by seeshel38 » Tue Jun 12, 2012 11:02 pm
I live in MI. My ex husband and I purchased a life ins. policy some years ago. Since I was the younger of the us it was placed in my name as the owner with him as a rider alonger with the children. I kept the policy and cont to pay on it. He has now passed away. I have submitted the paperwork to the claim department. Now they are requesting the divorce papers along with the settlement. What does this mean. Because we've been divorced, but I own the policy can they refuse to pay
Posted: Fri Jun 15, 2012 05:27 pm Post Subject:
Thanks for the continued discussion.
As I read MCL 700.2807, in terms of life insurance beneficiaries seems to be (1)(a)(i). This would certainly be applicable if the insured and the owner are the same person. It isn't applicable if the owner is not the insured. That is because the disposition isn't going to the ex-spouse. It is going to the individual.
As for the rest of your post, I'm having a little trouble following simply because I almost never deal with policies with one owner and two insureds with one of the owners being one of the insureds. I'll assume that you are correct.
As best as I can tell, at least in the case of Michigan, I am still missing how probate laws have anything do with this when the owner doesn't die.
Posted: Fri Jun 15, 2012 05:35 pm Post Subject:
I'll try to simplify my point.
Let's name our spouses, Sam Jones and Mary Jones.
Probate law can remove Mary Jones as beneficiary of something owned by Sam Jones.
Probate law can't remove Mary Jones as beneficiary of something owned by Mary Jones.
Posted: Sat Jun 16, 2012 04:00 pm Post Subject:
I am still missing how probate laws have anything do with this when the owner doesn't die.
This is because you are only thinking of probate as a "human death" issue. Using the word "person" would be a better choice. A website "StateLawyers.com" defines probate law as:
The legal process of transferring of property upon a person's death is covered under "Probate Law." Although probate customs and laws have changed over time, the purpose has remained much the same: people formalize their intentions as to the transfer of their property at the time of their death (typically in a will), their property is collected, certain debts are paid from the estate, and the property is distributed.
Now, I know that still doesn't answer your question, but it's a start (in fact, it sort of supports your point). So before I get to your question, let me ask a couple of my own. The specific, and different, pictures they paint may help.
1) Who can be a "person"?
2) Who can have an estate?
3) Who can "attack" an estate?
4) What happens to a person's property following their death?
Answers:
1) "Person" includes natural persons (living, breathing human beings) and non-natural persons (partnerships, LLCs, corporations, trusts, etc.) [I'm deliberately leaving out two other "things" here for now.] One of the attributes of a "person" is that it may sue or be sued.
2) Every "person" has an estate. Dollar-wise, it is the sum total of the value of their assets minus liabilities. Insurance companies that become insolvent have an "estate". State Insurance Guaranty Associations limit the claims payable to certain insureds when an insurance company's estate does not have enough remaining assets to pay all claims.
(We've argued that topic until I've turned blue, seemingly with no resolve. It does not prevent a person from filing a separate claim against the estate of the insurance company, and possibly having that claim paid. But since insurance company insolvency is a state matter, most of that subject is covered in the state's insurance code, and not entirely in the realm of probate law, but probate law does eventually come into play because a dead "person" is involved.)
3) A "person" who has money or owns property can have their money or property "attacked" during their lifetime by anyone with a legally enforceable claim (a mortgage, loan contract, legal judgment, etc.). A money or property claim against a dead "person" is enforceable against their estate through the Probate Court (theoretically, for a limited time -- but in 2001 [October issue, if I'm not mistaken] Forbes magazine reported on an estate in Texas that was still tied up in probate after more than 60 years -- I used to use that in my classes to show why wills alone are often insufficient estate planning tools).
4) Non-probate assets pass to the persons entitled to them without interference (supposedly). Probatable assets must be disposed of through the probate process, and is left to the discretion of the Probate Court, subject to state or federal probate law as applicable.
Discussion
Oh! Estates are "persons", too (one of the "persons" I conveniently omitted from my answer to Q1). If you read the court's decision in the case I left the link to above, you will see the words "personalty of the estate" used a couple of times in reference to who's responsible for paying the "just debts" of the decedent.
Well, marriages are also a sort of "person". We grant special privileges to married persons that non-married persons cannot get (one of the motivating forces behind the same-sex marriage issue is the fact that federal law ignores this kind of union even if state law allows such marriages.) And one of those in particular is the transfer of marital property to the surviving spouse without taxation (and a step-up in basis) at the death of the other.
So here come my word pictures to try to help clear your confusion.
A) Sam and Mary are married. Sam dies, having named Mary as his life insurance beneficiary. Mary gets the money. No one can attack the money before it gets to Mary (not while the insurance company has it, not while it's on its way to Mary). Various state and federal laws govern, as does contract language.
Once in Mary's hands, personal claims against Mary and her money are fair game. But claims against Sam and his money can only be enforced in Probate Court. Mary's money cannot be used to satisfy the claims of Sam's creditors. (Mary might have to use her own money to settle the estate if there are joint-debt matters to be resolved. This commonly occurs when a sole proprietorship operated by the decedent is involved.)
B) Sam and Mary were married, but divorced two months before Sam died. Sam named Mary as his life insurance beneficiary, but did not change that after the divorce. Sam also had a will naming Mary as the person to receive his property following his death. Sam got remarried two days after the divorce was final, and changed his will the same day giving the new wife Mary's old position, believing it also covered his life insurance.
Mary gets the life insurance money, but does not have any rights to other property not given to her in the divorce, unless she has some other enforceable claim . . . IF she doesn't live in a state that automatically revokes her as the beneficiary of the ex-spouse.
C) But Mary lives in Michigan, which, we agree, revokes a person as the life insurance beneficiary of an ex-spouse. Mary gets nothing following Sam's death other than what her divorce order entitles her to receive. If the insurance company inadvertently pays the policy proceeds to Mary (believing she was the rightful beneficiary on paper), the ESTATE of Sam can sue Mary for an amount equivalent to the policy proceeds. It had the right to legally prevent that transfer, but probably not the opportunity.
Here, you have to let go of the issue of policy ownership for a moment. The law in MI does not use the term "owner" or "ownership". It simply says, "to his or her former spouse in a governing instrument." [I(a)(i)] Mary is automatically revoked as beneficiary.
In reality, when a policy allows an additional insured (spouse or child), the contract states who that person's beneficiary will be (absent a special declaration by the owner) -- and it will be either the primary insured or the policyowner. The insurance contract language governs, not state or federal law.
State law completely preempts the policyowner's choice in the matter. Sam has not died -- he is still the policyowner. But the "person" of the marriage has, and that "person's" interests in money or property, normally vested in the spouse, die with it. If Sam wants Mary to have the life insurance money, she can't have it unless he renames her as beneficiary.
D) Sam doesn't do that. But he doesn't name a new beneficiary either. Now what?
Probate law settles the matter. The otherwise non-probatable assets become part of the probatable estate, and may be used to satisfy any and all legitimate claims against the estate. Which is why I never want a life insurance policy to name "My Estate" as beneficiary (or to not have a named beneficiary). Creditors, including the governments, have top level claims. Spouses and heirs are at or near the bottom of the totem pole.
So here's the issue in the OP's matter. She's the policyowner. Let's assume the contract says the policyowner is the de facto beneficiary of the added-on spouse. Because the OP and her husband are married, state law preempts the contract language -- remember, it completely ignores "ownership" (which IS the problem, because it does not anticipate this particular situation) -- and the right of a spouse to the benefit of the governing instrument is "severed" [1(b)].
(b) Severs the interests of the former spouses in property held by them at the time of the divorce or annulment as joint tenants with the right of survivorship, transforming the interests of the former spouses into tenancies in common.
It could fairly be argued that the life insurance on the OP and owned by the OP, but also covering the husband and children, is a "joint asset" -- hubby had to cooperate in the application for insurance, OP freely included him in that application. It was a mutually agreed "joint venture".
Because MI state law is silent as to matters of life insurance ownership and the rights of the owner, this particular matter is unresolved. Let's assume the Probate Court honors probate law and severs the OP from the death benefit. It could make for interesting precedential case law, because the appellate court would have to determine what the legislative intent really was (that's not normally the job of the Probate Court).
Until then, to be 100% certain that the OP's right to receive the policy proceeds resulting from her ex-husband's death, the OP only needed to write to the insurance company and state, "The beneficiary of the policy proceeds resulting from [Sam's] death will be [me]." Her divorce attorney should have known and communicated this to her.
Now, if it were to go to appellate court, I believe the court would not find itself bound by the vague language of state probate law and would look to the policy ownership and contract law instead. And if it did, the OP's entitlement to ex-husband's death benefit would be honored. Not as ex-spouse, but as policyowner. Your point (and I agree with it).
How would the court do this? By looking, as it must, to legislative intent.
It was probably NOT the legislature's intent to revoke an owner's right. It was [probably] the legislature's intent to revoke a former spouse's right (and, logically, the heirs of that former spouse) -- so that the probate process would not get bogged down by claims of [mostly] jealous ex-wives (but there may be just as many jealous ex-husbands). But it inadvertently did so in this situation.
There is no other place to deal with this concept than in probate law. That's the part you are having difficulty seeing. It has nothing to do immediately with the death of anyone human, but it has everything to do with the immediate death of the "person" of the marriage. It foresees the potential for future problems after an ex-spouse dies and tries to eliminate the problem to begin with.
Unfortunately, without direct experience in insurance or estate matters, I think no one in the legislature considered the situation in which the OP now finds herself. Husbands own insurance on themselves and name wives as beneficiaries. Wives own insurance on themselves and name husbands as beneficiaries.
Oops! What about a husband's/wife's single policy that also covers the other spouse? Loophole.
Legislation frequently overlooks these kinds of little "technicalities" until after it becomes a big problem. We used to let people DEDUCT life insurance loan interest they didn't even pay back. Until the industry began abusing that privilege with UL policies in the late 1970s and early 1980s. That's how we ended up with "Modified Endowment Contracts". Congress created a whole new "thing" on its own, in part to close what was an otherwise legal loophole in the Internal Revenue Code they failed to close with the Tax Reform Act of 1986.
The changes to the IRC in 1988, designed in part to eliminate life insurance phantom interest deductions went much further and eliminated the deductibility of ALL personal loan interest (credit cards, autos, student loans, furniture) in individual tax returns except home mortgages (a "joint" income tax return is still an "individual" return). Student loan interest was only recently restored as deductible. And mortgage loan interest is still on the Congressional chopping block as the last major take-away from taxpayers (it has come up in proposed legislation in almost every session of Congress since 1989).
Once you step aside from the issue of ownership, and just look at this as a matter between ex-spouses (which has now extended to the heirs of the deceased ex-husband), you can see how an insurance company does not want to arbitrarily give the proceeds to what may be the wrong person. Not that they would have any liability, but if it can be proved that they knowingly paid the money to a person not entitled, then there could be a cause of action against the insurance company -- because the law only protects an insurance company that "innocently" pays the money to a person it believes is the correct beneficiary.
A likely outcome here is that the insurance company will send the money and an "interpleader" to the ex-husband's estate for a determination by the Probate Court as to whom it may be disbursed -- to the OP as a non-probatable asset, or to the heirs as a probatable asset.
Personally, I don't believe it should become part of the probatable estate of the ex-husband, and it really should go to whomever the contract states (either primary insured or policyowner -- regardless of the former relationship between the decedent and that person).
We'll just have to wait and see. Hope this helps.
Posted: Sun Jun 17, 2012 02:12 pm Post Subject:
A little addendum to the discussion above.
Notice that the MI estate revocation law defers to -- does not preempt -- any prior orders of a court in a divorce action. There's good reason for that. The final divorce order expresses the desires of the parties, or the action of the court when there is no general agreement between the parties. The matter is, one way or the other, settled.
Divorces can only happen while the parties are living. If a person dies DURING a divorce proceeding, all bets are off and probate law governs -- even if it appeared that the parties were well on their way to a resolution of property division -- unless there were already some matters that had been officially ordered by the court (sometimes happens in an initial separation agreement or divorce filing).
Divorce deals with living persons, probate deals with matters after a death occurs. The final divorce decree is similar to a will in that sense. It characterizes the intents of the "person" with regard to the residue of the estate. Once the divorce is final, that "person" (the joint entity of the marrige) no longer exists. The divorce decree may forget to address certain issues, and although not legitimate, is surely going to cause problems later.
The exact same thing happens with a business partnership. If one of the partners leaves (vertically or horizontally), the partnership is dead, and certain issues may need to be resolved. Probate law deals with that death, too. Formal written partnership agreements will supercede probate law. But not all partnerships are neatly created on paper -- some exist only by handshake, even today in the 21st century. The partnership agreement is just like a will. Without one, the death is "intestate" and the Probate Code takes over.
We have ample examples of defective wills. People try to do-it-yourself and leave things out, attorneys fail to make proper inquiry and leave things out, something new comes along after a will is written and the will is not updated accordingly, and something is inadvertently left out. To a limited extent, probate law deals with that by making certain presumptions and the court follows the law in making its dispositions.
The subject of beneficiaries is one of the most frequently discussed topics in this forum. Who has the right to the proceeds, etc.? In those states which have gone the extra mile and enacted the legislation, the state presumes that following a divorce, the parties go separate ways in disgust and neither wants anything to do with the other.
That's probably true in the majority of cases, but not always. And when, in those states, the parties split with the intent to remain friends, the attorneys involved have a higher responsibility to make sure that those persons do not run afoul of the probate code unintentionally. But we all know that some attorneys are not that dilligent.
And that's why insurance agents do their clients a big favor by understanding their state's laws and revisiting clients on a regular basis to make sure that everything with a person's life insurance is up to date -- coverage amounts, addresses, any new kids added to a child rider officially, and . . . beneficiaries. How often should this be done? Annually would be ideal, but from a practical standpoint, is probably unrealistic. At least once every two years would be a good thing.
Unfortunately, many agents are just as lax as the attorneys. Collect the initial commission and go on the next sale. If the client needs something, they'll call me. Agents lose both income and clients with such an attitude.
We have the opportunity to help the living. We do the best job for them by making sure nothing goes wrong once they die. Agents who fail to understand how various laws work can result in dreadful things happening later. We don't give legal advice, but that does not absolve us of the responsibility to know the law (in general).
I have testified against agents who tried to hide behind, "I don't give legal advice" by saying, "I don't know what the law requires." Our licensing demands more effort than that.
Posted: Mon Jun 18, 2012 10:20 am Post Subject:
Max, I greatly appreciate the detailed explanation.
However, you seem to be missing the very basic fact that the law only revokes the beneficiary if the beneficiary is the ex-spouse (or ex-spouse's family).
(1) Except as provided by the express terms of a governing instrument, court order, or contract relating to the division of the marital estate made between the divorced individuals before or after the marriage, divorce, or annulment, the divorce or annulment of a marriage does all of the following:
(a) Revokes all of the following that are revocable:
(i) A disposition or appointment of property made by a divorced individual to his or her former spouse in a governing instrument and a disposition or appointment created by law or in a governing instrument to a relative of the divorced individual's former spouse.
When the owner is the beneficiary, the disposition is not to the ex-spouse, so this would not apply.
Posted: Mon Jun 18, 2012 05:53 pm Post Subject:
MI law invades the owner's right to name anyone or anything as beneficiary and revokes or severs the beneficiary's status, regardless of the owner's intent -- UNLESS the designation is IRREVOCABLE, or issues from a lawful court order.
Yes, but it specifically tells us what the law revokes when there is no court order or something isn't irrevocable.
(a) Revokes all of the following that are revocable:
(i) A disposition or appointment of property made by a divorced individual to his or her former spouse in a governing instrument and a disposition or appointment created by law or in a governing instrument to a relative of the divorced individual's former spouse.
Mary owns a policy on Tom. Mary is the beneficiary. They get divorced.
This law would not stop Mary from being the beneficiary on a policy that she owns. However, it could stop Tom from automatically being the policy owner if Mary dies. If Tom owns a policy on Tom, the law would revoke Mary as beneficiary.
When the owner and the beneficiary are the same there is nothing in this law that revokes the beneficiary.
Posted: Mon Jun 18, 2012 07:36 pm Post Subject:
When the owner and the beneficiary are the same there is nothing in this law that revokes the beneficiary.
You keep making the same point, and I continue to disagree with your interpretation, so this must end here with no resolution.
Posted: Mon Jul 09, 2012 03:55 am Post Subject: How to respond to a demand letter
I am the beneficiary of several life insurance policies. I have disclaimed, 1 life ins. policy and some stock, in order for the sister of the deceased to collect. Now, her son-in-law, who happens to be an attorney, has sent me a demand letter, saying I need to disclaim the other policies,
because, the sister is the sole beneficiary, and because they are saying that I had taken advantage of a lonely senior, and that I was a care-taker/giver, when that is not the case. The deceased hired me to drive him to do errands, take him to eat, or pick-up prescriptions, etc. Helping him as far as his medical health was concerned, was something that came into play after 5-6 months of being around him. I wasn't just going to disregard his concerns or complaints. As he and I would say,"We are helping each other", I by being paid hourly, and him by someone who really did care about him as a person. God, only knows, that I didn't even know he had a sister, till 6 months into our friendship, and he didn't even have a phone number for her, and when his 1 niece (her daughter) would call sporadically,(the other daughter, the one married to the attorney, never called). He would say,
"Would you have that Mother of your's call me". It wasn't until Mel had been unreachable, for a month or so, (because he had to go to a nursing home, because there was no one to take care of him at home, and his long term care insurance, did not take effect until he had been in a facility for 90 days,that they finally called the local police dept. Until the police contacted me, I had no way to know how to contact his sister. I begged them to come down and be with him but they had excuses, but after he passed, they were right down,(Well the niece and the husband attorney, anyway). So how do I respond to him?
Posted: Mon Jul 09, 2012 08:39 am Post Subject:
Tell him to go butt a stump. A person may name anyone or anything as their beneficiary. It does not have to be a family member of any kind.
If you were the named beneficiary, and there is no evidence of coercion on your/anyone's part in being named a beneficiary, the court cannot overturn the beneficiary's entitlement to the proceeds.
Disclaiming one policy does not mean you must disclaim all. That's a personal matter for you, not the court and not some attorney whose spouse would have something to gain as the result.
Posted: Tue Jan 08, 2013 03:19 am Post Subject: Law in Ky
Does anyone know what the law is in KY when you get a divorce does the ex get taken off policy as beneficiary if you are the owner of the policy?
Add your comment