Tuesday, October 22, 2013

Powers of Attorney and changes in beneficiary designations on life insurance and retirement plans.

Recently I have had a lot of cases in which someone has used a power of attorney to change the beneficiary designations on an elder's life insurance or retirement plan. After the change, the elder dies, the life insurance company or the administrator of the retirement plan pays off according to the beneficiary designation, and then shortly thereafter we are in court.

Let's review. When a person dies, property passes in one of three ways. Property owned jointly with a right of survivorship passes to the joint owner. Life insurance, retirement accounts and pay-on-death accounts go to to the person named on the beneficiary form. The remainder of the property passes according to the terms of the will.

One of the ways to make the will less important or even worthless is to make sure all the major assets pass by joint ownership or beneficiary designations. In the case of real estate, a person might do this by talking the elder into "putting him on" the deed to the house. In the case of life insurance or retirement accounts the person mght convince the elder to change his beneficiary. Sometimes, however, the elder cannot change beneficiary designations. If a person who wants the change to happen has a power of attorney that allows the agent to change the designation, the agent can change the designation himself. If the agent changes the designation to himself, or someone closely related to him, then when the elder dies, we will be going to court.

Going to court is good for me, but not so good for the family.

I have had so many cases about a change of beneficiary made by an agent under a power of attorney that I have changed my standard power of attorney to eliminate the power of the agent to change  beneficiary designations. A power of attorney is intended to allow the agent to handle financial matters for the benefit of the elder.  Beneficiary designations control what happens after the elder has died. I do not understand how changing who gets money after an elder dies is helping a living elder. An agent under a power of attorney cannot change a will: why should the agent be able to change beneficiary designations.

Other lawyers do not share my concerns.  A lot of powers of attorney explicitly or arguably allow the agent to change beneficiary designations, and the agents under those powers seem willing to do it. What happens when they do? The elder dies and the person who used to be the beneficiary sues the person who got the money.

These tend to be complicated cases. Will contests and trust contests all look about the same. Lawyers challenging a change in beneficiary designation need to find a legal theory to get the case to court, and the theories vary from the sublime to the ridiculous. A discussion of those theories is far beyond what I can do in a blog, but I can assure you that when creative legal theories are necessary, the legal bills are high.

As for advice: don't use a power of attorney to change the beneficiary designations for someone else. This goes double if you think it is a good idea to make yourself the beneficiary. And it goes triple if your reasoning is that you have to name yourself because that is what the elder really wants but the elder is too incapacitated to do the deed him or herself. If you ignore warnings one, two and three, and the life insurance company or retirement account administrator pays off, be sure to stash at least half of the proceeds to pay your lawyer in the litigation that is sure to follow.

1 comment:

  1. I read your statement with great interest because I was looking for a situation similar to mine. Your scenario seems completely logical, ethical and predictable. My situation is slightly different. I, as a power of attorney, want to create P.O.D. beneficiaries to bank accounts where no such designations currently exist. I wanted to add this POD exactly the same as the beneficiaries of the Will. Investment accounts currently have TOD's matching the Will. There are 4 beneficiaries, my nephew, my niece, my sister, and myself. Here's the rub. I have been a beneficiary many years longer than I have been a power of attorney. Because I was named power of attorney 8 yrs. ago, I now cannot make designations which make all accounts uniform. The reason given - A power of attorney cannot be one of the beneficiaries, even if the Will states it so. How can this be fixed?