Florida Life Insurance Beneficiary Rules Explained
For Florida residents, understanding life insurance beneficiary rules is a critical part of planning your estate and financial future. Issues related to life insurance are complicated and technically dense by their nature. Administratively, they can often be difficult to fully comprehend.
Florida law includes many aspects related to life insurance that can complicate issues related to life insurance. Among other things, Florida law addresses survivorship, preneed annuity contracts, preplanned funeral arrangements, trusts, remainders, per stirpes, lineal descendants, and various exempt and non-exempt accounts and personal property.
Florida Probate & Family Law Blog will examine each of these issues, and others, in turn. In California and many other states, for example, there is a concept of a "total" estate that includes various assets outside the general Probate process. By comparison, Florida is very restrictive is this regard .
In addition to the basic concepts, the Blog will also discuss many of the intricacies of Florida life insurance law that are often forgotten or overlooked. Taken as a whole, the Florida Probate process is very comprehensive. This includes requirements related to many forms of insurance as well as regarding the beneficiaries.
What happens when you have multiple life insurance policies? What level of due diligence or "reasonable inquiries" is required by the law. What happens if there is conflicting language in the policy documents? What if you change your named beneficiary while the policy is still active? What if you "change your mind" about a named beneficiary. What sorts of things would invalidate a named beneficiary. In Florida, there is a "witness" requirement. Does it matter? What obligations do insurance companies have with beneficiaries? Do an insurance company’s administrative duties change over time? All these questions and more are discussed on the Florida Probate & Family Law Blog.
Types of Beneficiaries
Multiple parties may be entitled to receive the Florida life insurance proceeds after your death. Understanding the various Florida life insurance beneficiary designations is critical to determining which parties are entitled to the insurance proceeds. Florida law recognizes:
Primary beneficiaries – a primary beneficiary is a person or legal entity (such as a trust) that is the first to be designated to receive the benefits from the life insurance policy if you die before the named beneficiary does. Primary beneficiaries become entitled to the insurance proceeds once you die. If it is clear that you intended the proceeds to go to your primary beneficiaries, then they will receive the life insurance proceeds regardless of other Florida laws. For example, a primary beneficiary designation on a life insurance policy may override a state intestacy statute that normally would have given preference to a spouse or child.
Contingent beneficiaries – a contingent beneficiary is a person or legal entity (such as a trust) that will become entitled to receive the benefits from the life insurance policy only if an earlier beneficiary designation is avoided under Florida law. Contingent beneficiaries are entitled to any benefits in the following situations:
- Your primary beneficiary(ies) dies before you.
- Your primary beneficiary(ies) is deemed unfit or legally unable to receive the insurance proceeds.
- The policy fails to designate a primary beneficiary. For example, the primary beneficiary is described vaguely, or the primary beneficiary designation is unintelligible.
- The insurer cannot find the beneficiary(ies) because of a lack of contact information, or if the primary beneficiary(ies) die in circumstances where their existence cannot be proven.
Irrevocable beneficiaries – an irrevocable beneficiary designation is one that the policyholder cannot change without the written consent of the beneficiary(ies). In most cases, the designation of irrevocable beneficiaries is done to protect their entitlements to the insurance proceeds. You can, however, specify whether the consent of the beneficiary(ies) will be required for any future changes.
How to Name a Beneficiary in Florida
The process for designating a beneficiary on your Florida life insurance policy is often very simple and easy to understand. You simply contact your life insurance company and request a change of beneficiary form. Once you have the change of beneficiary form, all that you need do is fill it out and sign it. The change of beneficiary form does not need to be witnessed nor notarized. Your insurance company is prohibited by Florida law from requiring the signature of an attorney or a notary public, so be cautious if you encounter any representative who insists that you have to have a change of beneficiary form signed by an attorney or a notary public.
Once you fill out the change of beneficiary form, you will be asked to list the names, social security numbers, addresses and relationships of the intended beneficiaries, as well as the percentage that each beneficiary is to receive. It is important that the form specifically indicate what each of the beneficiaries is entitled to receive. For example, it is not enough to simply list one person as your beneficiary and leave the form at that. Why? Because of the inadvertent Common Disaster Rule that operates when the insured and the beneficiary die together or in quick succession. If the amount of the proceeds is unknown or the beneficiary is not identified, the proceeds will go to your estate or other unintended beneficiaries.
For example, let’s say that you have a six year old son. The Common Disaster Rule would probably prevent the proceeds from going to your son unless he is specifically identified in your beneficiary designation. Without identification, the proceeds will likely go to your estate and then down your intestacy chain of heirs. Three of the most common mistakes that people make when completing their beneficiary designation are as follows:
These mistakes are unnecessary and easily correctable. The best practice is to clearly identify your beneficiaries and their relationship to you when completing the change of beneficiary form.
How to Change a Beneficiary
In Florida, there must be a beneficiary designated to receive the proceeds of a life insurance policy upon the death of the insured. In circumstances where the policyholder and insured are not the same person, the policyholder has the power to make changes during his or her lifetime to the beneficiary designation for a life insurance policy. Once the insured passes away, the beneficiary designation cannot be virtually changed. The power to change the beneficiary on a life insurance policy is a broad power of appointment that is subject to the modification rules of the Restatement (Second) of Property: Wills § 11.1. Essentially, the power to change is irrevocable, and cannot be used for any purpose other than designating a beneficiary. A power of appointment can be exercised in two contexts: (1) in the manner of a power of appointment, in which case Florida law controls; or (2) in the manner of a will, at which point the Florida Probate Code comes into play.
If the insured’s will states that a particular person, or class of persons, will receive the funds at death, and the rest of the property shall go to the testator’s estate, the provision "in the manner of a will" is created. See Restatement (Second) of Property: Wills § 11.1 cmt. b. The testamentary-like devise is effective only if the policyholder did not possess the power to make a change. See Restatement (Second) of Property: Wills § 11.1 cmt. e.
To effectively change a beneficiary, it often must be done in accordance with the procedures set forth in the policy. Under Florida law, a change of beneficiary is effective as of the date the request for change was made to the insurer in writing, provided a change of beneficiary form was completed per the procedure set forth by the insurer. See Fla. Stat. § 627.4554(2). Further, even where the insured has not yet died, the insurer may still refuse to allow the named beneficiary to change. In Florida, a named beneficiary has the right to maintain a proceeding to compel the delivery of the change of beneficiary request within one year after the request has been filed with the insurer. See Fla. Stat. § 627.4554(5)(b). Whether or not the insurer is justified in declining or refusing to allow the change of beneficiary to a named beneficiary is determined in accordance with the provisions of the policy and other terms and conditions that relate to the insurance policy issued by the insurer.
According to Florida Statutes, the policyholder does not lose the right to exercise any rights of ownership during his or her lifetime. Fla. Stat. § 627.4554(5)(a) The change must be perfected during the lifetime of the policyholder. The parties can rely on the original policyholder to exercise the change, unless the insurer receives a written notice of a change of policyholder prior to the insured’s death. Fla. Stat. § 627.4554(6).
A change of beneficiary may often be made in anticipation of a divorce, in order to ensure that the new wife will not receive the proceeds of the insurance should her new husband die within 2 years of the marriage. See Fla. Stat. § 732.703(2).
Challenges to Designated Beneficiaries
Contesting Beneficiary Designations commonly are difficult and complex. Contesting the designations, however, can make a good deal of sense to consider in situations where insurance proceeds which may supersede a Florida Will.
Florida law provides a process to challenge the designation of a beneficiary for life insurance or other contractual right that is exercised in derogation of the rights of a surviving spouse or another interested party. This process is similar to the Florida litigation processes to amend, revoke, or reform a prenuptial or postnuptial agreement. While the procedures and time frames to contest beneficiary designations differ, the same issues discussed in a prior post related to postnuptial agreements apply. There’s a wrong way and a right way to pursue either type of action. Going down the wrong path can have disastrous results.
Under Florida Statute Section 732.703, a life insurance beneficiary designations in Florida in some cases can be contested on the basis of the same or similar grounds as you would use to contest a prenuptial agreement-namely by showing fraud, duress, coercion, mistake, or incapacity. Or more simply stated-that the person who made the change lacked the mental or physical ability to understand the nature and consequences of the action at the time it was made.
Similar to prenuptial and postnuptial agreements, a life insurance beneficiary designation can be set aside in Florida if it was procured by undue influence.
Undue influence is defined by Florida law as where a beneficiary designation is obtained by a person through "unjust persuasion" that skews the free will of the maker. One person’s influence over the another may be considered "unjust" when it overcomes the maker’s free agency, when it leads the maker to act or refrain from acting because of a desire to please the influencer, or when it fails to afford the maker a reasonable opportunity to rely on their own judgment. Also, an undue influence requires an inequitable result.
While similar in some aspects, undue influence is distinct from fraud because it can occur without a misrepresentation of material fact. For example, undue influence can arise when a person with a willful intent violates their fiduciary duty to a testator or maker by persuading the testator to change a will or beneficiary designation to their own benefit. When this occurs, the maker’s beneficiary designation can be set aside as fraudulent by the court.
The process to contest a life insurance beneficiary designation in Florida begins with filing a petition in the Circuit Court on behalf of a party with standing and notice of the same to the individual(s) named in the questioned beneficiary designation. A careful review of the pleadings is necessary to increase the chances of success. This is particularly true where the beneficiary designation is made in a contract. The insurer will need to be joined as a party defendant so that the contract dispute may be determined in the same action.
The Court may require that the parties submit to an evidentiary hearing and present proof of fraud, duress, undue influence, or incapacity as part of the proceeding. If successful, the beneficiary designation will be set aside.
Role of State Laws on Life Insurance Beneficiaries
Florida statutes have several unique provisions which can significantly impact life insurance beneficiary designations. Statute 732.703 discusses the concept of a "pretermitted" child. O.B.L. v. West Coast Life Ins. Co., 682 So. 2d 1073, 1076 (Fla. 5th DCA 1996) defines a "pretermitted" child as follows: A "pretermitted" child is one born after the death of the person making a testamentary provision; but importance must be attached to the idea that to make any devise or legacy to a posthumous child "pretermitted" the testator must have a knowledge of the contemplated future birth, as to that contingency the former rule of construction must prevail. (Emphasis added.) However, Florida Statute 732.111, specifically concerns a "non-marital" child. It reads: Any child born or conceived and in gestation before or at the commencement of a marriage of his or her parents whose paternity is established by clear and convincing evidence, under the standards set forth in subsection 742.10(1), or whose paternity is established in a proceeding under chapter 742 , is considered to be a "nonmarital" child and inherits as a nonmarital child from his or her mother and from any man who has acknowledged his paternity under oath or by filing a signed, sworn notarized document with the putative father registry under s. 382.0135. Here, any child whom a father acknowledges his paternity through a voluntary statement, may inherit from the father. There is a case from the second district court of appeal, Theela v. Brown, 922 So. 2d 436. In that case the father and mother were not married, but they had two children together. The mother updated her life insurance beneficiary forms on more than one occasion. On one beneficiary designation form, the mother listed the children and at one time she crossed the children out and only listed herself as the beneficiary. At the time that she died, she did not change the beneficiary forms and the children were beneficiaries on the last life insurance form she completed. However, the life insurance company argued that over the period of time the mother made her various designations the children should not have been considered as beneficiaries. The Court held that the children could recover as beneficiaries.
Beneficiary Tax Implications Under Florida Laws
Life insurance is primarily purchased to provide financial support and security to those who will be left behind upon the demise of the insured. While there may be many types of insurance needs, the main function of a life insurance policy is leaving a death benefit to beneficiaries. In Florida, whether a person dies with a Last Will and Testament or without one (intestate), as long as the decedent retains ownership of the policy, the death benefit is not subject to income tax. However, it may be subject to estate and inheritance tax in some situations.
Beneficiaries of life insurance proceeds, which are distributed to them under a beneficiary designation, may be subject to federal estate tax upon the death of the insured. These beneficiaries may be able to exclude the first federally taxable $11.58 million in death benefits pursuant to the federal estate tax exemption for the year 2019. The Florida estate tax rules exempt the first $5.49 million for decedent dying on or after January 1, 2018 to December 31, 2018 and $5.45 million for decedent dying on or after January 1, 2017 to December 31, 2017. There is no Florida estate tax for decedent dying on or after January 1, 2019. Thus, if there is a Florida estate tax due, pursuant to Section 1980.03, Florida Statutes, the Florida estate tax must be paid before any distribution is made to any beneficiary. Even if the federal estate tax exemption is less than the gross estate, the Florida estate tax law (Section 2042, Florida Statutes) excludes the amount of federal estate tax attributable to the deceased insured’s death benefit. However, if the Florida Statutes were to exclude the entire federal estate tax liability, such exclusion could provide a double exclusion and thereby could constitute improper "tax avoidance" since the decedent’s estate would have to pay federal estate taxes and then their beneficiaries would not have to pay federal or Florida estate taxes.
Common Pitfalls to Avoid
A frequent error made by policyholders when designating beneficiaries on their life insurance policies is failing to properly name their intended beneficiaries. This often occurs due to a lack of understanding of what a legal beneficiary designation requires. When naming a beneficiary, the policyholder should take care to explicitly state their intent and avoid use of extraneous language or ambiguities that may actually lack effect under the policy’s terms. Designating beneficiaries who predecease the insured’s death is a common pitfall for policyholders. The failure to designate a backup beneficiary may result in the loss of benefits to a contingent beneficiary, or may even completely frustrate the insured’s intent if no beneficiary is ultimately named.
Another common mistake involves the use of trusts or entities as life insurance beneficiaries. There are many types of can be named as a beneficiary of life insurance policy: only those entities described in Florida’s statute on life insurance trusts are valid. Policyholders should act with caution and seek guidance in these areas for the best results. Failing to seek appropriate counsel has other unique pitfalls that involve errors of omission. Often, the types of mistakes that occur here fall under the category of beneficiary designations that may have worked under a prior policy, but failed to mesh properly with a new policy, or not communicating policy changes that may even affect overall estate planning efforts. Policyholders should, at the very least, notify their agent of any changes in their overall plan and its status to avoid any unexpected results.
In short, probate litigation under Florida law can be expensive and time consuming. Proper planning may eliminate the need for costly litigation, or its effects on your ultimate estate planning goals. At the end of the day, a policyholder should understand that the benefit of life insurance policy may be distributable in probate, and executed in such a way as to reduce the estate, pursuant to Florida law.
Conclusion: Securing Your Loved One’s Future
By understanding the rules and requirements for Florida life insurance beneficiaries, you can rest easier knowing you’ve done everything in your power to secure your spouse’s financial future. Your loved one’s financial security may well depend upon it. Even the slightest mistake may make the difference between them receiving a loss benefit or having your life insurance policy declared invalid. Clear , deliberate intent to establish a beneficiary is imperative. Florida courts almost always rule in favor of life insurance companies and the estate of the deceased if conflicts arise over a policyholder’s intent. Follow each and every requirement set forth in your policy to the letter. Likewise, if you have any questions or concerns about the actions of your deceased loved one, speak to an experienced South Florida probate attorney. They can help you determine whether or not a challenge is warranted and, if so, how to best proceed with it. Most importantly, they can help you safeguard your loved one’s legacy and financial future.