I am representing a family right now, who are still in the grieving process of losing a family member to cancer.
They are a family who doesn’t have a lot of money, and now, because no one advised them properly on how to list beneficiaries on a life insurance policy, they are going to have to come up with the money to file a probate case, and in the end they may never get any of the money that their family member left to them in their Will.
Here is the scenario:
- There is a small life insurance policy, which had a beneficiary named, but that beneficiary has died, and no new beneficiary was named, so the insurance company wrote the check “to the estate of the Decedent (Decedent is the person who died). So, the first problem is that if the Decedent had named a successor beneficiary, because life insurance is a contractual agreement, that check would have been written directly to the Decedent’s beneficiary or beneficiaries, who are usually the Decedent’s spouse or children. Now, because there was no named living beneficiary, there has to be a probate. While probate in Texas is relatively straightforward and inexpensive, this has spun off a host of other issues which I will set out below.
- Apparently, just before the Decedent died, he/she or someone on his/her behalf, pulled a Will form off the internet. There are lots of companies out there, one which has become quite famous with a flood of advertising, that tell people this is simple, no big-deal – you don’t need a lawyer. Unfortunately, the blanks in the form were filled out so badly that it basically makes no sense, but even taking it in it’s best light, it does not say what the family (and probably the Dececent) thought it said. So, while the Decedent saved a little money (the cost of doing a basic Will is minimal), it is a great tragedy if the Will does not say what the Decedent wanted it to. The Decedent’s last wish may have been botched by doing an online form Will.
- Now, the family is going to have to probate the internet form Will at significant expense to them, and they may not get anything. Here’s why: The internet form Will does not have some of the required language that is required in the Decedent’s home state, so the Court could require a lot more hoops for the estate to be probated than it would have had to do if the Decedent had a simple Will that was done correctly per the law in the Decedent’s home state.
- So, back to the life insurance policy. If someone leaves life insurance or any other property to their “estate,” the only way it can be distributed is by Court order in a probate case. Even worse, particularly when a family is of modest means, they may spend the money on court filing fees and attorneys to open and handle a probate case, just to find out when the required notices are published in the local newspaper, that there are bills, such as outstanding medical bills, Medicaid reimbursement claims or other bills, that are required to be paid before the heirs can ever see a penny distributed to them under the Will. So, because it was not done well, the Decedent’s wishes are not carried out, and the family is the big loser. I am all for creditors being repaid, but if there is a finite amount of money and the creditors are going to get it all, it is a shame for the family to pay for court filing fees and attorney’s fees when they may never see a dime. In this type situation, where a family does not have a lot of money to begin with, they have even less than they started with because their filing fees and attorney’s fees ends up benefitting the creditors, who can get all the money in the estate (in this case a small life insurance policy). So, you might ask, why would a family invest their money in such a scenario? Well, until they file the probate action and publish the notice to the creditors (then wait a long time to see if the creditors are going to pursue their claim), they won’t know if they are going to end up receiving anything from the Decedent’s estate after all.
I consider this case a tragedy, and the biggest tragedy is that it did not have to end up this way.
Please talk with an attorney (an attorney licensed by the state in which you reside) about how to structure your estate plan, even if all you have is a small life insurance policy.
If you have a family who is left with very little at your death, spending that little bit for real legal advice, not on the internet but a lawyer specifically licensed in YOUR state, may mean your family receives whatever it is that you have to help them going forward. And for a family with modest means, that small life insurance may mean the world.