Dear Len & Rosie,
I was nineteen years old in 1940 when we married. After more than 64 years of marriage I woke up one morning and my husband was gone. He had died peacefully, they said, in his sleep. It is still hard trying to go on without him. But an insurance company has made my life a living hell. Seven years ago we bought an annuity with $80,000 of our savings hoping for a better return than our bank accounts. But when I notified the insurance company of my husband's passing they said I no longer have any rights under our contract. They said IRC section 72(s) mandates that the beneficiaries we had named are now the owners of the annuity. The IRS representatives say they have nothing to do with this kind of annuity. I appealed to the California Insurance Commissioner. They said that the insurance company properly responded to my complaint and that the commission would do nothing further. I need to get my $80,000 plus interest back as was our intent to do before my husband passed away. Can you help me?
The federal statute the insurance company cited has to do with the requirements that annuities must meet in order to qualify for tax-deferred status. All it really means is that if the annuity was already making payments to your husband, then it can continue to do so on the same schedule. If the annuity was deferred (not making payments) then it must be distributed within five years, unless the surviving spouse was named as the annuity's designated beneficiary.
Clearly, your problem is that the annuity was in your husband's name alone, and for some reason he named someone other than you as beneficiary. The insurance company is saying that the annuity must be paid out to the beneficiaries named by your husband. They may be half right.
If the annuity was purchased with community property, and if you did not sign a spousal waiver on the annuity beneficiary forms, then half of the annuity belongs to you. You may have to sue the insurance company and the beneficiaries to get it, but you should win. However, your husband's half of the annuity will still pass to his designated beneficiaries unless they agree to turn it over to you.
On the other hand, if the annuity was purchased with your husband's separate property, assuming he had any after 57 years of marriage, or if you signed off on his choice of beneficiaries when the annuity was purchased, then there is little you can do. Your only option at this point would be to sue the insurance agent who sold you and your husband the annuity for negligence on the theory that he or she didn't fill out the beneficiary forms the way the two of you wanted. The chances of winning such a case are not so good.
You should sit down with a lawyer and review the annuity contract. If you do have a right to half of the annuity you need to get a letter in to the insurance company as soon as possible, because it will be a lot harder to get your share of the money from the beneficiaries once they get their hands on it.
Len & Rosie
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, 3-4PM on Newstalk910AM.