Before getting into a real-life scenario that involved the Supreme Court, we will sum things up for you: All of your financial planning and estate planning efforts may go awry if you do not update your designated beneficiaries.
In “Supreme Court Favors Ex-Wife Over Widow in Battle for Life Insurance Proceeds,” Forbes.com columnist Deborah Jacobs writes about the case, letting readers know that life insurance policies are called “nonprobate assets” and that Warren Hillman, the deceased in this matter, “made a basic and unfortunately all too common estate-planning mistake: when he divorced [his ex-wife] he did not change the beneficiary designation for a life insurance policy.” The life insurance policy in question is worth $124,558.03 and although Hillman divorced his wife 10 years before his death, “the U.S. Supreme Court found that [his ex-wife] was entitled to every penny of it.”
As humans we make mistakes and forgot things but forgetting to change beneficiaries is the kind of thing that can cause strain for those we leave behind.
Many people may wonder why the court would not simply award the money to the man’s widow since she was his spouse when he died, yet the court saw the matter differently. The Hillmans lived in Virginia, a state where according to law, a divorce or annulment “revokes a beneficiary designation under a life insurance policy.” However, because Hillman’s policy was under the jurisdiction of the Federal Employees’ Group Life Insurance Act of 1954, it has to be paid to the designated beneficiary. The Court cited two previous cases that followed this law, including one that favored a widow over an ex-wife even though the divorce degree stated the ex-wife was to receive the life insurance money.
This is why working with a Fee-Only financial planner as a multitude of benefits. While you have to be the one to file an amended beneficiary form, a financial planner can remind you about this and other necessary steps to keep your estate plan in order.