The Contested Beneficiary Designation
Robert died in March. His $300,000 whole life policy named "my spouse, Ellen, if living, otherwise my children equally." Robert and Ellen divorced in 2019, and he remarried Nadia in 2021. Robert completed a change-of-beneficiary form in 2022 naming Nadia, but the form was received by the insurer without the policy itself and was never recorded in the insurer's system; the agent kept a copy in his file. Robert's will, executed in 2023, leaves "all insurance proceeds to Nadia." Ellen, Nadia, and Robert's two adult children from his first marriage all claim the proceeds. The policy contains a standard facility-of-payment clause and a spendthrift clause.
1. Determine who is entitled to the proceeds, addressing the policy, the change form, and the will in order of controlling authority.
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The beneficiary designation in the policy controls, not the will. A will cannot override a contractual beneficiary designation unless the designation itself fails, so the will's gift to Nadia is ineffective to the extent the policy names a valid beneficiary. The policy names Ellen "if living" - and she is living, so the primary designation is not vacant merely because of the divorce. Divorce revokes beneficiary designations only if state law or a divorce decree so provides; the facts give no such decree, so Ellen remains the named primary beneficiary as written.
The 2022 change form is the wild card. Most policies require the change to be received and recorded by the insurer, and many provide that a change takes effect on the date the form is signed, even if the insured dies before it is recorded - but only if the form is received by the insurer. Here the insurer never received or recorded it. Under the typical policy language, the change was never effective, and the agent's file copy does not substitute for delivery to the insurer. Absent a statute or policy clause treating mailing as receipt, Ellen takes the proceeds. If the policy uses the "signed-date" rule and the form was mailed but lost, the result could flip to Nadia, so the exact clause must be read.
2. Explain how the facility-of-payment and spendthrift clauses affect distribution and creditor claims.
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The facility-of-payment clause lets the insurer pay a portion of the proceeds to a relative or to a person who appears equitably entitled, when the named beneficiary is a minor, deceased, or unavailable, or when there is a dispute. It protects the insurer from double liability if it pays in good faith, but it does not decide who is legally entitled - it only lets the insurer discharge its obligation. Given the competing claims, the insurer may invoke the clause or, more likely, interplead the funds and let a court decide.
The spendthrift clause restricts a beneficiary from assigning or encumbering the proceeds and generally shields the beneficiary's interest from that beneficiary's creditors while the insurer holds the funds. It does not protect the proceeds once paid outright to a beneficiary, and it does not resolve the priority dispute among Ellen, Nadia, and the children. Practically, the insurer should not pay until the designation question is settled, because paying the wrong claimant exposes it to suit even with the clause.