People often hold the mistaken belief that their family and their financial institutions will respect their wishes, even if they do not dot all their "i's" and cross all of their "t's." Admittedly, following rules and procedures and dealing with paperwork can be dull, but don't let your failure to do so take your intended beneficiaries by surprise. In a recent 8th Circuit case, Hearing v. Minnesota Life Insurance Company, the Court determined a handwritten note apparently intended to effect a change of beneficiary did not satisfy a life insurance policy’s contractual requirement that the policy owner file a beneficiary change with the insurance company prior to death. The policy owner, Jon Holloway, wrote a note to his daughter, Nikki, directing her to “sell everything you don’t want and bank it.” The policy number for Holloway’s Minnesota Life Insurance policy was listed at the bottom, along with contact information for the insurance agent.
The beneficiary of Holloway’s life insurance policy, however, was Holloway’s sister, Joetta Hearing. Holloway made Hearing his beneficiary when, following his divorce, he did not want his ex-wife to control the proceeds on behalf of Nikki in the event of his death. In fact, on his insurance application he wrote “[n]aming sister as beneficiary so ex-wife can’t control the death proceeds.” So, it could be inferred that Holloway really intended for his daughter (a minor) to be his beneficiary but named his sister instead in an attempt to safeguard his death proceeds from his ex-wife. The Court, however, was not willing to make such an inference, even given the existence of a handwritten note, signed and dated by Holloway, designating Nikki the recipient of the proceeds.
Minors cannot legally own property, and Holloway may have been advised of this when he decided to make his sister the beneficiary. However, a better way for Holloway to have approached this situation would have been to create a trust with Nikki as beneficiary and name the trust to receive the life insuranace proceeds. Trusts allow a greater degree of control and management over ones wealth, even after death. If Holloway had made a trust agreement naming a competent adult as trustee, he could have outlined precisely when, after reaching the age of majority, his various assets (including policy proceeds) would pass to Nikki.
Deciding who will be the beneficiary of your insurance policy is not always easy. But it is always a good idea to keep abreast of your policy’s requirements for changing beneficiaries. Check with your insurance agent to ensure your policy is up-to-date regarding the direction of your assets, and consult an estate planning attorney if your primary or contingent beneficiary would be one or more minors. Furthermore, it may be a good idea to create a trust agreement. After all, having your proceeds go to someone unintended really may be the last thing you want.