MARCH 29, 2004 VOLUME 11, NUMBER 39
Thomas A. Smith had two daughters from his first marriage and two step-children from his second wife. In 1996, shortly after his second wife’s death, he changed the beneficiary designation on a $100,000 life insurance policy so that the four children would share the policy proceeds equally. In 1998 he apparently decided to change beneficiaries to name only his two daughters. Unfortunately, the paperwork was somehow misplaced.
Mr. Smith signed an entire collection of documents in 1998. He created a revocable living trust, with a provision that on his death all assets would be divided between his two daughters. His longtime financial planner, Bryan Behrens, was identified as successor trustee, to take over in the event that Mr. Smith became unable to handle the trust’s finances. He also signed a power of attorney naming Mr. Behrens as his agent.
At the same time that he signed the other documents, Mr. Smith signed a new beneficiary designation form for the life insurance policy. The new form directed that the policy proceeds would be paid to the trust, and thus to his daughters. According to both Mr. Smith’s attorney and Mr. Behrens, the form was mailed to the insurance company that same day.
Three years later Mr. Smith was on an out-of-state vacation when he became ill. He began to worry about the life insurance beneficiary designation, because he could not remember receiving a confirmation of the change. He asked Mr. Behrens to check on its status for him.
Mr. Behrens called the insurance company and found that the form had never been received. Rather than delay further, he simply signed a new beneficiary designation form as Mr. Smith’s agent, using the durable power of attorney. Mr. Smith died just eight days after Mr. Behrens signed the new form.
The insurance company could not decide whether to pay the life insurance benefit to Mr. Smith’s trust or to the four children directly. It filed an action called an “interpleader,” in which it submitted the policy proceeds to the court and asked the judge to decide who should receive the money.
The Nebraska Supreme Court was faced with an interesting question. Can an agent named in a durable power of attorney change beneficiaries on the principal’s life insurance policies? At least under Nebraska law, ruled the Justices, the agent had that power in this case—partly because the agent was a neutral person and received no benefit from the change himself. First Colony Life Insurance Company v. Gerdes, March 19, 2004.
In Arizona, it is not clear whether an agent under a power of attorney has the authority to change beneficiaries on an insurance policy, annuity, or similar arrangement. Nebraska’s approach is appealing, and Arizona might ultimately adopt a similar rule limiting the authority to those circumstances where the agent does not benefit from the transfer. Of course, if Mr. Smith had named one of his daughters as agent (as most people do), that might mean that the change could not be completed even though it appears that there was plenty of evidence that Mr. Smith actually wanted to make the change.
