purchased a joint term life insurance policy.  Kenneth named Angela as his primary beneficiary, with his sons as contingent beneficiaries.

Kenneth and Angela later divorced and he was awarded full ownership of the policy.  He did not update the beneficiary designations on the policy.

Kenneth prepared a handwritten codicil to his will, stating that he did not want Angela “inheriting anything from [him] under any circumstances by beneficiary designation or otherwise.” The same day, Kenneth met with an attorney and said he did not want Angela to receive anything from him after his death “either by will, devise, beneficiary designation, or otherwise.”  He expressed concern to the attorney that he may not have updated his beneficiary designations.

The lawyer drafted a more formal codicil, but Kenneth died before he could return the following week to sign it.

The probate department of the San Mateo County Superior Court issued an order naming the two sons as the beneficiaries under the policy, apparently agreeing that it had equitable authority to update the beneficiary designation on the policy to conform to Kenneth’s apparent intent.

Appellate Court Rules that Policy Proceeds Are Not Part of Probate Estate

The First District Court of Appeal explained that a beneficiary under an insurance policy takes by virtue of a contract of insurance rather than by the laws of succession.  Unless the estate of the decedent is the named beneficiary, the policy proceeds are not part of the probate estate.

A California probate court’s “in rem” jurisdiction encompasses property of the decedent’s estate.  If property is outside the estate, the court lacks subject matter jurisdiction to determine its ownership.  Hence, the attempt by the San Mateo court to redirect the insurance proceeds was void on its face.

While the sons invoked California Probate Code section 5040, it did not automatically terminate the beneficiary designation favoring Angela upon divorce because of an express carve out for life insurance policies.

The appellate court therefore reversed the judgment in favor of the sons, presumably leaving Angela as the named beneficiary to obtain all the proceeds.

Takeaway: Act Posthaste to Update Your Beneficiaries!

Kenneth, in his divorce, untangled his property interests from those of Angela, including obtaining ownership of the policy.  Yet he then failed to follow through with changing the beneficiary designation.  He should have contacted the insurance company and promptly followed whatever process it had to update the designation.

It appears instead that Kenneth procrastinated for over two years after his divorce.  When he at last took up the issue of beneficiary updates, he did not complete the insurance company’s update form.  The opinion suggests that he may have forgotten about the policy.  In any event, Kenneth ran out of time to change his beneficiary.

Estate of Post should remind California lawyers and divorced parties that a key final step in the divorce process is to identify any life insurance policies and update beneficiary designations – otherwise, your ex will be the winner.

[View source.]

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.

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