This summary highlights a recent court case which underscores the importance of decisions relating to Beneficiary Designation, and the unfortunate consequences of carelessness. Because the original article was written for the benefit of Financial Advisors, the summarized content has been reworded slightly for you, our valued Clients.
We have written in the past about common mistakes people make when designating the primary or contingent beneficiary for their life insurance, annuities, or qualified plan accounts:
– Estate as beneficiary
– Minor as beneficiary
– Incorrect or ambiguous beneficiary language
In the recent Tennessee appellate court case of Lane v. Courtreaux, No. M2016-00609-COA-R3-CV (Ct. App. TN Jan. 27, 2017), the owner of a life insurance policy tried to avoid the mistake of having a minor named the beneficiary of the death proceeds. Unfortunately for the insured’s son, the attempted solution was worse than the problem.
Teresa Lane and Charles Lane were married and had a son, Conner, who was born in 1997. Ms. Lane had a $600,000 life insurance policy in which she initially designated her husband as the sole beneficiary. When Conner was about 12 years old, Ms. Lane was diagnosed with a terminal cancer. Shortly after her diagnosis, Mr. Lane also received a diagnosis of terminal cancer. A few weeks before her death, Ms. Lane added her sister, Amanda Courteaux, as a co-beneficiary of her life insurance policy. Ms. Lane designated Mr. Lane and Ms. Courteaux to receive $300,000 each upon her death.
Mr. Lane was unaware that his wife had added Ms. Courteaux as a beneficiary until after his wife’s death, when he sought to collect the entire $600,000 from the insurance company. Mr. Lane believed his wife left half of the proceeds to her sister for the purpose of taking care of Conner, who was then 16 years old and on the verge of having no living parents to take care of him. When Mr. Lane became concerned that Ms. Courteaux was going to use the insurance proceeds for purposes other than Conner’s welfare, he filed a complaint against Ms. Courteaux and the company that issued the life insurance policy.
TRIAL COURT CASE
According to the article, the trial took place in February 2016, more than a year after Mr. Lane’s death. The court issued a decision awarding Conner a judgment in the net amount of insurance proceeds, resulting from “Ms. Lane’s reliance on Ms. Courteaux’s unfulfilled promise” to use the proceeds for Conner’s care.
APPELLATE COURT DECISION
For reasons detailed in the full article, the appellate court reversed the decision of the trial court and ordered the portion of the proceeds previously awarded to Conner to be paid to Ms. Courteaux, the insured’s sister. Ms. Lane had named her sister the beneficiary of the policy, apparently relying on her sister to use the money for the benefit of her son. While Ms. Courteaux may ultimately use some of the insurance money for her nephew Conner’s benefit, this case underscores the fact that she is under no legal obligation to do so. That result seems to be different from what the insured intended.
The facts and decision of the Lane case provide notable lessons to remember when making beneficiary designation decisions:
- In deciding on beneficiary designation choices, do not assume a likely order of deaths will, in fact, occur in that order.
- Contact your Financial Advisor when you make beneficiary designation changes.
- Your Financial Advisor will discuss the dangers of assuming family members will “do the right thing” with earmarked monies, and will encourage and assist you to follow established legal channels instead.
- Stay in touch with your Financial Advisor. When you are going through life events, including terminal illness, having the active advice of a financial professional can help you anticipate, avoid, and solve money related issues.
The Lane case demonstrates how carelessness with regard to the beneficiary designation can lead to an undesirable result. Your Financial Advisor will help protect you from that possibility.
Give us a call if you have any questions or ever need a second opinion on your planning 410-863-1040
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