Many situations have arisen over the years regarding the validity and effect of a beneficiary designation or clause that has been provided by a decedent.
The naming of a beneficiary of an asset or property can appear in a variety of forms. A person who prepares a Last Will includes provisions in the document naming various beneficiaries. These beneficiaries may receive a bequest of a specific amount of money or a more general gift of a share of an estate. Many other beneficiary designations occur outside of a Last Will. A person can designate a beneficiary of a life insurance policy or a retirement fund such as an Individual Retirement Account or 401K plan. Additionally, bank accounts can have a designated beneficiary. Such accounts are commonly known as In Trust For or ITF accounts, or Totten Trusts. A person who is named a beneficiary on this type of account typically has no right to receive any of the account funds until the death of the account owner.
In previous blog posts, the New York Probate Lawyer Blog has discussed the many problems that can arise when proper attention is not paid to these various beneficiary designations. For example, the beneficiary designations on a retirement account results in that account being paid to a named person. Such payment may conflict with the decedent’s intentions in a Last Will that disposed of an estate to an entirely different person. Also, intervening events such as the death of a named beneficiary or a divorce or a change in relationship may cause designations to become stale and not reflect the true desires of the decedent. Such a situation recently reached the United States Supreme Court in a case entitled Hillman v. Maretta. In Hillman a decedent had named his spouse as the beneficiary of his Federal Group Life Insurance. After getting a divorce, the decedent did not change the beneficiary designation to eliminate the former spouse. When the decedent died, the former spouse filed a claim for the insurance proceeds. The Hillman case involved the law of the State of Virginia which had a statute that provides that any death benefit to a former spouse is deemed revoked. Unfortunately, under our Federal system of laws, Federal law pre-empts State law and the revocation aspect of the Virginia law could not change the Federal insurance provision which provided for payment of the insurance proceeds to the ex-spouse.
However, Virginia had an additional provision in its law which provided that in the event of pre-emption, a lawsuit could be brought in Virginia by the rightful beneficiary against the ex-spouse to turn over the insurance proceeds. In Hillman the Supreme Court was asked to determine whether this provision allowing for the lawsuit, was also subject to Federal pre-emption. The Court found that the statute was pre-empted by Federal law and that this sort of end around the Federal directive was not available to defeat the ex-spouse’s right to receive the insurance proceeds. It is noted that New York has a statute that also revokes dispositions in the event of a divorce in Estates, Powers and Trusts Law Section 5-1.4.
The Hillman case is a red flag for all persons when preparing their New York Estate Plan. All assets need to be reviewed so that a complete analysis can be made as to the ownership of the asset and the name of any beneficiary who may have been named as a recipient. This complete review is required in order to avoid Estate Litigation and to facilitate Estate Settlement so that a decedent’s intentions and desires are fulfilled.