Another case reiterates the primacy of beneficiary designations over other evidence of a decedent’s intent. The situation is tragic, but the result is wholly predictable.

Wife and Husband were the parents of a 12 year old Son when they were both diagnosed with terminal cancer. Although Wife was diagnosed first, Husband was not expected to outlive her. Wife, however, died first. Son was 16 at the time.

Wife was the owner and insured under a $600,000 life insurance policy. She initially named Husband as beneficiary. When Husband went to collect the insurance proceeds, he discovered that Wife had changed the beneficiary designation shortly before her death. The actual beneficiaries were Husband (50%) and Wife’s Sister (50%).

Why Wife left half the proceeds to Sister cannot be known with certainty, but the family believed Wife intended for Sister to use the money to take care of Son, who was soon to become an orphan. It quickly became evident, however, that Sister was not necessarily going to use her share for Son’s benefit. [In a later deposition, Sister was quoted as saying “If it’s my money, what does it matter what I use it on?”] Thus Husband sued to have Sister’s share of the proceeds put into a trust for Son’s benefit instead. He based his claim on several legal theories, including contract reformation, constructive trust, promissory estoppel, and unjust enrichment.

The trial court rejected the unjust enrichment, constructive trust, and contract reformation claims. The court determined, however, that Wife, in naming Sister as half beneficiary of the insurance proceeds, relied to her detriment on Sister’s promise to use the funds to take care of Son. Therefore, Husband–who died while the case was pending–prevailed on the theory of promissory estoppel.

The court of appeals took a different view of the situation. An insurance policy, the appeals court pointed out, is simply a contract. Under Tennessee law, a contract will not be reinterpreted based on the supposed intent of the parties when the contract is clear and unambiguous. As the court stated:

No amount of evidence regarding her intent, however, changes the fact that [Wife] named [Sister] as a co-beneficiary. Because an insurance policy is a contract between the insured and the insurance company, and because no legal mandate required [Wife] to name someone other than [Sister] as a beneficiary, [Sister] is entitled to the remaining proceeds of the policy.

The appeals court acknowledged that there are some cases in Tennessee in which a beneficiary designation was disregarded. Those cases are distinguishable because the policy owner, in naming a particular beneficiary, violated a legal mandate to name someone else.

[I]t is clear under Tennessee law that an enforceable agreement, such as a marital dissolution agreement, which mandates that an individual be listed as a beneficiary of a life insurance policy existing at the time of the agreement, vests in that individual an equitable interest in the designated policy.

The omitted party in those cases was simply enforcing its equitable right to be named as beneficiary. In the instant case, Wife was not legally required to name anyone as beneficiary of her policy. Thus:

Equitable remedies do not come into play under the facts of this case because the express terms of the insurance policy control the outcome.

Accordingly, the trial court’s decision was reversed on appeal.

In naming Sister, Wife employed an all-too-familiar form of self-help. Unfortunately, this approach seldom works, and you cannot expect a court to rewrite a beneficiary designation and correct the situation after the fact. A better approach would have been for Wife to establish a trust for Son under her will and to name Sister as trustee.

Source: Estate of Lane v. Courteaux, 2017 WL 776101

Posted by Joel D. Roettger, JD, LLM, EPLS