Periodically reviewing beneficiary designations for all your assets is critically important. It is a particularly urgent task when your family situation changes as a result of marriage, divorce, remarriage, death, or the birth of a child. Not only must you keep your designations updated; you must also follow through to be sure any changes you make get properly documented. The case below illustrates the point.
Divorce, Remarriage and Death
In 2003 Florida resident Dev-Anand Maharajh purchased a million-dollar life insurance policy from American General Life Insurance. He was married to Jennifer at the time. They had one daughter, who he named as primary beneficiary. He named Jennifer as her trustee under the policy’s beneficiary clause.
After purchasing the policy, Maharajh and Jennifer divorced and Maharajh re-married. His new wife, Lisa, had a daughter from her prior marriage.
In 2010, after he remarried, Maharajh contacted American General in order to modify his beneficiary designations. He named his new wife Lisa 75% primary beneficiary. He named his daughter from his prior marriage to Jennifer, 25% primary beneficiary. He named his daughter with Jennifer and his new wife’s daughter as equal contingent beneficiaries.
Sounds confusing, right? American General was also confused. The company sent him a letter noting that one, his daughter with Lisa cannot be both a primary and contingent beneficiary. And two, the company needed to know his relationship to the other contingent beneficiary, his new wife’s daughter.
Maharajh never responded to the letter. Nor did he contact the insurance company to follow up on his requested changes. Ten years later, in 2020, he passed away. You can guess what happened next. His ex-wife Jennifer, as trustee for their daughter, claimed the policy proceeds. So did his second wife, Lisa.
Who was the rightful beneficiary? American General Life Insurance could not make the call and turned to the courts for guidance.
Beneficiary Designation Forms Must be Precise
The case went first to the district court, then escalated to the US Court of Appeals for the 11th Circuit. The Court of Appeals in 2023 upheld the lower court’s decision: it awarded the proceeds to Jennifer as trustee for their daughter, who Maharajh had originally named as primary beneficiary. In other words, the company had not made any changes to Maharajh’s original beneficiary designations.
The basis for the decision was straightforward: he had not followed the steps required by the company to modify beneficiaries. Under Florida law, a policyholder who wishes to make changes to beneficiary designations must follow the precise steps the company requires, and Maharajh had not done that. The court wrote:
We agree with the district court that American General’s actions upon receiving the decedent’s defective beneficiary request were objectively reasonable. The insurer provided the decedent with written notice that identified (a) how the beneficiary request was defective and (b) how to resolve the defects. It even provided him with the necessary form along with instructions for filling it out. Because the decedent neither responded to the notice nor inquired as to the status of his filing in the ten years that followed, we conclude that the decedent did not strictly comply with the terms of the policy.
As you can see, your beneficiary designations must not only be updated, but any changes you make must strictly comply with how the company wants the changes submitted. Whenever you create a change in beneficiary designations, follow up and get a written confirmation from your financial institution, and keep that confirmation with your paperwork.
When you consult with our estate planning lawyers, we will review all your beneficiary designations with you, both at our initial consultation and during the periodic reviews we offer our clients. You can reach our firm at (561) 625-1100.
