It is common to leave assets to surviving loved ones using payable-on-death or transfer-on-death designations. These designations allow you to name beneficiaries directly to take over an account or asset. Life insurance policies typically allow for direct beneficiary designations, and while this can be convenient, issues could arise during probate if a spouse is not named as the beneficiary.
In community property states, like Texas, a spouse is usually entitled to a claim of certain benefits, including those from a life insurance policy. If another person is named as the beneficiary, the spouse could potentially make a claim in efforts to obtain at least a portion of the payout. This is particularly true if the policyholder used marital funds to pay the insurance premiums. As a result, conflict over who gets the funds could occur.
Issues can also arise if the policyholder does not periodically update the beneficiary designation. In such a case, it is possible for an ex-spouse to be named as the beneficiary. State laws will come into play as to whether an ex-spouse can obtain the life insurance payout, but it may still take probate litigation to determine who has a rightful claim.
Though payable-on-death designations and life insurance policies can certainly be useful in helping surviving loved ones receive assets immediately instead of having to wait until probate is completed, complications can arise if beneficiary designations are not up to date or if the designations conflict with state law. If you believe that you may have a claim to an account or life insurance policy, you may want to discuss the matter with experienced attorneys. In some cases, litigation may be necessary to ensure that the appropriate party obtains his or her rightful inheritance.