One of the most important and often overlooked aspects which Maui residents who plan their estates need to address, is ensuring that all of their documents are updated regularly. A review and update are particularly important whenever major changes in family or financial circumstances arise. A recent case from the United States Supreme Court highlights this point.
The case involved a couple who were married in 1997. The husband (whose name was Mark) had two children from a prior marriage. Shortly after getting married, Mark purchased a life insurance policy which named his new wife (whose name was Kaye) as “primary” beneficiary, and his two children from the prior marriage as “alternate” beneficiaries. Several years later, Mark and Kaye divorced, but the beneficiary designations were never updated.
After Mark later passed away, a dispute arose over who should receive the life insurance proceeds. Kaye contended that she should receive the money, since she was still named as beneficiary, and to give the insurance proceeds to Mark’s children would constitute an unconstitutional “impairment” of the life insurance contract. Mark’s children, on the other hand, argued that they were entitled to the money, because under Minnesota probate law (where the couple lived), the divorce automatically revoked the beneficiary designation in favor of Kaye, thereby leaving Mark’s children as the sole beneficiaries. (Hawaii’s probate law also contains the same type of provision.) Who won, and how did the Supreme Court decide this case?
After considering the facts and applicable laws, and presuming that a divorced person would not want to name an ex spouse as a beneficiary, the Supreme Court declared that Mark’s children (and not Kaye) would inherit the proceeds. In doing so, the Court reiterated that if Mark really wanted Kaye to be his beneficiary despite the divorce, this could easily have been reconfirmed through an updated beneficiary designation which would thereby preclude the application of Minnesota probate law.
The goal of any beneficiary designation is to ensure that the proceeds are distributed to the “right” person. As illustrated above, the designation of the “right” person can change over time, or when events such as divorce arise. Mark could not provide further information, because he was already deceased. Perhaps this entire situation could have been avoided if Mark had consulted with an experienced estate planning attorney who recommended an update because of the divorce. If done properly, the update would have encompassed a review not only of life insurance policy beneficiaries, but also all other existing estate planning documents.
Regular updates are essential to ensuring that one’s estate is distributed properly. We work almost our entire life to acquire and maintain what we have. If it matters how our assets are to be distributed, is delaying an update worth the risk?
NOTE: The information in this article and throughout this website is not intended, and should not under any circumstances be interpreted, as legal advice. This article is intended only as a general discussion, and should not be read or viewed as a comprehensive analysis of all relevant aspects, of each topic discussed. The reader is encouraged to consult with legal counsel for assistance with any aspect of the estate planning process, and any other matter of a legal nature.