By William O. Williamson
Do you need a review of your estate plan?
Many life events can bring people to take another look at their estate plan: marriage, the birth of a child, an upcoming medical procedure or upcoming travel. Another common trigger could be a prior or pending divorce.
On June 11, 2018, the U.S. Supreme Court decided a case that underscores the importance of careful estate planning, particularly if there was a prior divorce. In Sveen v. Melin, a majority of the Court ruled that Kaye Melin, a Minnesota resident should not receive the money from her ex-husband Mark Sveen’s life insurance policy even though she was still listed as the beneficiary under the policy at the time of his death.
In this case, the issue was a Minnesota law that automatically revoked an ex-spouse as beneficiary after a divorce. Melin argued that the Minnesota statute violated the Contracts Clause of U.S. Constitution, which bars states from enacting any law which impairs the obligation of contracts. The Court rejected this challenge and found the Minnesota statute to be valid. The insurance proceeds were awarded to Mark Sveen’s heirs, and not to Kaye Melin.
Regardless of which side of this argument you may fall, this decision underscored the importance of proper and diligent follow-up with respect to beneficiary designations, not only for insurance policies, but for all other applicable assets.
What does this ruling mean to the residents Ohio and Kentucky?
In 2007, the Ohio Legislature enacted a law similar to the Minnesota statute, providing that termination of marriage revokes the spouse as beneficiary in life insurance and other assets. The ruling in the Sveen case validates the Ohio statute.
Kentucky law, on the other hand, takes the opposite approach. In Hughes v. Scholl, the Kentucky Supreme Court held that termination of marriage does not automatically revoke the designation of an ex-spouse as a beneficiary, the rationale being that the parties can easily change designations after a divorce. In Kentucky an ex-spouse may be awarded insurance proceeds if listed as a beneficiary on a life insurance policy.
Despite the ruling in Sveen, the Hughes case remains the law in Kentucky given that the Sveen decision’s reach is only to validate the state statutes; it does not provide a blanket decision that would affect the validity of the Hughes ruling.
These decisions underscore the importance of careful planning. It is also worth noting that if a life insurance policy is part of an ERISA qualified plan, the beneficiary designation will not be superseded by a state statute such as the one found in Ohio.
The recent decision by the Supreme Court illustrates the importance of making and keeping your estate plan up-to-date to ensure that your wishes are carried out at your death and that your family members are appropriately cared for. If you would like to create an estate plan to care for your loved ones, or review an existing plan please contact Strauss Troy attorney Bill Williamson at (513) 768-9735 or wowilliamson@strausstroy.com.