Posts Tagged ‘life insurance’

Have You Considered Buying Long-Term Care Insurance?

JUNE 6, 2016 VOLUME 23 NUMBER 21
Spoiler alert: the cost of long-term care can be really high. One of the leading national insurance companies (Genworth USA) conducts an annual survey of the actual costs, breaking them down by state and even by major cities within each state. Genworth’s estimate of the cost of a semi-private nursing home bed in Tucson in 2016: $83,045 per year. (You can look up your own community’s figures on the Genworth website.)

That means a nursing home resident can expect to pay a little more than $225 for each day spent in the nursing home. Would it be much cheaper in an assisted living facility? Yes — about $39,900 per year, or almost $110 per day. That’s still a lot of money, and beyond most families’ ability to pay out of pocket, at least for any extended stay.

Maybe you’re thinking you can save some money by staying at home. Unfortunately, the costs of in-home care are somewhere between those two figures — and that doesn’t cover the costs of home maintenance, utilities, food and other costs incurred when you stay at home. The clear message: if you or someone you love requires long-term care, in Tucson or anywhere else in the United States, the costs will probably be high.

How likely is it that you will spend some time in a long-term care facility? According to the best estimates out there, people turning 50 this year have about a 50% chance of spending some time in long-term care. Actually, women have a significantly higher risk, at about 65%.

At least nursing home stays are usually short. The average length of a nursing home stay (nationwide) is about four months for men, and about seven months for women. That masks the reality, though, that about half of nursing home residents stay more than three years.

Many of our clients are adamant: “I’m not going to a nursing home,” some say. They insist that family will take care of them, or hint darkly that they have other plans in mind. Caring for a family member at home, though, is hard work — and may not be good for the failing family member, whose health care needs may be significant. We often remind family members that they do no favors by caring for a family member while destroying their own health or financial status.

One choice you might consider is long-term care insurance. While sales of such insurance have dropped sharply in recent years, there are about seven million Americans with policies designed to cover the costs of their long-term care. Is such a policy right for you?

You might want to talk with your insurance agent about LTCI (the nearly-ubiquitous name for long-term care insurance). You owe it to yourself to at least look into a policy, and figure out whether you can afford it — and whether you would benefit from having such coverage.

Many of the clients we talk with think they are too young to worry about LTCI. According to the industry, though, the ideal new policy purchaser is in his or her mid-50s. The cost of coverage for a healthy 55-year-old is so much lower that the total cost of insurance will be less when the purchase is made early. For a long time, the average age of new policy purchasers was about 70 — but it has more recently dropped to about 60, as consumers figure out they should be looking at the policies at younger ages.

How much will an LTCI policy cost you? The figures vary widely, based on your age at the time of purchase, where you live, how much of a benefit you purchase, and which company you sign up with. But the American Association for Long-Term Care Insurance (an industry trade group) estimates that the average cost of a new policy for a 55-year-old will be about $2,000/year. That premium figure will buy you about $150/day coverage with a 3% annual automatic inflation adjustment and three years’ worth of coverage. Note that the $150/day benefit will only cover about 2/3 of the total nursing home cost in the Tucson area; that’s not necessarily a bad thing, since you’ll probably have some other income available if you do need to be placed in long-term care.

One piece of good news: there are only a relative handful of companies offering LTCI, so you won’t have to talk with (or research) that many. In fact, there are fewer than one dozen companies writing traditional LTCI policies at a frequency that shows a serious commitment to the product.

You need to remember that, once you buy a policy, premium costs can (and do) go up. Those premium increases, though, are keyed to the entire base of participants — and not to your own health changes, or local cost movement. That has been one of the things that scares consumers off from purchasing LTCI, however.

You might ask your insurance agent about hybrid LTCI/Life Insurance policies. They usually require much bigger premiums but for a short period of time (they might, for instance, require $10,000 payments for each of five or ten years). Once the investment is made, though, you have an LTCI benefit and a life insurance policy, so that your estate will get back your investment (and a small return) even if you do not require long-term care.

The bottom line: don’t just ignore this problem. Look into what you need to do to protect against the high cost of long-term care.

Forgot to Make New Year’s Resolutions? We Can Help


First we’d like to apologize for not getting this to you last week. We know how hard you were working to prepare some good New Year’s Resolutions. You wanted some that you could actually count on satisfying, that would really be beneficial, and that would make you sound like a mature, responsible adult. We have some; feel free to adopt them now, and assure friends and family that you actually signed them before New Year’s Eve.

Time for “the conversation”

Have you talked about end-of-life treatment issues with your family yet? No? This would be a good time to do that. Any time would be a good time to do that.

We have previously suggested Thanksgiving as a possible day to plan on “the conversation.” That suggestion still holds — but really, any day (holiday or not) would be a good day.

You say you don’t need to broach this unpleasant topic, because your family knows what you want? You’re wrong. They don’t, unless you tell them. They might guess, but they will be guessing. Their guesses will probably be more conservative than your actual wishes unless you give them permission — by telling them what you want.

In fact, you can go further than giving them permission. You can (and should) give them instructions. Tell them what you want, and put it in writing. Sign a living will, a health care power of attorney, or both (“both” is the best approach here).

It’s actually not even enough to sign the advance directives — you still have to have “the conversation.” Why? Because you’re not only telling the person you designated as your agent, you’re also telling the rest of the family. You are telling them what you want, that you’ve really thought about it, and that you really did mean to name your agent as agent. You’re heading off family disputes and possible disharmony. Did we mention that if your family doesn’t know for sure what you want, the result is likely to be more aggressive treatment than what you’d probably choose?

Here’s a radical thought: during the conversation you might also want to listen. You might be surprised to find out that some of your family members have strong feelings themselves. They might be persuasive, or at least give you more to think about.

One anecdote from our cases: some years ago, we dealt with the family of a woman who had signed advance directives. She had named her Arizona daughter as agent. She had expressly instructed that she be kept at home, even if her doctors thought she should be hospitalized or institutionalized. She made it explicitly clear that her entire savings should be exhausted, if necessary, in keeping her at home.

When she lost her capacity to discuss her preferences or reason with visitors, a long-estranged daughter arrived from out of town. She insisted that the local daughter must have persuaded Mom to sign the documents, hoping to be able to stay in Mom’s house as long as possible. She claimed that Mom would never have signed the documents if she had been in her right mind at the time.

The result? A non-family member was appointed as guardian temporarily, while an investigation was undertaken. The guardian, worried about possible liability, moved Mom to the nursing home — where she died a few weeks later, before the final court hearing.

Though Mom signed all the documents she should have, and made her wishes clear, the result was exactly what she did not want. What could she have done differently? If she had talked with (or at least written to) her estranged daughter, would the outcome have been different? Possibly — it seems like the most likely possibility. The lesson? Have the conversation, and include even those family members who will not be in charge of the decisions.

Update your estate plan

This would be a good time to pull out your old will and trust, review them, and schedule an appointment with your attorney. Has the law changed since you signed your will? Perhaps. But more importantly, has your life situation changed? Do your children (now in their 30s, or 40s) really need to have a guardian named, as they did when you signed your will twenty-five years ago? Have you moved, or changed your assets significantly? Are you the rare parent who correctly predicted each of your children’s future capabilities, needs and proclivities?

Once again, “my family knows what I would want” just won’t cut it. Believe us — we see lots of families in litigation over things that might seem trivial. Don’t think it will happen with your family, since everyone gets along so well? We hope that’s correct, but it has not been our experience.

Since you signed your will and trust, have you put one child on as joint owner of your bank account (to take care of things if “something happens”)? Have any of your children gotten divorced, or married, or had children? Do you still want the child who lived close to you fifteen years ago to be your executor and trustee, even though you’ve moved across the country to be near a different child? Have you signed an Arizona beneficiary deed after hearing a presentation, or listening to a friend? All of those things affect, and need to be taken care of in, your estate plan.

Another anecdote from our cases: last year we dealt with the estate of a fellow who moved to Arizona from another state. He had a trust and a will there, and he put his new Tucson home in the trust’s name. Apparently, though, he decided that his trust was now invalid, since he had moved from the other state to Arizona. So he made no changes.

Meanwhile, he got married. One of his children (named in his trust as a beneficiary) had become estranged. He tore up his will (it was invalid anyway, he thought). The result? His new wife ended up with his entire estate, as he apparently intended — but only after payment of several thousands of dollars of court costs and legal fees, and an opportunity for his estranged child to object (she didn’t, thankfully). Meanwhile, if he had talked with a lawyer before he died, he could have spent perhaps 1/10 of what it ultimately cost to take care of his estate.

Insurance update

Do you have enough (or too much) life insurance? How about long-term care insurance? Shouldn’t you talk with someone about your insurance status, and see what needs to be changed?

Long-term care expenses, particularly, have changed a lot in the last few years. Long-term care insurance is a maturing market, which means that older policies need to be revisited — and people who have not gotten around to looking into the policies should set aside some time to do so. Soon.

We don’t give insurance advice directly (except to advise people that they need to get more information). We recommend you talk with a trusted agent, and make sure they have your entire insurance picture. Right after you make that appointment to update your estate plan.

Need more ideas?

Not all of your New Year’s resolutions need to be about legal issues. Two years ago we gave you some other ideas, and we offer them up for your consideration again this time. You’re welcome.

Lawyer’s Move From Representing Widow to Estate is Problematic

Floyd Spence, a Republican Congressman from South Carolina, was a long-time survivor of a heart-lung transplant and a (separate) kidney transplant when he died in 2001, at the age of 73. He was survived by his second wife, Deborah Spence, and four adult sons from his first marriage (his first wife had died in 1978).

As Congressman Spence lay dying in a Mississippi hospital, Mrs. Spence realized that she might need legal counsel to sort out what she would receive from his estate and his congressional life insurance policy. She consulted Kenneth B. Wingate, a prominent lawyer in Columbia, South Carolina. They discussed the fact that she had signed a prenuptial agreement prior to marrying Congressman Spence, that he had initially named her as one of five beneficiaries (along with her stepsons) on his $500,000 life insurance policy, and that she believed he had changed the beneficiary designation to name her alone.

Mr. Wingate advised Mrs. Spence that she should consider entering into an agreement with her stepsons about how the estate would be divided upon Congressman Spence’s death, since there were uncertainties arising from his two different wills, the beneficiary designation and her possible rights under South Carolina law. She agreed, and a settlement of any possible dispute was quickly negotiated and signed. Congressman Spence died, as it happened, the day after the settlement was finalized. The settlement provided for a trust, to be funded with one-third of Congressman Spence’s probate assets and paying its income to her for the rest of her life.

About two weeks later, Mr. Wingate visited Mrs. Spence and informed her that he had been retained to represent the Estate of her late husband. He did not tell her that there might be a conflict of interest in that representation, and he did not ask her to acknowledge any conflict or sign a waiver. In fact, he told her that she would no longer need separate counsel, since the possible conflicts had all been resolved.

Over the next few months Mrs. Spence began to think that she had made a bad bargain. She became convinced that she would have received more from either her husband’s last will or South Carolina’s laws providing for surviving spouses. At a family meeting with her four stepsons and Mr. Wingate, however, her former attorney suggested that she should forgo her right to receive the entire life insurance policy in order to make the boys “whole again.” She did not want to agree, arguing that they should not alter her late husband’s wishes.

After the family meeting Mrs. Spence called Mr. Wingate and asked him to put his hat back on as her attorney and counsel her about the life insurance proceeds. He declined but, according to her, he did not tell her that she ought to seek new counsel or take any steps to protect her interest in the life insurance.

About a year after the Congressman’s death, Mrs. Spence filed a lawsuit seeking to set aside the agreement Mr. Wingate had negotiated for her. He promptly withdrew from representation of the Estate. Eventually the court set aside the agreement.

Mrs. Spence then sued Mr. Wingate, arguing (among other things) that he had breached his fiduciary duty to her as a former client by taking on a new client with an adversarial position. Particularly she argued that Mr. Wingate breached his duties to her in connection with the life insurance policy.

The trial judge dismissed that part of her complaint. Since the estate did not have any interest in or right to the insurance proceeds, the judge decided, Mr. Wingate could not breach any duty to her with regard to the policy. The South Carolina Court of Appeals, however, disagreed. The possibility of a breach of fiduciary duty would depend on the evidence at trial, ruled the appellate judges. The case should be returned to the trial court for further proceedings to determine whether there was in fact a breach of duty.

The South Carolina Supreme Court has now rendered its opinion on Mr. Wingate’s duties to Mrs. Spence. The state’s high court agreed with the Court of Appeals that more facts are needed, but made clear that the existence (or non-existence) of a fiduciary duty is a question of law for the trial judge to decide. In other words, the dispute was returned to the trial court for further hearings, and with an instruction to the trial judge to make a finding about whether Mr. Wingate owed a fiduciary duty to Mrs. Spence with regard to the insurance proceeds. If the judge decides that a duty has been shown, then a jury can determine whether Mr. Wingate breached that duty. Spence v. Wingate, October 17, 2011.

The decision of the Supreme Court was not unanimous, incidentally. Two of the five justices would have found that no fiduciary duty existed with regard to the insurance policy, and would therefore have upheld the partial summary judgment originally granted by the trial judge.

Is there a broader lesson in this story? Let us guess that Mr. Wingate today wishes he had declined to take on representation of the Spence estate, and stayed available to counsel Mrs. Spence as to her rights and her agreement. He may ultimately be vindicated, but that will be a less desirable outcome than never having been accused of breaching his duty in the first instance.

Power of Attorney Used to Change Insurance Beneficiaries

MARCH 29, 2004 VOLUME 11, NUMBER 39

Thomas A. Smith had two daughters from his first marriage and two step-children from his second wife. In 1996, shortly after his second wife’s death, he changed the beneficiary designation on a $100,000 life insurance policy so that the four children would share the policy proceeds equally. In 1998 he apparently decided to change beneficiaries to name only his two daughters. Unfortunately, the paperwork was somehow misplaced.

Mr. Smith signed an entire collection of documents in 1998. He created a revocable living trust, with a provision that on his death all assets would be divided between his two daughters. His longtime financial planner, Bryan Behrens, was identified as successor trustee, to take over in the event that Mr. Smith became unable to handle the trust’s finances. He also signed a power of attorney naming Mr. Behrens as his agent.

At the same time that he signed the other documents, Mr. Smith signed a new beneficiary designation form for the life insurance policy. The new form directed that the policy proceeds would be paid to the trust, and thus to his daughters. According to both Mr. Smith’s attorney and Mr. Behrens, the form was mailed to the insurance company that same day.

Three years later Mr. Smith was on an out-of-state vacation when he became ill. He began to worry about the life insurance beneficiary designation, because he could not remember receiving a confirmation of the change. He asked Mr. Behrens to check on its status for him.

Mr. Behrens called the insurance company and found that the form had never been received. Rather than delay further, he simply signed a new beneficiary designation form as Mr. Smith’s agent, using the durable power of attorney. Mr. Smith died just eight days after Mr. Behrens signed the new form.

The insurance company could not decide whether to pay the life insurance benefit to Mr. Smith’s trust or to the four children directly. It filed an action called an “interpleader,” in which it submitted the policy proceeds to the court and asked the judge to decide who should receive the money.

The Nebraska Supreme Court was faced with an interesting question. Can an agent named in a durable power of attorney change beneficiaries on the principal’s life insurance policies? At least under Nebraska law, ruled the Justices, the agent had that power in this case—partly because the agent was a neutral person and received no benefit from the change himself. First Colony Life Insurance Company v. Gerdes, March 19, 2004.

In Arizona, it is not clear whether an agent under a power of attorney has the authority to change beneficiaries on an insurance policy, annuity, or similar arrangement. Nebraska’s approach is appealing, and Arizona might ultimately adopt a similar rule limiting the authority to those circumstances where the agent does not benefit from the transfer. Of course, if Mr. Smith had named one of his daughters as agent (as most people do), that might mean that the change could not be completed even though it appears that there was plenty of evidence that Mr. Smith actually wanted to make the change.

Two Life Insurance Beneficiary Designations Require Litigation

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.

“Simultaneous Death” Laws In Conflict For Insurance Payout


Sometimes when the legislature adopts a new statute, no one notices that it conflicts with an existing law. While those conflicts usually get discovered and resolved, they can sometimes create real confusion in real cases.

Consider the tragic case of the Craig family. William and Diane Craig and Micah, William’s son from a former marriage, were all killed in a head-on automobile collision near Prescott, Arizona, in 1999. An off-duty police officer witnessed the crash and tried to assist, but without success.

When the police officer first approached the Craigs’ vehicle he heard moans coming from Diane Craig. He quickly determined that both William and Micah Craig were dead; ten minutes later it was clear that Diane Craig had died.

William had two life insurance policies, totaling almost $700,000 in benefits. Both policies named his wife Diane as beneficiary and neither named an alternate. In the event that his first beneficiary did not survive him both policies provided that the proceeds would go to his daughter from the former marriage, Chanda Craig.

Arizona, like many states, has adopted a provision of the Uniform Probate Code to avoid problems just like the one facing the insurance companies in the Craig case. The Arizona law requires a life insurance beneficiary (and indeed any heir) to live at least five days longer than the decedent in order to collect benefits. Mrs. Craig lived no more than a few minutes longer than her husband.

Mrs. Craig’s heirs, however, pointed out an anomaly in Arizona law. Although the Uniform Probate Code provision was adopted in 1974, and later amended to cover a wide variety of non-probate situations (including insurance contracts), no one in the legislature ever noticed or bothered to repeal the prior law dating back to 1954. That earlier version would have required Chanda Craig to show that there was no sufficient evidence that her step-mother died before her father.

The insurance companies filed suit in federal court, asking the judge to direct them as to who should receive the insurance benefits. The federal judge requested the Arizona Supreme Court to determine which law applied to the Craig family tragedy.

The Arizona Supreme Court decided that the legislature had simply overlooked the earlier statute when the Uniform Probate Code was adopted, and again each time it was amended thereafter. The Justices declined to attach any importance to the fact that the newer version appears in the Probate Code, while the unchanged original law is found in the Insurance Code; the titles of the respective sections did not demonstrate any particular intent on the legislature’s part. The result: Chanda Craig received the proceeds from her father’s life insurance. Unum Life Insurance Co. v. Craig, July 17, 2001.

Small Life Insurance Policies Complicate Medicaid Eligibility

MAY 28, 2001 VOLUME 8, NUMBER 48

Elder law attorneys often discuss characteristics common to the older individuals they deal with. Clients frequently show up early for appointments, are unflaggingly courteous and pleasant to deal with, and seem to enjoy talking about their families and travels.

One other common characteristic, perhaps arising from a Depression-era concern for such things: older clients often have several small life insurance policies, usually policies they have held for decades. Unfortunately, those policies can sometimes complicate matters when clients require nursing home care.

Franklin Miller was such a client. When the Tennessee man was admitted to St. Francis Nursing Home in Memphis in 1997, he owned four small life insurance policies. He had bought the insurance starting in 1953, and the newest policy was already 32 years old.

Mr. Miller’s assets were limited, and the monthly cost of nursing home care was eating into his small estate rapidly. His wife Nona Miller filed an application for assistance from Tennessee’s Medicaid program, which subsidizes nursing home care for those who qualify financially for assistance.

Unfortunately for Mr. and Mrs. Miller, Medicaid considers the value of life insurance policies as an available resource. Upon Mr. Miller’s death the four small policies would pay a total of less than $15,000, but the Medicaid agency decided that the cash surrender value of the policies prevented him from qualifying.

Medicaid eligibility rules are complicated when it comes to life insurance. If the maximum amount payable on death of the policyholder is less than $1500, the value of the policy can be ignored in calculating eligibility. If the total “face amount” of insurance exceeds that small figure, however, the cash value of life insurance must be determined. Even small life insurance policies frequently must be liquidated before nursing home residents can qualify for Medicaid.

Mrs. Miller appealed the Medicaid determination in her husband’s case. She successfully argued that there was no evidence of the cash surrender value Mr. Miller’s life insurance policies, or even whether they had any cash surrender value. In the absence of that information the Medicaid eligibility worker had simply applied a rule laid out in the state’s Medicaid eligibility manual, and had estimated the policies’ value at 60% of the death benefit. That, argued Mrs. Miller, was not an acceptable way to determine her husband’s eligibility for government benefits.

The Tennessee Court of Appeals agreed. Mr. Miller’s life insurance could not be counted against him, ruled the Court, especially if based on a state policy manual rather than actual evidence. Miller v. Department of Human Services, March 5, 2001.

Although the final outcome was favorable for Mr. and Mrs. Miller, Medicaid eligibility took over three years to establish, and another year to confirm. Mr. Miller did not live long enough to see benefits. He died a year before the initial ruling in his favor, and two years before the Court of Appeals confirmed that result. Meanwhile someone–Mrs. Miller, friends and family or the nursing home itself–paid the costs of Mr. Miller’s care for the last two years of his life, waiting for a determination of whether Mr. Miller had bought “too much” life insurance.

Federal Law on Beneficiaries Overrides State Divorce Rules

MARCH 26, 2001 VOLUME 8, NUMBER 39

Assume that Mr. and Mrs. Smith, happily married, sign wills leaving all their assets to one another. Some years later their marriage fails, and the Smiths divorce. Will their old wills still be valid?

Arizona, like many other states, has a provision that effectively revokes Mr. and Mrs. Smith’s wills. Each is treated as having died before the other, so whatever alternate provisions they have made will take effect instead. This seems fair and proper; we can assume that Mr. and Mrs. Smith no longer wish to leave everything to each other if they no longer live together. In fact, Arizona law goes further, and provides that the Smiths’ designation of life insurance beneficiaries, joint tenancy and other substitutes for wills are also invalidated.

Washington state law is similar, and so the results in that state should be about the same. If Mr. and Mrs. Smith (or, in the case offered for our current review, Mr. and Mrs. Egelhoff) get divorced, any designation of joint ownership or beneficiary designation is automatically revoked.

Donna Rae and David A. Egelhoff were divorced in 1994. Mr. Egelhoff was an employee at the Boeing Company, and had a company pension and life insurance policy. Both named his wife as beneficiary. Mr. Egelhoff was killed in an automobile accident two months after the divorce, before he had gotten around to changing the beneficiary designations.

Mr. Egelhoff’s two children from a prior marriage pointed to the Washington statute, and argued that they should receive both the life insurance and the pension benefits. The problem: both plans were covered by the Employee Retirement Security Income Act of 1974, popularly known as ERISA.

Most employer-provided plans that include pension and life insurance benefits are governed by ERISA. In order to protect workers from state variations, ERISA expressly provides that state law is ineffective in any attempt to determine ownership rights in the plans. The so-called “pre-emption” provision of ERISA overrides any state law to the contrary.

But, argued Mr. Egelhoff’s children, the Washington law did not really affect ownership of the retirement plan and life insurance. The Washington State Supreme Court agreed, and ordered the benefits paid to the children. Mrs. Egelhoff appealed to the United States Supreme Court.

Last week the U.S. Supreme Court overruled the state courts and ordered that the proceeds belonged to Mrs. Egelhoff. Mr. Egelhoff could have changed the beneficiary designations, but he would have to have done so in accordance with the strict provisions of the retirement plan and federal law. Washington’s state law (and almost certainly Arizona’s as well) failed to protect Mr. Egelhoff’s children from his failure to make the formal change. The Court’s holding only applies to benefits plans covered by ERISA, but since most retirement plans and company life insurance benefits are covered the effect is far-reaching. The state law that automatically rewrites a divorcing couple’s wills is still valid, but not necessarily the provisions relating to life insurance and pension rights. Egelhoff v. Egelhoff, March 21, 2001.

Wife Sues Lawyer For Failing To Advise Disclaimer Of Insurance


Craig Fitzgerald was a successful accountant living in New Jersey; when he died he left three children and a wife. In the immediate aftermath of the unanticipated loss of her husband, Joan Fitzgerald did not realize that she had estate planning problems of her own to deal with.

Mr. and Mrs. Fitzgerald had originally hired their neighbor, attorney Francis Linnus, to prepare wills. Mr. Linnus had given them proposed drafts in 1988 but they had not actually signed their wills until 1995, just over a year before Mr. Fitzgerald’s death. Mr. Fitzgerald, who was not only an accountant but also held a law degree and an M.B.A., had instructed Mr. Linnus that the wills should not include tax planning considerations, as Mr. Fitzgerald intended to review the couple’s entire estate plan himself. As a consequence Mr. Fitzgerald’s will simply left his entire estate to his wife.

Mrs. Fitzgerald contacted lawyer Linnus immediately after her husband’s death. She retained him to represent her as executrix (personal representative) of her husband’s estate, and to help her collect life insurance proceeds from policies naming her as beneficiary.

Most of Craig Fitzgerald’s assets went to Joan automatically, so the probate process itself was quite simple. Although the couple’s assets totaled about $2 million, only $65,376 of that would ultimately go through probate. Another $2.2 million in life insurance would go directly to Mrs. Fitzgerald, and attorney Linnus completed and filed the applications for those benefits.

At first glance Mrs. Fitzgerald’s financial problems looked easy to solve. She would now have assets worth more than $4 million to take care of herself and her children. There is no estate tax due on money left to a spouse and life insurance proceeds are not subject to income taxes, so the tax liability as a result of Mr. Fitzgerald’s untimely death would be minimal.

Mrs. Fitzgerald’s tax problem will be apparent, however, to most estate planning professionals. Because no effort was made to preserve Mr. Fitzgerald’s estate tax exemption, Mrs. Fitzgerald’s estate will be subjected to much higher taxation on her death—assuming, of course, that the estate tax system remains unchanged.

Even with the failure to plan carefully all was not lost. Mrs. Fitzgerald could have disclaimed her right to receive life insurance proceeds and allowed those benefits to flow directly to her children. While she would not have benefited from the proceeds herself she could have reduced her own ultimate estate tax liability.

That, in fact, is exactly what lawyer and social friend Lisa Butler told Mrs. Fitzgerald a few weeks after she had received the life insurance proceeds. Disclaimers can usually be signed and delivered up to nine months after the death of the person from whom property would be received, and a disclaimer is not itself a gift of property. Unfortunately for Mrs. Fitzgerald there is one other requirement: a disclaimer must be executed and delivered before the proceeds have been received and used.

Mrs. Fitzgerald sued Mr. Linnus, her original lawyer, for failing to advise her about the availability and timing of disclaimers. Her children joined in the lawsuit, alleging that Mr. Linnus owed them a duty as well, and Mrs. Fitzgerald’s failure to know about and sign a timely disclaimer would ultimately cost them thousands of dollars in unnecessary estate taxes.

The Appellate Division of the New Jersey Superior Court decided that Mrs. Fitzgerald’s claim against Mr. Linnus could not stand. The problem, according to the appellate judges, was that Mrs. Fitzgerald was not actually injured by the lack of advice. In fact, she was several hundred thousand dollars better off for not having gotten—or taken—the disclaimer advice. Mr. Linnus owed no duty to the Fitzgerald children, according to the judges. In fact, the appellate judges were persuaded by the testimony of Mr. Linnus, corroborated by Mrs. Fitzgerald, that her primary concern when she first consulted with him was to get control of the estate and ensure her own financial security. The court dismissed all claims against the lawyer for failure to advise Mrs. Fitzgerald about a course of action she might have taken. Estate of Fitzgerald v. Linnus, January 22, 2001.

Serviceman Killed By Wife; Her Son Receives Insurance Payout

MAY 24, 1999 VOLUME 6, NUMBER 47

Kevin and Gina Spann had been married for eleven years. When they married, Mrs. Spann had a two-year-old son from a prior marriage, Steven Hill; Mr. Spann’s will left his estate to Steven, and even referred to him as his own son, though he had not taken any steps to adopt Steven.

The Spanns were residents of Illinois, but because Mr. Spann was a soldier in the U.S. Army they had lived for many years in Germany and had returned to the U.S. to live in Georgia. During their stay in Germany, Mr. Spann had purchased two large life insurance policies. One, for $200,000, named Gina Spann as beneficiary and Steven Hill as the alternate beneficiary. The other, for $100,000, named Gina Spann and then her sister Betty Jo Pierce.

In 1997, Gina Spann persuaded her 18-year-old lover and three of his 16-year-old friends to murder Mr. Spann. She was convicted for her role in the murder, and sentenced to life in prison without parole plus an additional five years.

As it turns out, Mr. Spann had a child from an earlier relationship. He had never acknowledged Chrystal Athmer as his daughter, but DNA testing after his death confirmed that he was her father.

English-American common law makes it clear that a murderer may not profit from his or her actions. In other words, under both Illinois and Georgia law, Mrs. Spann was precluded from receiving any benefit from the life insurance contracts. Both states’ laws work the same way: the life insurance proceeds would be paid as if Mrs. Spann had predeceased her husband.

Some states go even further, and preclude the murderer’s family members from any benefit (unless they are also the family of the victim), on the theory that the murderer might derive some indirect benefit from the money, or might even be motivated to commit the murder to help family members. Georgia, for example, precludes both the murderer and his or her family from inheriting under a will, though it does not take the same position with regard to life insurance proceeds.

Chrystal Athmer’s mother made the argument that Illinois law should apply, and that it would preclude Mrs. Spann’s son or sister from receiving the insurance proceeds. The Seventh Circuit of the U.S. Court of Appeals agreed that Illinois law controlled, but disagreed about how that law should be interpreted.

The court noted that Illinois law was not clear on the question of disinheriting family members of the murderer. In fact, said the judges, it is fairly easy to imagine a scenario in which it would be necessary to prevent family members from receiving insurance proceeds or an inheritance. Such might be the case if Steven Hill had promised to use the proceeds to provide a legal defense for his mother, or to support her when she was released from prison.

Steven Hill, however, lives with his aunt and has no contact with his mother. There is little prospect of Gina Spann receiving any benefit from the proceeds of the life insurance policies, and so they should be paid to the alternate beneficiaries (Mrs. Spann’s son and sister). The court also noted that Mr. Spann’s relationship (or lack of relationship) with his daughter is irrelevant to this determination. Prudential Insurance v. Athmer and Hill, May 14, 1999.

Arizona’s law is similar to that in Illinois and Georgia. So far, however, the question of disinheriting a murderer’s family has not arisen in Arizona courts.

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