Will Substitutes
| Author | Browne C. Lewis |
| Pages | 688-725 |
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Part III — Nonprobate Transfers
Chapter Sixteen: Will Substitutes
16.1 Introduction
In the first fifteen chapters of this book, we discuss two ways the property of a person may
be disposed of after he or she dies. In the first section of the book, we examine the intestacy system,
the default plan that legislators created to govern the distribution of the property of a person who
dies without executing a valid will. The second part of the book contains a thorough exploration of
the different types of wills persons can use to designate the future owners of their property. This
chapter analysis a third option referred to as will substitutes or non-probate transfers. The items
analyzed in this chapter are called non-probate transfers because people use them to allocate
property without relying on the probate system. Using non-probate transfers, a person can give away
an interest in property during his or her lifetime and postpone the vesting of that interest until after
he or she dies. Unlike a will devisee, the beneficiary of a non-probate transfer receives his or her gift
from a third party, and not the probate court. In some cases, the person may receive the decedent’s
property by operation of law. In those cases, the person does not have to do anything but wait for
the owner of the property to die. This chapter will discuss the following will substitutes: (1) life
insurance, (2) retirement accounts, (3) joint bank accounts, (4) concurrently owned property, and (5)
inter vivos trusts.
16.2 Life Insurance
A life insurance policy can be used as a vehicle to get money to a third party after the death
of the insured. For example, A takes out a $100,000 life insurance policy and names B as the
beneficiary of the policy. When A dies, B receives $100,000 from the insurance company. The two
most common types of life insurance are term and whole. A term life insurance policy protects the
insured for a specified amount of time. Term periods usually range from one to 20 years. If the term
expires before the insured dies, a new policy replaces the lapsed policy. The premiums of a term
insurance increase annually because the odds of the insured person dying increase as the person
ages. Some insurance companies offer a guaranteed level premium for the term policy (usually five,
10, 15, or 20 years); however, after, the term expires the premiums for future terms may increase
dramatically, depending on the health of the person insured.
Whole life is permanent life insurance. A key feature of traditional whole life policies is a
level premium which is sufficient to guarantee a stated death benefit for the rest of the insured's
lifetime. In the beginning, the premium will be higher than the cost of the pure insurance protection
afforded by the policy in order to generate a cash value reserve. The insurance company invests the
cash value of the whole life insurance contract in its general investment account. As the insured gets
older, the company uses the earnings on the cash value reserve to supplement the premiums paid by
the insured in order to keep the premiums needed to support the policy's death benefit level. In
some cases, the earnings on the cash value may reduce, and even eliminate, premiums in later years.
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16.2.1 Changing the Beneficiary
A life insurance policy is similar to a will because it also speaks at death. Thus, the person
who acquires the life insurance policy may constantly change the beneficiary. Moreover, the
beneficiary of a life insurance policy only has an expectancy in the proceeds of the policy. That
expectancy does not vest until the insured dies and the life insurance company has to pay the pol icy
amount to the beneficiary. Life insurance is governed by contract law, so the insured can only
change the beneficiary of the policy by following the terms included in the life insurance policy.
However, the courts may rely on the equitable doctrines applied to wills to ensure that the
decedent’s property is distributed in the manner he or she so intended.
Carruthers v. $21,000 (Formerly New York Life Ins. Co.), 434 A.2d 125 (Pa. Super. 1981)
MONTGOMERY, J.
Lois Carruthers, appellee, and James W. Dolbow, appellant, are both claimants of the proceeds of a
group life insurance policy in the sum of $21,000.00 written by the New York Life Insurance
Company. New York Life was granted leave to pay the proceeds of the policy into court.
The policy was written on the life of Theodore Dolbow, Jr. who died February 13, 1976. Theodore
Dolbow, Jr. was initially insured under the policy on January 6, 1966, while an employee of the
Reading Company. At that time, he designated Theresa V. Dolbow, his wife, as the benefic iary. On
December 13, 1974, he changed the beneficiary to his brother, James W. Dolbow, one of the
present claimants. He again changed the named beneficiary one February 28, 1975, this time to Lois
Carruthers, the other claimant herein. Both changes were e xecuted in full compliance with the
provisions of the policy.
The present dispute resulted from the contents of a holographic will which was admitted to probate.
It was written by the decedent on the back of an envelope and read:
“As my last will & testament all insurance and any and all articles that belong to me and willed to
anyone other than my brother James W. Dolbow is hereby changed to read willed to James W.
Dolbow.
/s/ Theodore R. Dolbow, Jr.
/s/ 10-26-75“
That part of the insurance policy applicable in the instant case reads:
“The Group provides that ... the proceeds of your life insurance are payable to the beneficiary last
designated by you before your death ... Any part of your insurance for which there is no
beneficiary designated or surviving at your death will be payable to the executor or administrator
of your estate ...”
“A beneficiary can be designated, or ... changed, only by a written notice received by or on behalf
of New York Life. No such designation or change will be effective until recorded by or on behalf
of New York Life, but once it has been so recorded, it will take effect as of the date the notice was
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signed, subject to any payment made or other action taken by or on behalf of New York Life
before such recording.”
The issue, therefore, is whether the will dated October 26, 1975, accomplished a change of
beneficiary from Lois Carruthers, who had been properly named therein on February 28, 1975. The
lower court held that the will did not work a change and we agree. There being no facts in dispute,
the order was by way of a summary judgment based on the applicable principles of law.
Generally, in order to effect a change of beneficiary the mode prescribed by the policy must be
followed. Sproat v. Travelers Insurance Company, 289 Pa. 351, 137 A. 621 (1927); Riley v. Wirth, 313 Pa.
must be by a writing received by the insurer, or on its behalf, and recorded before a change becomes
effective. Once recorded, the change becomes effective as of the date of the writing. The policy
herein, however, does not prescribe the form of the written notice.
It is not disputed that notice of the will was not brought to the attention of the insurer until after the
death of the insured. Although he lived approximately three and one-half months after executing the
will, the insured made no effort to comply with the provisions of his policy. The intent of the
insured will be given effect in our Commonwealth if he does all that he reasonably can under the
circumstances to comply with the terms of the policy which permit a change of beneficiary. Provident
Mutual Life Insurance Company of Philadelphia v. Ehrlich, 508 F.2d 129 (3rd Cir. 1975). The record herein
reveals no extenuating circumstances which would allow us to find substantial compliance on the
part of the deceased insured.
It is well settled that a change of beneficiary is valid even though notice is not received before the
death of the insured if every reasonable effort is made to comply with the policy requirements.
Breckline v. Metropolitan Life Insurance Company, 406 Pa. 573, 178 2 A.L.R.3d 1135 (1962). The appellant
in the instant case relies on, as such notice, a letter sent by his attorney to the Reading Company
which enclosed a copy of the will and demanded payment of the proceeds of the policy. The letter
was not a notice to change the beneficiary, but assumed that the change had been accomplished by
the will. In light of the precedent set forth above, such an assumption was erroneous. As the insured
did not substantially comply with the policy provisions, neither the letter nor the will, nor both
together, could act as notice of a change of beneficiary.
Appellant’s claim is further abrogated by the fact that the insured complied with the policy
provisions on two prior occasions. That fact clearly demonstrates the insured’s knowledge of policy
provisions regarding the mode required to change a beneficiary. An assumption that he intended to
change the beneficiary by way of a holographic will is farfetched under those circumstances.
Lastly, the cases from foreign jurisdictions cited by appellant in his brief to buttress his claim that we
should allow a will to work a change in beneficiary are distinguishable. In those jurisdictions which
follow the principle of substantial compliance, as we do, the courts therein accepted the will as
notice of a change of beneficiary in light of extenuating factual circumstances. As noted earlier, we
find no such extenuating circumstances herein. Furthermore, those jurisdictions more often than not
required specific language as to the policy in question in order to work a change of beneficiary. The
language contained in the will here in question is general and ambiguous. We, therefore, find no
support for appellant’s arguments in any of those cases.
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