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Employees Are Responsible for Beneficiary Designations

The Federal Employees’ Group Life Insurance Act of 1954 (FEGLIA) establishes an $824 billion program providing low-cost life insurance for hundreds of thousands of federal employees. FEGLIA allows an employee to name a beneficiary of life insurance proceeds, and specifies an “order of precedence” providing that the employee’s death benefits accrue first to that beneficiary ahead of other potential recipients.

In 1996, when he was one of those federal employees who could participate in the FEGLIA program, Warren named Judy, his wife at the time, as the named beneficiary on his life insurance policy. In 1998, the couple divorced. In 2002, Warren married Jacqueline. Warren died suddenly in 2008, without ever having changed the named beneficiary from Judy to Jacqueline. As a result, the ex-wife Judy filed a claim for the $125,000 in life insurance proceeds, and was paid them.

Jacqueline sued Judy in a state court to recover the life insurance proceeds, and she had more to support her claim than just a supposition that Warren would have wanted it that way. In short, she claimed with some justification to have state law on her side.

A state statute revokes a beneficiary designation in any contract that provides a death benefit to a former spouse where there has been a change in the decedent’s marital status. In addition, in the event that this provision is pre-empted by federal law, a separate provision of the state law provides a cause of action making the former spouse liable for the principal amount of the proceeds to the party who would have received them if the first provision was not preempted.

The U.S. Supreme Court sided with Judy, the former wife, notwithstanding that there was a certain logic to the position that Warren most likely would have preferred that the proceeds go to his wife at the time of his death. The unassailable fact was that, though he had ten years after his divorce from Judy and six years after his remarriage to Jacqueline to do so, Warren never changed the named beneficiary on his policy.

Most importantly from a legal standpoint, his selection of a named beneficiary could not be overridden by operation of any state law. Such a result was foreclosed by the doctrine that federal law preempts state law where the two conflict. Thus, even the state statute that sought to foresee the possibility of federal preemption and accomplish an end-run around it could not do so.

Simply put, if a beneficiary, Judy in this case, is properly named for a FEGLIA policy, the insurance proceeds owed to that person cannot be allocated to another person, in this case Jacqueline, by operation of state law. Apart from the legal precedent it set, the case is an object lesson in the importance of keeping one’s estate plans, including beneficiary designations, current. Had Warren taken the simple step of filling out the form to change beneficiaries on his policy sometime before he died, assuming that was his wish, the protracted litigation that ensued after his death could have been avoided.

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