Estate and Probate Law—Testamentary Disposition of Non-probate Assets: Whether IRAs are Comparable to Life Insurance Policies and Whether Testators Should Be Able to Change an IRA Beneficiary by Will. Nunnenman v. Estate of Grubbs, 2010 Ark. App. 75, __ S.W.3d __.

By Ashley L. Haskins | 34 U. ARK. LITTLE ROCK L. REV. 153 (2011).

Contrary to the consensus of a vast majority of the states, Arkansas law recognizes testamentary changes to insurance beneficiaries as long as the insurance policy to be changed is specifically identified, and the testator‘s intent to change the beneficiary is clear.  Under Arkansas law, all that must be shown in order for a court to validate a testamentary change to a life insurance beneficiary is that the document purporting to make the change satisfies the necessary requirements to be a valid will, the policy to be changed is clearly identified, and the testator‘s intent to effectuate a change in beneficiary is clear. Recently, in  Nunnenman v. Estate of Grubbs, Arkansas courts, however, were confronted with the issue of whether this unique doctrine should be extended to other non-probate assetsIn this case, the court considered whether a purported amendment to a beneficiary designation by holographic will effectively changed the beneficiary of an individual retirement account (IRA). The appellate court refused to uphold the testamentary change to the decedent‘s IRA. The importance of this case, however, rests in dicta where the court insinuates it would have affirmed the district court‘s extension of the law for insurance policies to IRAs if the handwritten note had qualified as a valid holographic will.  The author argues that the court‘s apparent willingness to directly extend the law applying to life insurance policies was in error.

The author examines the inherent differences between life insurance policies and IRAs and argues that such distinctions require IRAs to be treated differently than life insurance policies by not allowing testamentary changes to IRA beneficiaries.  Alternatively, the author asserts that if Arkansas courts choose to allow testamentary changes to IRA beneficiaries, courts should require such changes to meet a more rigorous standard than the current standard used to validate testamentary changes to life insurance beneficiaries.  The author concludes that because the Arkansas test required to effectuate testamentary changes to life insurance beneficiaries does not require substantial compliance with the policy provisions, the test is too lenient to extend to IRAs.  The author argues that, at the very least, contestants of the beneficiary designation should be required to show that the testator substantially complied with the policy provisions by demonstrating (1) the testator made significant steps to attempt to change the IRA beneficiary by the manner and mode prescribed in the policy, and (2) but for his death, the testator would have complied with the policy provisions. This more demanding test would ensure the overall nature of the non-probate asset remains intact. Furthermore, it would encourage ac-count holders to comply with the policy provisions that established the IRA account in the first place, thus keeping in line with the spirit of federal policy objectives.

Download full note

Need a web-accessible version? Download it here.

Posted in: Estate and Probate Law

Comments are closed.