A reminder to individuals who are divorced to change the beneficiaries on life insurance and retirement accounts.   Unfortunately, all too frequently an
ex-spouse will be the individual designated as the beneficiary on a life insurance or retirement accounts.  The surviving spouse is sometimes left with little or no liquid assets for their daily living needs.

A recent case in the U.S. Supreme Court, Kennedy v. Plan Administrator for DuPont Savings Plan, demonstrates the importance of  updating your beneficiary
designations after a divorce. Kennedy was an employee of Du Pont and invested in the company’s Savings & Investment Plan (SIP). He designated his wife as the beneficiary of the SIP account. A few years later the couple divorced and the dissolution decree divested his wife of all interest in the SIP account.  Mr. Kennedy did not execute a new beneficiary designation.  At the time of his death his ex-wife was still listed as his primary beneficiary rather than his children. When Mr. Kennedy died, Du Pont paid the proceeds of the SIP, which was about $400,000 to his ex-wife.

The case went all the way to the U.S. Supreme Court which held that the payment to the ex-wife was proper. The fact the divorce decree had divested the wife of her interest in the account was not sufficient since the husband had to change the beneficiary by signing a new designation.

If you are divorced you MUST change the beneficiary on your life insurance and retirement accounts if you no longer wish your ex-spouse to receive the benefit.
Plan administrations and insurance companies can and do pay the funds to the ex-spouse to the detriment of a new spouse and children.  The law firm has had several spouses be denied benefits due to the failure  of the divorced spouse  changing the beneficiary forms.

If you had a living trust with an ex-spouse, you need to create your own living trust and change your beneficiary designations if necessary.

Falk, Cornell, & Associates, LLP is a member of the American Academy of Estate Planning Attorneys.

With recent legislation in some states validating and recognizing same-sex marriage, it is only a matter of time before the Courts and the legislature will be forced to consider other non-traditional types of marriages, as is evidenced by a recent Texas case, currently on appeal, addressing the validity of a marriage between a man and his transgender wife.

Nikki Aragguz has filed an appeal with the 13th District Court of Appeals in Texas, from a May 26, 2011 ruling declaring her marriage to fallen firefighter Thomas Araguz void, making Nikki ineligible to receive death benefits due to Thomas’ tragic death. Nikki was born as a male – Justin Graham Purdue on June 4, 1975 – but ultimately transitioned to female, having successfully undergone reassignment surgery two months after she and Thomas were wed. According to Nikki, she told Thomas that she had been born a male at the very beginning of their relationship, and, Thomas actually cared for her following her reassignment surgery. Thomas never discussed Nikki’s gender with his family, and, in fact, in a family law matter relating to custody of his children with a former wife, he denied ever knowing that Nikki was born male when shown a copy of her birth certificate.

When Thomas Arraguz was killed in a fire, he died intestate, i.e., without a will. He did, however, have several life insurance policies – one worth $60,000, in which he designated Nikki as beneficiary, and others totaling approximately $600,000, in which no beneficiaries were designated. According to Texas law, if no beneficiary was named on the policy, the proceeds would be split equally between the spouse of the decedent and his children. In the event that there was no spouse, proceeds would all go to Thomas’ children.

Thomas’ parents and ex-wife joined forces and filed a lawsuit claiming that Thomas never knew that Nikki was born male and that under Texas law, the marriage was void since both Nikki and Thomas were born male. The lower Court in Texas agreed, and on May 26, 2011, it issued a ruling declaring Nikki and Thomas’ marriage void. It relied, in part, on an earlier case which states that gender is determined chromosomally, and that, accordingly, an individual could never have a valid sex change. Since same-sex marriage is not currently recognized in Texas, the marriage was void, according to the lower Court.

While this case raises a plethora of legal and philosophical dilemmas, the one thing which remains constant is that a valid estate plan is essential in order to ensure that your assets go to whom you want them to go to. Part of preparing a good estate plan is properly designating beneficiaries of various assets, among them, life insurance. Had Thomas simply designated a trust, or in the alternative, Nikki and/or his children as the beneficiaries of any policies, this lawsuit would never have been filed. Although many commentators view this lawsuit as a huge step backward for gender-variant individuals, depending upon how it is ultimately decided, it could, ironically, be a huge step forward.

Falk, Cornell, & Associates, LLP is a member of the American Academy of Estate Planning Attorneys.

Mary Smith got a pleasant surprise when she picked up her mail the other day. Her first husband, from whom she’d been divorced for over 10 years, had left her the proceeds from an insurance policy. The good news for Mary, however, meant bad news for Mr. Smith’s second wife, with whom he’d had 2 children. Although the second wife received other assets, the life insurance proceeds still went to Mary.

When someone purchases insurance, opens an IRA, or a bank account, the institution holding the account asks who should receive the proceeds of the account if you die, i.e., the beneficiary of the account. Normally a form is included with the application for you to indicate the beneficiaries of the assets. You fill in the names of loved ones, or perhaps charities, and think you’re done.

Loved ones pass away, or can become ’unloved’, and even charities dissolve. When beneficiary names aren’t updated or removed, problems will be encountered by the person or institution who administers your estate after your death. If a beneficiary is deceased, the financial institution will usually require their Death certificate. A charity which has dissolved, or can’t be found, is more problematic. Eventually, the money will usually go to the account holder’s estate, and/or be distributed to the account owner’s legal heirs.

Mr. Smith probably didn’t want his ex-wife to receive his insurance proceeds. You can prevent this problem by checking the beneficiaries of your accounts. You may be able to update this information on the institution’s website, or by calling the Customer Service department of the institution. If you’re unsure who to designate, or wonder if your trust should be the beneficiary, you may want to confer with an attorney. And make sure to check your beneficiaries every few years!

Falk, Cornell, & Associates, LLP is a member of the American Academy of Estate Planning Attorneys.