Update Your Beneficiary Designations: A Reminder From SCOTUS

A recent Supreme Court decision reminds us, once again, of the importance of updating your beneficiary designations to reflect your present wishes.  In Hillman v. Maretta , the Court decided unanimously that the Federal Employees’ Group Life Insurance Act (FEGLIA) – which provides that the proceeds of federal life insurance policies shall be paid to designated beneficiaries regardless of current marital status – preempts a Virginia law stating otherwise.  Under Virginia state law, when a couple is divorced their beneficiary designations are automatically revoked.

In this case, Warren Hillman named his wife, Judy Maretta, the beneficiary of his FEGLIA in 1996. The two subsequently divorced and Mr. Hillman remarried.   Time passed and Mr. Hillman failed to change the named beneficiary on his plan to his new wife, Jacqueline. Upon Mr. Hillman’s death, Jacqueline Hillman attempted to claim death benefits under this policy, and had her claim denied because she was not the named beneficiary.   Mr. Hillman’s former wife received the benefits instead.  Jacqueline Hillman commenced suit against Ms. Maretta for the full amount of the policy’s death benefit.

The Court held that an insured employee’s designation of beneficiary should be regarded as conclusive evidence of his or her intent.  The Court found that FEGLIA seeks to honor the employee’s choice of beneficiary and any state attempt to redirect the proceeds conflicts with that objective and is therefore preempted.

The Court acknowledged the existence of reasons to adopt a different policy – including Virginia’s stated justification that insured employees frequently fail to update beneficiary designations after divorce.  However, the Court ultimately concluded that Congress had a different intent when it enacted FEGLIA.

This is not the first reminder we’ve received from the Supreme Court to keep beneficiary designations updated.  This ruling, although applied only to federal employees, should serve as notice that it is incumbent upon policy holders to make sure beneficiary designations stay current.

Contributed by MH Phoenix Estate Planning Attorney Andrea Claus

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