STEPDAUGHTER VS. STEPMOTHER: changing beneficiary of life insurance undue influence? Who inherits life insurance: daughter or ex spouse?

In March 1991, the owner of a life insurance policy issued by Met Life changed the beneficiary of the life insurance policy from his daughter to his ex spouse. Was this the product of undue influence? Should the beneficiary designation change be overturned? A recent Missouri federal case dealt with these issues and the issue of undue influence and changing the beneficiary designation of a life insurance policy.

The inheritance war rages on. The fight over blood and money continues, and not just in probate courts in Florida. There was a recent federal court case that dealt with issues of undue influence, and changing the life insurance policy beneficiary. Why was it in federal court? Many times, when it is unclear to a life insurance company who inherits the death proceeds of a life insurance policy, the life insurance company will file what’s called an “interpleader” action. This is often done in federal court. The life insurance company in essence says to the court “I’m a stakeholder. Court, you take the money that I’m holding, and you give it to whom ever you think it belongs to.” That’s what happened in this recent Missouri inheritance fight, which was a trial in federal court. The relatives of a deceased person were fighting over the death benefits, or death proceeds, of a life insurance policy that had been issued by Met life to a Mr. Baker. Mr. Baker had named his daughter as sole beneficiary of his life insurance. Mr. Baker changed the life insurance beneficiary in 1991, naming his ex spouse as the beneficiary, and removing his daughter as the beneficiary. The issue in this inheritance lawsuit was whether Mr. Baker’s change of beneficiary was accomplished by the undue influence of his ex spouse.

The owner of the MetLife life insurance policy, Mr. Baker, died in 2009. Mr. Baker had signed three different beneficiary designations on the life insurance policy with MetLife. The most recent beneficiary designation named his ex-spouse as the sole beneficiary. The prior beneficiary designation to the life insurance contract named Mr. Baker’s daughter as the sole beneficiary. Since the ex-spouse was listed as the beneficiary on the most recent beneficiary designation, the ex-spouse filed a statement of claim with MetLife, after Mr. Baker, requesting that MetLife distribute to the ex-spouse the insurance money. Meanwhile, after the death of Mr. Baker, his two adult children sent a letter to MetLife, accusing the ex-spouse of fraud and requesting that MetLife not distribute the insurance money to the ex-spouse. As Sherlock Holmes was fond of saying “the game is afoot !” Enter the lawyers. As someone once said: “Let the inheritance war begin. There was money to be fought over: the life insurance death proceeds.” You had people related to Mr. Baker by blood, his adult children, versus Mr. Baker’s ex-spouse, his former wife.

As is common in interpleader actions, life insurance companies often deposit the insurance proceeds, which are being fought over, into the court registry or into a safe and monitored account. MetLife did that: it deposited the life insurance money into a court registry. The fight for blood and money begins.

What did the adult children of the deceased owner of the life insurance policy, Mr. Baker, argue? They argued that their father was suffering from Alzheimer’s disease when he made his ex-wife the sole beneficiary in 1991, and that the ex-spouse unduly influenced their father to change the beneficiary designation . As such, the children argued, the beneficiary designation of the life insurance, naming the ex-spouse as the one to inherit the insurance proceeds, was void.

What did the court say? Before we get to that, it’s important to note that these undue influence cases, these life insurance trials, these inheritance lawsuits, are very, very fact specific.

The court heard evidence about a divorce, about Alzheimer’s, dementia, forgetfulness, medical reports, long-term memory, and psychiatric evaluations. Just as you would expect, the dead person’s mental state, whether Mr. Baker knew what he was doing when he signed the beneficiary designation, whether Mr. Baker had the mental capacity, or legal capacity, to understand the beneficiary change, was central to the case.

Testimony of people who interacted with the policy owner around the time of the beneficiary designation change is vital for the court to make findings of fact regarding the dead person’s mental state. Who interacted with Mr. Baker around the time of the beneficiary designation change? What did his medical records say? What was he doing at that time? Could he analyze things? Was he capable of evaluating options? Was he capable of understanding things? Could he handle his business affairs? Could he enter into a contract? Did he understand who his family members were? Did he understand who won and who lost money by signing a beneficiary change on the life insurance policy in 1991? And……………….. who could testify to all of this? In the end, for a court to make findings of fact in an undue influence case, or in a life insurance trial, the court must find the testimony of the witnesses to be credible: believable and helpful. If a court in an insurance trial, or in and undue influence lawsuit, finds that witnesses are not believable, or not credible, the court will discount their testimony, and not rely on it.

Similarly, in these undue influence cases, whether you are in probate court in Palm Beach County, are involved in a Broward County probate, or are in federal court in the Midwest, one issue that you have to deal with is the following: was the owner of the life insurance susceptible to undue influence? Was the life insurance owner feeble? Or, perhaps, just slowing down, advancing in years, not as strong as he used to be and, gradually, growing weaker and more dependent on others? Remember, undue influence is often described as somebody exerting pressure or force upon somebody who is weaker, and who may be susceptible to coercion. One question for this life insurance and undue influence trial would be the following: was Mr. Baker strong enough to fight off any pressure or undue influence? Or, to the contrary, was Mr. Baker so aged that he was susceptible of being unduly influenced?

One important point to note in undue influence cases: “influence” is okay. You can ask someone for money. You can ask someone to change the beneficiary of a life insurance policy. It’s okay to ask someone for an inheritance. What is improper, however, is for someone to force someone, or to pressure someone, or to commit fraud upon someone who is not capable of defending those attacks or advances. You can’t take advantage of somebody who is not as strong as you and impose your will, your intent, over the weaker person.

So, what did the court say about undue influence? “……. the test used for determining whether Mr. Baker ….. had sufficient mental capacity at the time he executed the beneficiary designation on March 7, 1991 is the same test used for determining if a testator had the capacity to execute a will. …..A [testator] is shown to have testamentary capacity when the evidence reveals that, at the time of the execution of the will or codicil, the [testator] understood the ordinary affairs of life, the value and extent of [his] property, the persons who are the natural objects of [his] bounty, and that [he] is giving [his] property to the persons mentioned in the will or codicil in the manner stated. …………[does] he “has the right to dispose of [his] property according to [his] own way of thinking, and it is not for courts or juries to make a will or codicil for [him]. ….  [M]ere proof of illnesses, or imperfect memory, or forgetfulness of names and persons, or old age with its attendant physical and intellectual weaknesses, or mental confusion, or arteriosclerosis, either [singly] or in combination, unless it further appears that grantor did not understand the nature of the instant transactions, and did not with such understanding voluntarily enter into and consummate the transactions, are insufficient to invalidate [legal documents]. ………When a [beneficiary designation] is challenged on the grounds the person executing the instrument lacked testamentary capacity, the proponents of the challenged instrument have the burden to establish a prima facie case of due execution of the [beneficiary designation] and of the sound mind of the [grantor] at the time of the instrument’s execution.”

In the end, the court, in this inheritance lawsuit, concluded that even though Mr. Baker may have been “forgetful” around the time he executed the beneficiary change to the life insurance, and even though he may have had an “imperfect memory”, he nonetheless knew the nature and extent of his property, who his family was, and the “disposition that he wished to make of his property.”

If you’d like a copy of the opinion, email michelle@pankauskilawfirm.com .

In Florida, most of these inheritance lawsuits, most of these undue influence cases are fought in probate courts throughout Palm Beach County, Florida, Fort Lauderdale, and Miami. Some, though, believe that federal court, rather than state court, will be an increasing commonly used site for the battle over blood and money in the inheritance war.