Many financial assets do not pass through a will. Instead they pass through a beneficiary designation, a payable on death designation, or a survivorship agreement. Examples include:
Life insurance policies
Certificates of deposit
If properly designated, these assets do not pass through a decedent’s estate. That is why they are called non-testamentary or non-probate assets. Assets with beneficiary designations are generally governed by contract between the account owner and the financial company. Thus, when the account owner or the insured in the case of life insurance dies, the asset passes directly to the beneficiaries named in the beneficiary designation form pursuant to the agreement between the financial company and the account owner or the insured. Thus they pass according to the designation, not through a will. That is true, even if a will has specific contradictory directions for who should receive the specific asset.
For many people, these types of assets make up a large portion of an individual's net worth.
A beneficiary designation form will request the account/policy owner to designate a primary beneficiary or beneficiaries and a contingent beneficiary or beneficiaries. The beneficiary designation forms, which are not standardized, are not typically required to be completed in the presence of witnesses, a notary public, or an attorney. That means there are fewer safeguards than for a will. In some cases, a designation can be changed with only on online login through a web site.
Beneficiary designations can be challenged. There are challenges based on incorrect or improper completion of the designation form; or challenges based on lack of mental capacity to execute the beneficiary designation, or claims which involve a third-party actor, such as undue influence, duress, forgery or fraud. There can also be claims based upon Texas community property laws. Or claims that a designation of a former spouse is voided by the divorce.
Common Grounds for a Beneficiary Dispute
The alternative will contest
Attempted beneficiary designations
Designations of former spouses
Community Property Claims
Disqualification of a beneficiary
Attempted Beneficiary Designations
Insured sends the correct form, but makes a mistake
Have time to correct the mistake?
Insured sends the correct form, but it gets lost
Insured completes the form, but does not send
Insured sends a change, but not on the correct form
Insured makes statements regarding wishes
Insured makes a later, contrary provision in a will
Texas Family Code and Community Property Rights
Pre-divorce designation of former spouse
Community property claim
Texas Insurance Code § 1103.151. Forfeiture:
A beneficiary of a life insurance policy or contract forfeits the beneficiary's interest in the policy or contract if the beneficiary is a principal or an accomplice in willfully bringing about the death of the insured.
Federal courts will apply slayer statute concepts to ERISA policies. See Admin. Comm. for the H.E.B. Inv. & Ret. Plan v. Harris, 217 F.Supp.2d 759, 760 (E.D.Tex.2002).
Using a Power of Attorney to make a designation
Texas Estates Code § 752.108. Insurance and Annuity Transactions:
(b) Unless the principal has granted the authority to create or change a beneficiary designation expressly as required by Section 751.031(b)(4), an agent may be named a beneficiary of an insurance contract or an extension, renewal, or substitute for the contract only to the extent the agent was named as a beneficiary by the principal.
When faced with a challenge of a beneficiary designation, an insurance company or financial institution will typically not make a determination on its own. Instead, it will encourage the parties to work out the dispute. If they cannot, the company will file an interpleader and let a court decide who should receive the money.