by John Darer CLU ChFC MSSC CeFT RSP CLTC
What Can Happen If You Don't Update Beneficiary
You were only married 6 months ago after dating 5 years and your 31 year old spouse has been receiving payments from a structured
settlement established as compensation for a childhood injury. Even though both of you are working, you were both struggling to make ends meet with a mortgage payment and student loans. The annuity payments are a critical part of the budget. When he was 18 and single, your spouse named his niece beneficiary. But he never changed it, not because he didn't want to. He just never got around it to it. He didn't expect to die suddenly in an auto accident at age 31 on the way home from a restaurant after watching a football game with friends.
A life insurance policy is a contract that requires the insurance company to pay the proceeds to the designated beneficiary after the insured person dies. The beneficiary may be an individual, trust, charity or business entity. If the primary beneficiary has already died or is not eligible to receive the proceeds, the insurance company pays the proceeds to the contingent beneficiary, or if one is not named to the Estate of the deceased. This distribution takes place automatically and is not involved in the probate court process. The distributees may be different than distributions under a last will and testament,under the deceased will, or the laws of intestate succession in your state.
How Does It Work With Structured Settlement Annuities and Beneficiaries?
It is the annuity owner's right to designate and change beneficiaries at any given time during the contract. The person listed on the annuity contract as the beneficiary(ies) supersedes wills and trust documents naming others.
With a structured settlement, the payee does not own the annuity contract, but the right to designate and/or change a beneficiary is usually conferred in the settlement agreement and release. Beneficiary clauses in settlement agreements usually mirror the requirements of the annuity issuing life insurance company. Any changes to beneficiaries or contingent payees, must be in writing and submitted to the assignee(or annuity issuer) in proper form.
Challenges to Beneficiary Designations on Life Insurance and Annuities
Two scenarios that result in disputes related to a beneficiary designation: (1) challenges based on errors, omissions, or outdated forms that involve no malicious intent by a third party; or (2) challenges based on lack of mental capacity to execute the beneficiary designation, or claims which involve a third-party actor, such as undue influence, duress, forgery or fraud. Contesting a beneficiary designation is a complex and difficult process. There are costs to litigation. It is time consuming and emotionally exhausting process.