APRIL 28, 2003 VOLUME 10, NUMBER 43
When people consider “estate planning” they usually are thinking about preparing a will. Sometimes the common conception of estate planning includes preparing a trust as well, and often durable powers of attorney are also part of the plan. But two recent cases demonstrate that “estate planning” is really much more—it includes the titling of assets and beneficiary designations as well. The most carefully-considered estate plan may fail if those other issues are not also dealt with at the same time.
Lori Flanigan was divorced and had two children when she married her second husband, Craig Munson. Ms. Flanigan had two life insurance policies through her work totaling $217,600. Her divorce agreement required her to name the children as beneficiaries on her life insurance, but she had not gotten around to completing a beneficiary designation form when she died in 1995.
Her insurance policies provided that they would be paid to a surviving spouse if she had not designated a beneficiary, and so the proceeds were distributed to Mr. Munson. The children’s grandparents (who took custody after Ms. Flanigan died) then filed a lawsuit to impose a constructive trust on the remaining insurance proceeds and Mr. Munson’s home, since he had used some of the proceeds to pay off his mortgage and other debts.
The trial judge denied the grandparents their requested relief, but the New Jersey Supreme Court agreed that the insurance proceeds should go to the children. It ordered the money transferred to the children’s benefit—eight years and thousands of dollars in legal fees after her death. Flanigan v. Munson, April 3, 2003.
Daniel Lambert was not so lucky. He argued that his mother’s life insurance policy should be part of her estate, and that her will specified that he was to receive a portion of that estate. Unfortunately for him, whatever his mother’s intentions might have been she had named her daughter Suella Southard as beneficiary.
Another sibling, brother Steven Powell, was prepared to testify that their mother had always intended that the life insurance policy should be used to pay the costs of handling her estate and then distributed to the children according to her will. He was not allowed to testify, however, because of a long-standing court rule prohibiting testimony about conversations with deceased persons, the so-called “Dead Man’s Statute.” The Indiana Court of Appeals refused to permit imposition of a constructive trust on the life insurance proceeds. Lambert v. Southard, April 1, 2003.
The moral: “estate planning” requires consideration of beneficiary designations and account titles as well as signing of a will, trust and powers of attorney. Even a carefully-drafted estate plan, including a will, a living trust and both financial and health care powers of attorney, can be altered or frustrated by incorrect (or missing) beneficiary designations, joint tenancies, “payable on death,” “transfer on death” or “in trust for” account titles or other, similar arrangements.