Estates increasingly include assets that pass to the owner’s heirs outside the probate process through use of beneficiary designations. With the expanded use of this approach come a myriad of issues and a growing number of court cases involving beneficiary designations.
Litigation involving beneficiary designations is legally and factually complex. The outcome in an individual case depends largely on the specific facts of the case. The discussion that follows provides a summary of beneficiary designation issues that may arise and the general principles that apply to litigation involving those issues.
Many different types of assets owned by individuals in their own names can pass through beneficiary designations, including life insurance policies, IRAs, some employer-sponsored retirement accounts, and annuity contracts. Bank accounts and securities also can be transferred to beneficiaries using pay-on-death (POD) or transfer-on-death (TOD) designations.
Minnesota statutes govern many non-probate transfers that utilize beneficiary designations. The law that applies to an individual designation depends on the nature of the asset itself.
State laws in Article 6 of the Minnesota Uniform Probate Code include the Multiparty Accounts Act (applicable to POD bank accounts) and the Uniform TOD Security Registration Act (applicable to TOD securities designations). State law claims relating to benefits under an ERISA plan are governed by federal law, and as such are removable to federal court.
A lawsuit involving an asset with a beneficiary designation may arise for a number of different reasons. Questions often arise when either the asset owner or another person (such as an attorney-in-fact under a power of attorney) changes a beneficiary designation.
Litigation also may occur if the personal representative of the owner’s estate needs to access the asset to pay debts and other amounts owed by the estate.
Generally, the owner of an asset with a beneficiary designation can make, change, or revoke the beneficiary designation at any time during his or her lifetime. The nature of the asset and applicable law determine the specific procedures that must be followed in taking the action.
However, the owner of an asset must have legal capacity at the time a beneficiary is named, changed, or revoked. The level of legal capacity required for making or changing a beneficiary designation depends on the nature of the asset (or instrument). If the surrounding facts indicate that the owner did not have legal capacity to make, change, or revoke a beneficiary designation, a court challenge may result.
Significant, abrupt changes to beneficiary designations by the asset owner late in life, especially if health issues or new relationships occur, may give rise to legal issues involving undue influence or lack of capacity.
In some situations, a person purporting to act on behalf of the asset owner changes a beneficiary designation. Issues and concerns may arise in these cases, particularly when an attorney-in-fact under a power of attorney (POA), acting as agent for the asset owner, changes beneficiary designations to divert assets to themselves or their family members.
In a previous blog post, we discussed a case in which an attorney-in-fact changed beneficiary designations on five IRA accounts just two days before the account owner’s death. The Minnesota Court of Appeals upheld a lower court decision that voided the changes made by the attorney-in-fact.
A beneficiary change made by a conservator is subject to specific statutory requirements and must be specifically authorized by a court. If a conservator attempts to circumvent those requirements, a change of beneficiary can be challenged on that basis.
Minnesota law does not have similar requirements that apply to an agent designated in a power of attorney as an attorney-in-fact by the asset owner. The statutory provisions applicable to an attorney-in-fact are less clear cut. As such, issues over beneficiary changes made by an attorney-in-fact are more likely to occur and result in litigation.
If issues arise relating to the asset owner’s capacity to make a beneficiary change or other problems occur regarding the process used to accomplish the change, litigation may be initiated during the owner’s lifetime. A challenge to capacity or an action relating to a beneficiary change made by another person also may be asserted following the owner’s death.
In addition to questions concerning capacity of the asset owner or the authority of another person to make a change, some issues relating to assets subject to beneficiary designations arise during administration of the estate. For example, the personal representative of the estate may seek access to the assets in order to pay statutory allowances to spouse or children, medical assistance claims, the statutory share of a surviving spouse who elects against a will, or other debts, taxes, and expenses of the estate, if the probate property is inadequate to pay these amounts.
There are several other ways that a beneficiary designation may be challenged after the owner’s death, depending on the surrounding facts and circumstances. Probate courts have jurisdiction over some types of issues. State district courts have jurisdiction over other disputes or claims.
In any case involving a questionable designation, change, or revocation, consultation with an experienced probate and estate litigation attorney is absolutely essential. Only a knowledgeable lawyer can accurately analyze the facts and the applicable law to determine whether the basis for a challenge exists.
My probate and estate litigation practice at the Dave Burns Law Office includes all types of issues relating to designation of beneficiaries, regardless of the context in which they arise. I assist family members and others who face a situation involving questions about a beneficiary designation, including change and revocation of original designations by either the asset owner or another person, such as an agent acting under a power of attorney.
I concentrate my practice on the Twin Cities metro area and am available to meet with clients in both Minneapolis and St. Paul. If you would like to discuss a situation that involves a beneficiary designation, please contact me at (612) 677-8351 or by email at email@example.com. I welcome inquiries from clients and referring attorneys throughout the State of Minnesota.
The Dave Burns Law Office hopes you find this article helpful. But please do not rely on it as legal advice. The law changes regularly and the outcome of any legal matter depends on its unique circumstances. View full disclaimer