Dear Len & Rosie,
A friend of mine had been married for about one year. Her husband just died tragically. At the time of his passing, he had not yet changed the beneficiary on his life insurance policy to his wife. His parents are still named as the beneficiary. Does the surviving wife have any claim on the life insurance, or is she out of luck? Itís certain that some of premium payments would have been paid with community property funds.
As a rule of thumb, when you get married or register as a domestic partner with the California Secretary of State, or if you get divorced, itís time to take a look at all of your estate planning documents, including pension and life insurance policy beneficiary designations.
Itís also important to understand that it doesnít matter what your will or trust says about your life insurance and retirement accounts. These accounts will pass to their designated beneficiaries no matter what the estate plan says. If you want to change who gets your insurance or retirement accounts upon your death, the only way to do it is by filling out new beneficiary forms obtained from the insurance company or retirement account custodian.
Your friendís rights depend on what kind of insurance her husband held, and when the policy premiums were paid. If he owned a fully paid up whole life policy, and didnít make any policy payments during the marriage, then your friend has no rights at all. The policy was her husbandís sole and separate property. The same applies if her husband paid the policy premiums from separate property assets, such as inherited or gifted money, or money he already had prior to the marriage.
However, if he paid the policy premiums out of his earnings, and thereís no pre-nuptial agreement saying his earnings are separate property, then he used community property half owned by his wife to pay for his insurance. Under California law, a spouse cannot give away community property without the consent of both spouses. So, your friend would have a claim on part of the life insurance.
If the policy is a term life policy with no cash surrender value, then she should be entitled to a full half of the proceeds of the insurance. If, however, the insurance is a whole life policy that is part insurance, part investment, then she wonít get half. Sheíll be entitled to only half of the portion of the policy purchased with community property.
She should contact the life insurance company. Theyíll put a hold on distributing the policy so that she and her husbandís parents can work it out. If they canít, the life insurance company will likely surrender the policy to the court in a legal procedure called ďinterpleaderĒ and allow your friend and her in-laws to fight over the policy in court without the insurance companyís further involvement.
Len & Rosie
Dear Len & Rosie,
For 24 years I have lived with my mother. I have been her caregiver for the past 14 years. I gave up a lot of my life and personal happiness for her. I am not sorry I did this. My sister told me that she did not want to take care of mom, and that I could have the house if I did. She lives in another state and rarely visits.
Mother gave me one-half of the home so that we could borrow against the property. We qualified for the loan on my salary and her equity, and spent almost $100,000 on repairs and improvements. I pay the mortgage payments, taxes and insurance. The home is now worth $400,000.
Now my sister complains that she is being cheated out of her fair share of the home when mom dies. My sister says that she feels that this is cruel and that she is being punished for ďliving her own lifeĒ.
I have tried to explain to my sister that I have paid for the house and cared for mom, and that the house is my retirement investment. She doesnít accept this, and I know she is going to cause trouble when my mother dies.
It is usually the children who do the least for their parents who put their hands out first and furthest when their parents die. Your sister is selfish now. Thatís not going to change when your mother dies.
Your mother has the right to leave her assets to anyone that she wants. Some people think the only fair thing to do is to leave their assets to their children in equal shares. Others believe that they should give a little more to those of their children who have not been as successful in life as the others.
Still others, such as your mother, leave assets to the children who stand by them in their time of need and care for them as they age. Which way is the most fair? All of them. If your mother wants to reward you for caring for her, she may do so. It is her right to do whatever she wishes.
After your motherís death, your sister may claim that you unduly influenced your mother and conned her into leaving everything to you. She wonít have much of a case if your mother added you to the deed to her home long ago. If she did it recently, you may have problems as your mother is dependent on your care.
Your mother can best protect your inheritance now by reviewing her estate plan with a trusts and estates attorney, in a private meeting without you in the room. Let the attorney evaluate your motherís capacity and verify that she really wants to leave everything to you. He or she can make sure your motherís estate plan is up to date, and the attorney will also be a witness in your favor if your sister tries to sue you after your motherís death.
Len & Rosie
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, Noon-1 p.m. and Sundays, 4-7 p.m. on KGO Radio 810 AM.