The Importance of Updating Named Beneficiaries

This month the Supreme Court ruled that a widow was not entitled to the proceeds of her husband’s life insurance policy worth $125,558.03. The Court held that her husband’s ex-wife was entitled to the proceeds as the result of an all too common mistake-he forgot to change his life insurance beneficiary after he divorced his previous wife. This case originated in Virginia, where a statute provides addresses this very situation, i.e., where an individual with a life insurance policy divorces the beneficiary of that policy and, subsequently, forgets to amend the beneficiary. Specifically, “Section 20-111.1(D) of the Virginia Code renders a former spouse liable for insurance proceeds to whoever would have received them under applicable law, usually a widow or widower, but for the beneficiary designation.” Hillman v. Maretta, 2013 WL 2371463 (June 3, 2013) (citing Va. Code Ann. §20-111.1(D)(Lexis Supp. 2012)). So what was the problem?

The problem was that the life insurance policy was one the deceased had received as a federal government employee, and, therefore, was governed by the Federal Employees’ Group Life Insurance Act of 1954 (“FEGLIA”). FEGLIA provides that life insurance benefits are to be paid in accordance with a specified order of precedence. See 5 U.S.C. § 8705(a). First the proceeds are to go to the beneficiary or beneficiaries designated by the employee and then to the widow or widower of the employee. See id. Also, any subsequent amendments to beneficiary designations must be in writing and filed with the federal government. See id. The FEGLIA statute specifically states that “a designation, change, or cancellation of beneficiary in a will or other document not so executed and filed has no force or effect.” Id. Furthermore, the statute provides that:
[t]he provisions of any contract under [FEGLIA] which relate to the nature or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any law of any State or political subdivision thereof, or any regulation issued thereunder, which relates to group life insurance to the extent that the law or regulation is inconsistent with the contractual provisions. 5 U.S.C. § 8709(d)(1).
Ultimately, the Supreme Court held that FEGLIA pre-empted the state law and “where a beneficiary has been duly named, the insurance proceeds she is owed under FEGLIA cannot be allocated to another person by operation of state law.” Hillman v. Maretta, 2013 WL 2371463 (June 3, 2013).
In Florida, statute § 732.703(2) provides that a designation “of the decedent’s former spouse is void as of the time the decedent’s marriage was judicially dissolved or declared invalid by court order prior to the decedent’s death, if the designation was made prior to the dissolution or court order.” However, the statute further provides that § 732.703(2) is not applicable “[t]o the extent that controlling federal law provides otherwise.” Fla. Stat. § 732.703(4)(a). Therefore, even without the Hillman v. Maretta holding, if a federal employee in Florida failed to change his or her beneficiary designation on a FEGLIA policy subsequent to a divorce, that employee’s ex-spouse would still receive the benefits of that policy.
This demonstrates the importance of keeping your wills, trusts, and insurance policies current. If you or someone you know has questions about insurance beneficiaries or updating a will or trust, please do not hesitate to contact the law offices of Chepenik Trushin LLP. The experienced attorneys at Chepenik Trushin LLP are ready, willing, and able to assist with your estate planning needs. Please feel free to contact us for an initial consultation.