Dallas Fort Worth Insurance Lawyer Blog
Here is a 1994 opinion regarding whether an estate can be the beneficiary of a life insurance policy. The opinion is from the Fort Worth Court of Appeals and is styled Street v. Skipper.
Here the Court held the surviving wife’s share of proceeds from community life insurance policy that was gifted to husband’s estate was not unfair to surviving wife because husband had bequeathed to wife other portions of his share of community estate that balanced gift of insurance proceeds and that aptly made up the difference.
Here are some relevant facts and law from the opinion.
Appellant alleges the court erred in not holding that the husband’s attempt to convert property interests of his wife into his separate property was unfair and unauthorized as a matter of law under the Federal Employee Retirement Income Security Act (ERISA).
In one of her points of error, appellant alleges she should have received at least one-half of the proceeds of each of four insurance policies because community funds paid for the policies and therefore, her husband did not have the power to dispose of her property upon his death. Her third point of error claims her deceased husband’s designation of his estate as beneficiary was in fraud of her community property rights. Her fourth point claims the court erred in not treating the policies’ proceeds as any other community property asset and thereby ordering that one-half of the proceeds be paid over to her. Each policy in question was held solely in the name of William G. Street. The Insurance Code states:
A spouse shall have management, control and disposition of any contract of life insurance or annuity heretofore or hereafter issued in his or her name or to the extent provided by the contract or any assignment thereof without the joinder or consent of the other spouse.
Under this statute, it was well within William Street’s rights to name his estate as the beneficiary of these policies. The question is whether in doing so he disposed of only his half of the community property proceeds, or all the proceeds.
Texas case law has struggled with this question at length. Numerous cases exist in which courts have determined a person did not have the authority to dispose of an ex-spouse’s half of the community proceeds of a community-owned life insurance policy just by changing the named beneficiary. But where a spouse is deceased, the courts have adopted a different view. While recognizing that the proceeds of a community-owned life insurance policy are community in character, it is not always necessary that any part of those proceeds be turned over to the surviving spouse. The designated beneficiary can be a third party or the deceased person’s estate, and the designation will be valid. The determining factor is whether the designation was made in the absence of fraud, either actual or constructive. The designation alone, however, will not constitute fraud.
In the case before us, there was no showing of actual fraud, and thus we must determine whether the gift of the proceeds resulted in constructive fraud. The pivotal question is whether the gift of the surviving spouse’s share of the community proceeds was unfair to that spouse. The gift will only be set aside if it is unfair. Factors the courts have considered in determining fairness include the size of the gift in relation to the total size of the community estate, the adequacy of the estate remaining to support the surviving spouse in spite of the gift, and the relationship of the donor to the donee.
Here, the proceeds of the four insurance policies left to William Street’s estate amounted to $1,264,444, of which appellant is claiming one-half, or $632,222. Evidence presented at trial revealed that the total community property estate, including the life insurance proceeds, was valued at approximately $4,591,146. Under her husband’s will, appellant retained from the community estate approximately $2,322,762 in assets and William Street’s estate received approximately $2,268,384 in assets. These numbers reveal that Street kept slightly more than half of the community property to which she was entitled. Slightly less than what would have been William Street’s share of the community property, he left to his estate as he is entitled to do and as would have occurred had he died intestate. Additionally, appellant received $213,444 from her husband’s separate property, plus homestead rights in the home they shared which was his separate property. Therefore, although William Street gave his wife’s share of the community property proceeds of the life insurance policies to his estate, he also bequeathed to her certain portions of his share of the community estate that aptly made up the difference. Appellant still received more than half of the community estate despite the gift to William Street’s estate, and we cannot find that such disposition was unfair to her. The gift of the community funds to his estate was not capricious, excessive, or arbitrary as is evident by the resulting split of the community property.