Kentucky High Court Affirms Deathbed Disinheritance by Beneficiary Designation

On May 5th, 2016, The Kentucky Supreme Court published an interesting opinion that could have implications for estate and trust law in the Commonwealth as it applies to spousal rights.

The parties involved, John Bays and Carole Kiphart, were married in 2000, and executed reciprocal wills. Carole purchased two life insurance policies with the benefits payable to her husband and their minor son.

Carole was admitted to a Cancer Center in Lexington in September of 2007.  She passed away at the end of the following month, but before her death, Carole created a new will that effectively disinherited her husband. Carole then created two trusts and eliminated John as a beneficiary on the two life insurance policies, instead naming the trusts as beneficiaries.

After the death of his wife, John renounced his Carole’s will, and then chose to take his spousal share under Kentucky law. John also sought to take a portion of the life insurance proceeds which passed outside of his deceased wife’s estate.   According to John’s argument, he had no knowledge or consent of the changes to the insurance, therefore, there was fraud on his spousal interest. The circuit court found in favor of John.  However, the Kentucky Court of Appeals reversed.  The Kentucky Supreme Court affirmed the Appeals ruling by noting:

“A life-insurance beneficiary has only a contingent interest in the benefits of the policy, and where the insured retains the right to change the beneficiary, that right is virtually absolute. Where a dying spouse exercises that right to remove the surviving spouse as a named beneficiary and instead names a trust for the benefit of the minor child of the marriage, the surviving spouse cannot claim fraud on his or her statutory spousal interest.”

This opinion not only affirms the right of a dying spouse to remove a surviving spouse from a life insurance policy, but it also reinforces the importance of a prenuptial agreement or postnuptial agreement.  Both parties entering into a pre or postnuptial agreement will often be better served than defaulting to the 50% spousal share.  Because of the high cost of litigation, it is wise to consider heading off problems with these types of agreements.

Kelli Brown is a Partner at Goldberg Simpson, and represents clients in all aspects of estate planning, estate administration, probate, estate litigation, and prenuptial agreements. She is a fellow in the American College of Trust and Estate Counsel (ACTEC), and a frequent presenters in all areas of trusts and estates.