SGLI and designating beneficiaries

  • Published
  • By 1st Lt Saleem Razvi
  • Chief of Legal Assistance
WHITEMAN AIR FORCE BASE, Mo. --  A new business was opening and one of the owner's friends wanted to send him flowers for the occasion. They arrived at the new business site and the owner read the card, "Rest in Peace."

The owner was angry and called the florist to complain.

After he had told the florist of the obvious mistake and how angry he was, the florist replied, "Sir, I'm really sorry for the mistake, but rather than getting angry, you should imagine this: somewhere there is a funeral taking place today, and they have flowers with a note saying, 'Congratulations on your new location.'"

Sending the right message is always important especially when it comes to taking care of your family. Servicemembers' Group Life Insurance and private life insurance are one way that we ensure our loved ones are left in good hands. A problem may arise if we fail to clearly and legally designate the beneficiary of the life insurance proceeds. Unfortunately, this type of error is oftentimes not discovered until it is too late.

When designating beneficiaries, we need to remember certain concepts. First, when designating a person or charity, always be specific. Use a person's full name and state their relationship to you. (ex. To John Doe, my father).

Next, avoid using a "by law" or "by will" designation on your SGLI or other insurance form. This designation can cause unintended results as shown by the following example: Fred died leaving four children from his first marriage. He was newly married before he passed. Because Fred had "by law" on his SGLI form, his new wife, who does not get along with the children from the previous marriage, receives the payment. Fred wanted his children to be taken care of, but with this designation they will not receive any life insurance proceeds. However, if you desire all your SGLI benefits to pass to your spouse or in the alternative to your children, and you have not been previously married and have no children from a previous relationship, this designation may be appropriate.

When minor children are involved, designations can be even more complex. It is important to remember that a minor child will not receive the money personally. Proceeds will be paid to the guardian of the child's property. There are two recommended ways to designate minor children as beneficiaries. The first involves the creation of a trust. The trust must be created before completing any life insurance form. Once the trust is created, you would use the following designation language on the life insurance form: to my trustee (name and relationship), pursuant to a trust agreement dated (date). Attach a copy of the trust document to the life insurance form. Trusts can be drafted by private attorneys and tailored to meet your needs.

The other recommended method is to utilize the Uniform Transfers to Minors Act. Life insurance proceeds are paid to a custodian who can use the funds for the benefit of the child. This differs from a trust in that state law controls when the minor child would receive the funds. In Missouri, a child will receive the funds when they reach the age of 21. Be aware that the age that the minor will receive the funds may or may not change depending on the state UTMA laws The proper language to write onto the form is: to my (name and relationship), as custodian under the Uniform Transfers to Minors Act of the State (name of state residing in) for the benefit of my child (name). If you decide to use the UTMA to transfer funds be aware that a custodian has no supervision and there is little protection if the custodian mishandles the funds.

There are distinct advantages to using a trust or the UTMA. Please consult with a legal assistance attorney if you wish to use one of these options. Finally, remember to update your SGLI or other insurance documents when any kind of change affecting your beneficiaries occurs.

To update your current SGLI form please see Shelly Cantwell in MPF customer service Monday through Friday from 0730 to 1630, and the MPF office can be reached at (660) 687-6426/27/28.