by John Darer CLU ChFC MSSC CeFT RSP CLTC
Not reviewing and/or updating and confirming the beneficiary designation on your structured settlement can have unintended consequences as I wrote October 30, 2018 in Unintended Consequences Can Result From Not Updating Beneficiary When Life Changes.
It could mean leaving the residuals to your long gone ex-spouse, over your children or parents.
The United States District Court for the Southern District of Texas (Houston Division) was tasked with resolving competing claims in an interpleader for remaining certain payments after the death of a North Carolina woman in 2017.
In 1987, Jennifer Lauren Wheatley settled a medical malpractice lawsuit against the United States through a settlement stipulation. The settlement provided in part that the United States would purchase an annuity that would pay Wheatley $1,000 “per month, increasing at 4% compounded annually, for life, commencing at age 18, guaranteed for 30 years.” Pursuant to the settlement, as is common practice with settlements with the government, the United States entered into an annuity contract (the “policy” or “annuity policy”) in 1988 with John Hancock Life Insurance Company.
In the typical structured settlement there is a qualified assignment of the future periodic payment obligation, pursuant to IRC 130. The qualified assignee is the applicant and owner of the structured annuity policy that is purchased of the so-called qualified funding asset.
The annuity policy provided for both lump sum payments and monthly payments. Only the monthly payments are at issue in this case. Per the original terms of the annuity policy, Wheatley was the annuitant who was to receive the monthly payments throughout her lifetime. Wheatley’s “executors or administrators” were designated as the beneficiary who would receive the monthly payments after Wheatley’s death.
Change of Beneficiary Filed Without Policyowner's Consent, But John Hancock Accepted
In December 2008, Wheatley submitted a Beneficiary Designation-LIFE form (the “change of beneficiary form”) to John Hancock. This change of beneficiary form revoked previous beneficiary designations and named Ward, Wheatley’s spouse at the time, as the primary beneficiary. The secondary beneficiary was Annie M. Hall, Wheatley’s then mother-in-law. John Hancock confirmed this change in beneficiary in January 2009.
Wheatley died in October 2017, before the end of the period certain on the annuity. Her father was appointed Adminstrator of her Estate by the General Court of Justice of Guilford County, North Carolina.
Shortly thereafter, John Hancock began receiving conflicting claims to the annuity proceeds. In November 2017, John Hancock received a letter from the Estate Defendants claiming that they were entitled to payments from the annuity. Then, in May 2018, John Hancock received a claim form from Wheatley's ex Jeremy G. Ward also seeking payment as the beneficiary of the annuity for the period from December 2017 through May 2018. John Hancock remitted $12,468.06 to Ward for the monthly payments under the annuity from December 2017 through May 2018 (the “Disbursed Payments”).John Hancock continued receiving correspondence from the Estate Defendants claiming that they were the entitled beneficiaries because the United States as the designated owner of the annuity was required to approve any change of beneficiary, and it did not consent to Wheatley’s 2008 change of beneficiary.
Due to the conflicting claims, John Hancock began withholding the monthly payments in June 2018. John Hancock filed the present statutory interpleader action in this Court pursuant to 28 U.S.C. § 1335 in August 2018. John Hancock is currently paying the monthly annuity funds to the Court pursuant to 28 U.S.C. § 1335.The Estate Defendants and Ward both asserted counterclaims and crossclaims in their Answers. The Estate Defendants asserted counterclaims for declaratory judgment, breach of contract, and negligence against John Hancock arising from the wrongful payment of the Disbursed Payments, and a crossclaim for declaratory judgment as to the Disbursed Payments against Ward.. The Estate Defendants subsequently requested leave to amend their Answer to include a fourth counterclaim against John Hancock for failure to pay and a delay in payment of the annuity benefits under Texas Insurance Code § 542.058 and attorneys fees.
The annuity policy unambiguously requires the owner’s written consent to change beneficiary designations. Under the policy, a “beneficiary” is “a person who is to receive, after the death of the annuitant, any annuity payments due.” The policy explicitly provides a mechanism for changing the beneficiary: in its “Change of beneficiary” provision, the policy states that “[d]uring the annuitant’s lifetime you can change the beneficiary; you must give us [John Hancock] notice in written form satisfactory to us.” “[Y]ou” is defined as the owner of the annuity policy. Furthermore, the application for the annuity, which is deemed to be part of the annuity policy,
Source: Memorandum Decision and Order November 13, 2019 in JOHN HANCOCK LIFE INSURANCE CO. Plaintiff, VS. THE ESTATE OF JENNIFER LAUREN WHEATLEY, et al,Defendants. US District Court Southern District of Texas 4:18-cv-02689
Lessons to Be Learned
- Periodically review and if necessary, update beneficiaries on insurance policies, annuities and other financial accounts with any life change.
- If you are receiving structured settlement payments, you are NEVER the owner of the annuity or other asset funding the obligation to make the structured settlement payments to you. You only have the right to receive the periodic payments. This is for tax purposes. The owner is most often a qualified assignment company or a non qualified assignment company. With United States government cases under the Federal Tort Claims Act (FTCA), the United States is usually the owner.
- In assigned cases the owner, the assignee, gives you the ability to update/change your beneficiary but submitting request using their form.
- If your structured settlement payments arise out of legal settlement with the United States, you must get the consent of the United States, as owner to change the beneficiary. Address the procedure upfront when you settle the case.