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The importance of reviewing beneficiary designations

When a Pennsylvania resident gets divorced, they should consider changing the beneficiary on their life insurance policy. If an ex-spouse is still listed as the beneficiary, they may be entitled to any death benefit associated with that policy. However, this may not be the case if a divorce decree contains language saying that the beneficiary designation is withdrawn as part of the settlement.

There is legal precedent for the terms of a divorce decree overruling the terms of a life insurance contract. In 2017, a court ruled for a deceased man's daughter who was named the beneficiary of the policy in the divorce decree. This was despite the fact that the man's uncle was listed as the beneficiary on the policy itself. It was not clear in that case whether the uncle or the insurance company repaid the money.

The lesson from the case is that it's important to keep track of beneficiary designations and review them regularly. Updating these designations could eliminate confusion and reduce the amount of time and money spent in a courtroom. Typically, the life insurance company will pay out to whoever is named the beneficiary on the policy as it generally doesn't keep track of divorce proceedings.

Simply drafting estate plan documents may not be enough to have funds allocated as intended. Instead, it may be necessary to review and update them after major life events such as a divorce. An attorney could create new documents or review those that are already in effect. By having a lawyer help create or edit a beneficiary designation, this could reduce the odds of a legal challenge.

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