3 Tips for Protecting Your Client’s Probate and Non-probate Assets

Recently, the Supreme Court in Hillman v. Maretta, 569 U. S. ____ (2013), re-affirmed an important tenet of trust and estate law: keep your information current. Otherwise, your (or your clients’) wishes might not be effectuated as envisioned. Trust and estate attorneys should carefully inventory the assets of a client. Assets can be classified as either probate or non-probate. Non-probate assets are not subject to a decedent’s will. Life insurance policies, such as the one at issue in Hillman, are a prime example of a non-probate asset and often require a separate form to designate beneficiaries.

Hillman v. Maretta: Rule

In this recent decision, the court unanimously ruled that the designation of a beneficiary under the Federal Employees’ Group Life Insurance Act (FEGLI), 5 U.S.C. §8716,  preempted a Virginia law revoking beneficiary designations for former spouses. Ultimately, the writing on the wall — er, beneficiary designation form — will control posthumous distributions of assets.

Hillman v. Maretta: Facts

Warren Hillman, a federal employee, designated his then-wife as the beneficiary under his FEGLI policy. He later divorced and remarried. Unfortunately, Warren never updated his beneficiary designation. After Warren passed away unexpectedly, both his widow and ex-wife claimed a stake in the proceeds of his insurance policy.

On appeal to the Supreme Court, the petitioner claimed that under Virginia law, a divorce or annulment “revoke[s] a beneficiary designation.” Hillman at 4.; Va. Code Ann. §20-111.1 (A). Furthermore, the Virginia Code has a “savings clause” that creates a private cause of action if Section A is federally preempted. Va. Code Ann. §20-111.1 (D). Under the savings clause, Virginia has created a private cause of action wherein “a former spouse… is personally liable for the amount of the payment to the person who would have been entitled to it were [§20.111.1] not preempted.” Id. Basically, the Virginia Code attempted to circumvent any federal preemption through its statutory structure.

Not surprisingly, the Supreme Court held that neither section of the Virginia Code could override the beneficiary designation. The court noted that in other cases the federal beneficiary designation had controlled in contravention of state law. See Wissner v. Wissner, 338 U.S. 655 (1950) (California law preempted and decedent’s widow not named as beneficiary could not get NSLIA benefits); Ridgway v. Ridgway, 454 U.S. 46 (1981) (under SGLIA, second wife entitled to proceeds instead of decedent’s children).

Tips for Practitioners

1. Identify clients who might have “federal” assets. Examples include military veterans or active members of the military. Less obvious examples: federal employees, postal employees, railroad employees, Peace Corps volunteers, or perhaps tribal employees.

2. Don’t depend on RCW 11.07.010. Similar to Virginia, Washington has a statute which revokes a beneficiary designation upon “dissolution or invalidation” of a marriage or domestic partnership. See RCW 11.07.010. However, as illustrated in Hillman, practitioners should not depend solely on statutory mechanisms to protect the intent of their clients. In the past, it might have been possible to rely on such statutes, but now as a matter of law, RCW 11.07.010 would be federally preempted for any federal non-probate assets.

3. Super-will Provisions. Adding a “super-will” provision provides practitioners the ability to dispose of non-probate assets through the will. See RCW 11.11.020. While a super-will provision can be useful, given Hillman, a super-will provision cannot substitute for a properly completed beneficiary designation.