Wills and Beneficiaries

[BradleyT]

Situation: Grandmother dies about 10 years ago. Grandfather remarries and signs a pre-nup which clearly states the woman will only get the car and use of their florida home until she doesn't want it anymore. In Grandfathers will it lists a life insurance policy as an asset to go to the estate (aka my dad and his two sisters). Grandfather passes away two weeks ago and my dad finds out that the beneficiary on the policy was changed to the money grubbing woman my grandfather married.

Just curious as to whether the will + pre-nup trump over the actual beneficiary listed on the life insurance policy. I'm thinking they don't, my dad thinks they do.

There's no point in replying "get a lawyer" as there's 4 lawyers involved (one for each person) but everything is on hold because the will also granted the woman 90 days to collect her belongings out of the Michigan house and none of the children can get in the house (where all the documents are) until after then.

[squiffy]

That's an easy one.

At least in California, the general rule is that life insurance policies and proceeds never go through probate and never become part of the decedent's probate estate.

So the statements in the will would have no force or effect regarding disposition of the life insurance proceeds. The will might have an effect if the decedent failed to designate any beneficiary.

But the life insurance policy is a separate contract directly between the decedent and the life insurance company.

If the decedent made the new wife his beneficiary, then the insurance company pays the new wife. End of story.

The will doesn't matter because the will can only dispose of property in the probate estate. And the probate estate DOES NOT include the life ins. policy or proceeds.

The only way to challenge this would be to attack the insurance policy directly. If you can show that the new wife forged the decedent's signature on the form designating her as beneficiary. Of if you have solid evidence that she coerced him or that he didn't know what he was doing when he changed it.

But if he voluntarily changed the beneficiary to new wife and knew what he was doing, then she gets the life ins. proceeds.

I am not an expert at prenups or divorce proceedings, but again it is probably a similar analysis. A specific contract with the insurance company probably trumps the divorce agreement.

The divorce agreement is a general agreement. Assuming it is enforceable, and not all are, it will divide whatever property is not specifically provided for.

Many kinds of property -- bank accounts, insurance proceeds, etc. can specify a particular beneficiary

[squiffy]

In other words, in California, the pre-nup would be looked to when dividing up the community property. But arguably, the life ins. policy never becomes part of the community property if there is a specific contract with the ins. co. specifying who gets the proceeds. In this case, 100% to new wife. End of story.

[BradleyT]

Cool thanks.

[bav]

Which does bring up a "never do this" thing. Life insurance should not list "the estate" as a beneficiary, at least in some states (perhaps California is an exception). Because... at least in some states and for the federal govt, I believe that increases the value of the estate. If you're paying estate taxes, suddenly you just seriously screwed your beneficiaries. You die, the estate gets an extra $500,000, and now they get to pay inheritance tax on an extra $500,000.

List individuals as beneficiaries and you avoid that.

I think. I ain't an insurance expert nor a lawyer, but that's the wisdom imparted to me over the eons from various insurance experts and lawyers.

But I agree, the wife gets the insurance in this case. Simple. The life insurance contract totally trumps the will. The will can only distribute what's in the estate and the estate didn't get the insurance money. Similarly, any bank accounts and brokerage accounts will pass to joint owners or anyone listed in a pay-on-death contract first. Only if there is none of this does the estate get what's in the accounts.

[Preem]

Just as an aside, you might advise your parents to set up a Living Trust so that you can avoid probate.

Wills are kind of obsolete since the advent of this type of trust.

I'm not a lawyer or accountant, so there may still be situations where a will is preferable. But, my impression is that, in most cases, a trust will save you both time and money.

[bav]

[ QUOTE ]
Just as an aside, you might advise your parents to set up a Living Trust so that you can avoid probate.

Wills are kind of obsolete since the advent of this type of trust.

I'm not a lawyer or accountant, so there may still be situations where a will is preferable. But, my impression is that, in most cases, a trust will save you both time and money.

[/ QUOTE ]
For things like bank accounts, brokerage accounts, and life insurance, just set them up to transfer directly to the right people when you die. FAR easier than a will and easier than a trust. You just tell the bank you want a pay-on-death contract created for your account, and you list who you want getting the account when you croak. Same works for brokerages. (Apparently not available in all states...when setting this stuff up for mom the broker had to rummage around a minute to verify POD was available in the state.)

But then upon death, collecting is trivial. Present a death certificate and say "gimme".

But you still need a living trust to handle realestate and the like, I think. One problem with living trusts is if you forget anything...ANYTHING... you are gonna be sorry if you don't have a will to back it up. A living trust needs to list assets and specify how they will be divided, and things like homes and cars have to be changed to be in the trust's name. (So no longer does John Smith own his house, but rather the John Smith Living Trust owns it, and there's a trust document that spells out what the John Smith Living Trust really is.) But forget something, or open a new bank account without the POD and don't get it in the trust's name, and bammo--you're into probate. And if you don't have a will, that's even messier since there is no executor named to handle it all.

So even if you do have a trust set up holding everything, I believe common wisdom is you still need a will just in case. Hopefully you'll never have to probate it, though.