Here in Michigan, many people use beneficiary designations as a way to transfer some of their most important assets outside of probate — including retirement accounts, life insurance policies, annuities, brokerage accounts, bank accounts, and other securities.
Indeed, for many estates, these nonprobate assets can constitute a large portion of what the decedent distributes to their loved ones.
Accounts with a beneficiary designation can have many advantages. They can help to streamline the probate administration process, and make it easier and quicker for your loved ones to start accessing necessary funds during a difficult transition. However, it’s important to keep in mind that transferring assets to a beneficiary through a “pay on death” or “transfer on death” designation is not always going to be seamless. There is certainly room for issues to arise — including disputes and contests to the beneficiary designation.
Individuals may seek to contest a beneficiary designation on an IRA, life insurance policy, or other account for any number of reasons. However, while it is possible to contest a beneficiary designation, it’s crucial to note that this process isn’t always cut-and-dry. This will be a legal matter, and will require working with an experienced attorney who can help you get a handle on the situation, understand all of your options, and represent your interests in court should it become necessary.
Beneficiary Designations and Nonprobate Transfers
When executed properly, a beneficiary designation allows for the assets in an account or the proceeds of a policy to transfer directly to any named beneficiaries upon the death of the account owner or policy holder. Such a transfer is nontestamentary, meaning that it can occur outside of probate.
The designation of a POD or TOD beneficiary does not affect the ownership of the asset until the owner’s death. While still living, the account or policy owner may usually change or cancel the registration of a security in beneficiary at any time, without needing the consent of the beneficiary.
Broadly speaking, many registration forms will allow the policy holder to name both primary and contingent beneficiaries, while also planning ahead for substitution (meaning that a deceased beneficiary’s descendants will divide their share, in accordance with Michigan’s laws of intestate succession). If the account owner names multiple beneficiaries, they will also generally be able to select what percentage of the asset each designated beneficiary should receive.
Upon the death of the sole owner (or the last to die of all multiple owners), the ownership of securities registered in beneficiary form passes to the designated beneficiary or beneficiaries. Generally speaking, in order to transfer the assets, the beneficiary must present proof of death and act in compliance with any applicable requirements of the registering entity (e.g., the insurance company or financial institution).
Importantly, Michigan’s Estates and Protected Individuals Code (EPIC) makes clear that registrations in beneficiary form are largely governed by the terms and conditions set down by the financial company. Michigan statutes state that a registering entity,
may establish the terms and conditions under which it will receive requests for registrations in beneficiary form or for implementation of registrations in beneficiary form, including requests for cancellation of previously registered TOD beneficiary designations and requests for reregistration to effect a change of beneficiary. The terms and conditions so established may provide for proving death, avoiding or resolving a problem concerning fractional shares, designating primary and contingent beneficiaries, and substituting a named beneficiary’s descendants to take in the place of the named beneficiary in the event of the beneficiary’s death.
Challenging a Beneficiary Designation
When an account owner or policy holder passes away and their beneficiary designations are revealed, it is not uncommon for some complicated questions to come up — and with them, the potential for significant disputes and disagreements.
What if the policy holder’s beneficiary designation for a life insurance policy is an ex-spouse, whom they haven’t spoken with in years?
What if a life insurance policy is changed in the last few months of an elderly person’s life, to significantly benefit a new caretaker or significant other they’ve only known for a very short period of time?
What if the actual beneficiary on a securities account doesn’t match up with the wishes that your dad stated multiple times in person?
What if one child benefits from a parent’s substantial CD or brokerage account, while their siblings are all but forgotten?
These situations are more common than you might think — and they reveal the potential pitfalls involved in executing beneficiary designations. To add fuel to the fire, remember that these designations broadly rely on terms agreed upon between the account holder and their financial institution. The types of documentation used and the levels of formal oversight required are not necessarily going to be standardized from place to place.
In some cases, issues may arise from simple human error. Many people do not give beneficiary designation decisions the appropriate weight they deserve when opening an account or creating a new policy. Others may be lax about updating their designations when their personal circumstances change, or fail to consider how their beneficiary designations will fit in as part of their overall estate plan.
Generally speaking, in order to contest a beneficiary designation, the individual must have a valid legal claim to do so. People with standing may include an heir who would benefit under intestate succession, a trust beneficiary, or a fiduciary acting on behalf of the decedent, such as a trustee or personal representative.
In order to challenge a beneficiary designation, the claimant must be able to prove that the designation does not accurately reflect the decedent’s wishes. A beneficiary designation may be contested under some of the same grounds as a will or trust contest, including:
- Improper execution (e.g., errors, omissions, and mistakes on forms)
- Lack of capacity (e.g., the account owner did have sufficient mental capacity to understand their actions when executing a beneficiary designation)
- Undue influence or duress (e.g, the account owner or policyholder was manipulated or coerced into signing against their wishes)
- Fraud (e.g., the individual was deliberately tricked or misled into signing a document due to misrepresentation)
- Forgery (e.g., falsified signatures or documents)
If you believe that there are grounds to challenge a beneficiary designation, it’s important to act quickly — while bearing in mind that contesting such a matter can be complex and time-intensive to wade through. Ultimately, disputing a beneficiary designation is a legal matter, requiring the specialized skills and knowledge of legal counsel who can help you to determine the validity of your claim and advocate for your position, whether you seek to resolve the matter through negotiation and mediation, or by taking the matter to court.
The Importance of Working With an Experienced Probate Attorney
When you have a foot problem, you go to the podiatrist. When you have a heart problem, you go to the cardiologist. When you need to create an estate plan or are facing a situation that will involve the Michigan probate courts, you need to go to an established probate and estate planning attorney.
In Michigan, an experienced and knowledgeable attorney can assist…
When You Need to Challenge or Contest a Beneficiary Designation
If you believe that you have standing and are considering disputing a registration in beneficiary form, an attorney can carefully evaluate the details of your case and explain the best course of action. An experienced legal professional can help you gather the facts, perform due diligence, and understand the unique variables of your situation — including if you do indeed have a valid claim. Moving forward, an attorney can hone a strategy to work toward the best possible outcome in your situation.
Whatever your circumstances, remember that contesting a beneficiary designation can be complex and trying. It’s easy to feel overwhelmed. Working with an experienced probate litigation attorney can make this process easier, giving you the guidance, insight, and legal support you need to move forward with confidence and peace of mind at every step of the way.
Avoiding Issues Through Meaningful Estate Planning
Want to maintain control of your most important assets, make things simpler for your loved ones, and minimize the risk for family arguments and disagreements when you’re no longer around? An experienced estate planning attorney can help you achieve these important goals.
In many cases, you can reduce the likelihood that a beneficiary designation will be challenged through comprehensive and mindful planning. Your estate planning attorney can help you take all steps needed to ensure that you keep control, even when you are unable to speak on your own behalf. Which instruments are used will depend on the specifics of your circumstances.
Whether you are just getting started with estate planning or wish to assess the plans you already have in place, an attorney can help you review and update the beneficiary designations on your policies and accounts, to help make sure that your most important assets will be distributed in a manner appropriate for your circumstances. Keeping your estate plan current and accurate can help ensure that an inheritance won’t become a detriment to your beneficiaries. Thoughtful planning can maximize the assets available to your beneficiaries when you have passed and allow for immediate distribution of your assets, while minimizing or eliminating the cost of probate fees — and granting you peace of mind knowing that you lessened the stress of your circumstances for your family.
Looking for Answers About Michigan Beneficiary Disputes? Ready to Keep the Conversation Going?
We know these situations can be stressful; with the right legal representation, you can get through it. Our attorney Dean E. Patrick has experience handling beneficiary disputes and will act on your behalf to work toward the best possible outcome in your situation. Our law office can help you to resolve your dispute in a professional, timely manner and give you outstanding support along the way.
Interested in taking steps to make this process more efficient for your loved ones down the line? Mr. Patrick can also help you set a plan for you and your loved ones. His knowledge of Michigan probate law ensures you will get the legal help you need when it’s time to take care of your estate planning, including wills, trusts, beneficiary designations, and powers of attorney.
At the Patrick & Associates, PLLC., we put our legal experience and skills together with our commitment to excellence in representing your rights. You can depend on our law firm’s ability to listen to you and our talent for creative strategies as we help you navigate probate, including (but not limited to) general probate litigation, will and trusts contests, beneficiary disputes, guardianships, and conservatorships.
Have any more questions? Ready to get started? Contact Dean E. Patrick at his Southfield office at (833) 469-4897, or click here to arrange your initial consultation.
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