While an up-to-date beneficiaryform avoids uncertainty and probate, and oftentimes taxation, an out-of-datebeneficiary form can induce controversy and distress. This teaching point wasoutlined in Hillman v. Maretta, a veryrecent case on beneficiary forms and the disaster that went all the way to theSupreme Court.
The case is considered in arecent Forbes article titled [spoileralert] â€œSupreme Court Favors Ex-Wife Over Widow InBattle For Life Insurance Proceeds.â€
You see, Warren Hillman left alife insurance policy behind amongst his other assets. Much of the estatesimply passed to his then-current wife. Unfortunately for the current Mrs.Hillman, the life insurance policy was subject to a beneficiary designationform that still named his previous Mrs. Hillman, Judy Maretta. Judy and Warrenhad been divorced for some 10 years.
Despite the pleas of the currentMrs. Hillman, the court had to do it: they gave it all â€“ every penny â€“ to theex-wife named as beneficiary.
Unlike a retirement account, thesingular purpose of a life insurance policy is to provide financial protectionto those depending on your life and income. This would seem to exclude a 10years divorced spouse, absent an alimony requirement in the divorce decree.
Bottom line: the beneficiaryform is a matter of contract between the policy owner and the insurancecompany. The courts can do nothing but enforce that contract.
Are your beneficiary forms readyto be followed to the letter? How will the rest of your estate keep out of thecourt system?