How Guardians Can Change Life Insurance Beneficiaries

A guardian may be able to change the beneficiary of a life insurance policy, but this depends on several factors, including the type of guardianship, the powers granted to the guardian by the court, and the laws of the state in which the guardianship is established. In some states, such as Maryland, a guardian cannot change the beneficiary of a life insurance policy without prior court approval. In other cases, a guardian with certain powers may be able to sign a Beneficiary Designation form on behalf of the policyholder.

Court order

In the United States, a guardian's ability to change a life insurance beneficiary depends on the type of guardianship, the powers granted to them by the court, and the state in which they are located. While a guardian may sign a Beneficiary Designation form on behalf of a participant in specific situations, it is generally understood that a court order is required for such changes to be made.

In the state of Ohio, for example, guardians can engage in limited estate planning for their wards with probate court approval. They may convey or release interests in the ward's property, create revocable trusts, and exercise the ward's rights under an insurance policy. However, they are not permitted to change beneficiary designations on the ward's insurance policies or retirement plans without a court order.

Similarly, a recent case in Maryland, United Bank v. Buckingham, established that guardians in the state cannot change the beneficiary of a ward's life insurance policy without prior court approval. The Court found that while a guardian has the authority to conduct several life insurance transactions, the specific power to change beneficiaries is not included.

In conclusion, while a guardian may be able to change a life insurance beneficiary in certain circumstances, it is generally necessary to obtain a court order. This is to ensure that the guardian is acting in the best interests of the ward and to prevent any potential abuse of power.

Power of attorney

A power of attorney (POA) is a legal document that designates another individual (the agent) to make decisions on behalf of the principal (the grantor or donor) if they are unable to do so themselves. There are several types of POA: general, special or limited, durable, and springing durable. A POA can be a useful tool for ensuring that life insurance proceeds are received by the intended beneficiaries.

A POA can be used to change a life insurance beneficiary, but only if the policyholder has granted the agent the authority to do so. The POA document must explicitly state that the agent has the power to change beneficiaries. The agent must act in the best interests of the principal and has a fiduciary responsibility to act in good faith when making any changes. If the agent does not act in the principal's best interests, they are violating their legal duties, and the removed beneficiary has the right to dispute the claim.

It is important to note that a POA does not allow an agent to change the beneficiary after the policyholder's death. The POA ceases to be in effect once the insured individual passes away, and any changes to the policy must be made during the policyholder's lifetime. Additionally, an agent with a POA cannot name themselves as the beneficiary unless the document explicitly grants them this right.

In the case of guardianship, a legal guardian may be able to sign a Beneficiary Designation form on behalf of a participant, but this depends on the order and powers granted to the guardian by the court. The court may authorize the guardian to spend the ward's money for their comfort, support, and education, but the guardian must keep their finances separate from that of the ward and is responsible for seeking the necessary funds from the ward's income and assets.

Policyholder approval

In most cases, only the policyholder can change the beneficiary of a life insurance policy. However, there are certain situations in which a guardian may be able to change the beneficiary, but this depends on the specific circumstances and the laws of the state in which the policyholder resides.

In the state of Ohio, for example, guardians can do limited types of estate planning for their wards with probate court approval. They may convey or release present, contingent, or expectant interests in the ward's real or personal property. They are also permitted to create revocable trusts for the ward's property, but these trusts may not extend beyond the minority, disability, or life of the ward. It's important to note that, under current Ohio law, guardians are not allowed to change beneficiary designations on the ward's insurance policies. However, there are proposed changes to the law that would expand the power of guardians to make these changes.

In Maryland, a recent court case (United Bank v. Buckingham) established that a guardian cannot change the beneficiary of a ward's life insurance policy without prior court approval. The court found that the general language in the Estates and Trusts Article, which gives a guardian "all the powers over the property of the minor or disabled person that the person could exercise if not disabled or a minor," was insufficient to authorize such a change.

In Indiana, it is possible for a legal guardian or conservator of the estate to sign a Beneficiary Designation form on behalf of a participant, but this depends on the order and powers granted to the guardian by the court.

It's worth noting that, even if a guardian has the power to change the beneficiary of a life insurance policy, they are still bound by their duty to act in the best interests of the ward and preserve their estate for the ward's heirs. If there is any doubt about whether a guardian has the authority to make changes, it is generally recommended to seek court approval in advance.

Community property state

In the US, there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Three other states—Alaska, South Dakota, and Tennessee—have elective community property laws, which allow married couples to choose to have equal ownership of their joint property.

If you live in a community property state and bought your policy after you got married, you’ll need your spouse’s permission to name someone other than them as your beneficiary. This is because, in a community property state, if you used money earned during your marriage to pay your life insurance premiums, your spouse may automatically be entitled to a percentage of the death benefit. To prevent this from happening, your spouse must give written consent to the named beneficiary before you die.

Only the policyholder can change a life insurance policy’s beneficiaries, with rare exceptions. One such exception is if you’ve granted someone power of attorney, a legal document that lets someone make financial, legal, or medical decisions on your behalf.

Irrevocable beneficiary

An irrevocable beneficiary is a person or entity in a life insurance policy who has irreversible rights to the policy's death benefit and cannot be removed or changed without their consent. This designation provides security and predictability for the beneficiary, especially in situations where financial support must be guaranteed, such as divorce settlements or loan agreements.

When choosing an irrevocable beneficiary, the policyholder makes a lasting decision that cannot be easily changed. The beneficiary's rights are locked in, and they are guaranteed to receive the benefit as long as the policy remains in force. This offers peace of mind to both parties, as the policyholder knows their wishes will be honoured, and the beneficiary is assured of their future financial protection.

The process of removing an irrevocable beneficiary can be complex and may require legal action or the beneficiary's consent. In most cases, the policyholder will need to submit a Change of Beneficiary form, which must be signed by the current beneficiary to indicate their approval of the change. Some forms may also require the signature of a notary or third-party witness.

Irrevocable beneficiaries are often used in situations where financial security must be guaranteed. For example, in cases of divorce involving minor children, a court may require an ex-spouse to be named as an irrevocable beneficiary to ensure the children's financial protection. This way, regardless of any changes in the relationship between the policyholder and the ex-spouse, the children's future financial support remains secured.

Another scenario where irrevocable beneficiaries are considered is when life insurance is used as collateral for a loan. In this case, the lender may be named as the irrevocable beneficiary until the loan is repaid. This ensures that if the borrower passes away before settling the debt, the lender will receive the insurance payout to cover the remaining balance.

While irrevocable beneficiaries offer security and peace of mind, they also come with limited flexibility. Once designated, the policyholder loses the ability to make changes without the beneficiary's consent, which can be problematic if circumstances change. Policyholders may also face restrictions on certain financial decisions, such as taking out a loan against the policy or changing contingent beneficiaries, without the irrevocable beneficiary's approval.

Frequently asked questions