The Kidnapping Saga that Ended with an Inheritance

The national press has recently been devoting substantial attention to the plight of Hannah Anderson and her now deceased kidnapper, James DiMaggio. Adding another layer to a story already filled with twists and turns, DiMaggio had a life insurance policy for which Hannah Anderson’s grandmother was the beneficiary. It appears to have been DiMaggio’s hope that, upon his death, Hannah’s grandmother would use the proceeds from the payout to provide for Hannah. To learn more about the story of Hannah Anderson’s indirect inheritance, click here.

The story brings to mind several issues concerning the choice of beneficiary for your life insurance policy and other beneficiary designated accounts. First and foremost, keeping your beneficiary designations current is a must. This may seem obvious, but a surprising amount of people neglect to change their beneficiaries upon the occurrence of major life events, such as the birth of children and/or grandchildren, divorce, and death. Even if you believe your beneficiary designations to be current, you should still make a practice of checking them every few years and retaining any paperwork confirming the status of your beneficiary designations.

Secondarily, by appointing Hannah’s grandmother as his life insurance beneficiary instead of Hannah herself, DiMaggio was presumably attempting to avoid a costly court process – most life insurance policies will only pay proceeds to court-approved guardians if their beneficiaries are minors. Although family members of minors may be trustworthy and suitable custodians of such payouts, the opposite may be true, and it will be too late to correct the decision by the time the payout is made and the custodian uses the monies for his/her own self-interest.

Instead of using a custodian for such purposes, who has no legal responsibility to use the monies for a minor’s benefit, you may consider having such monies payable to a trust for the benefit of your minor beneficiary.  If such payments are made to a trust, the trustee (who is responsible for investing and properly spending the monies) has a fiduciary duty to ensure the monies are used only for the benefit of your minor beneficiary until the minor is of legal or appropriate age to handle the monies on his/her own.  To learn more about the opportunities to plan with trusts and life insurance, please feel free to visit our Advanced Estate Planning section.

If you have minor beneficiaries who may inherit from you, consider whether the beneficiary designations you have in place are appropriate. It may make sense to consult with an experienced estate planning attorney about other estate planning options available which may be more suitable for your situation. Even if you have no minor beneficiaries, you may still wish to establish a trust for the benefit of your beneficiaries simply to control their spending of the inheritance or to protect their inheritance from potential or real creditors.

Finally, if you are one of the lucky ones who has no concerns about a beneficiary’s ability to manage the inheritance monies upon receipt, as first mentioned, remember to revisit your beneficiary designations every now and again to verify they are still in line with your estate planning intentions.

If you have questions about any of the issues raised, you should seek the counseling and advice of an experienced estate planning attorney near you.

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