Does a beneficiary nomination take precedence over the last registered will if the beneficiary is married out of community of property? This is a second marriage for both parties and both have young children.
Thank you for your question. Beneficiary nomination is an important part of the estate planning process and can be used to achieve a number of purposes such as creating liquidity in your deceased estate or providing your loved ones with access to capital in the aftermath of your death.
However, many people are unclear about how beneficiary nomination actually works, particularly in relation to a person’s will. In the context of this question, we have assumed that you are referring to a domestic life insurance policy.
Firstly, it is important to know that the proceeds of a domestic life policy are considered ‘deemed property’ in the deceased’s estate.
Deemed property is essentially any property that did not exist at the date of death, but which comes into existence as a result of that person’s death, such as in the case of life assurance policies where the proceeds are paid out on the event of death. If the deceased did not nominate a beneficiary on the policy, the insurance company will pay out the proceeds directly to their estate and the proceeds will form part of the estate.
Where the deceased has nominated a beneficiary on their policy, the proceeds of that policy will be paid out directly to that person when they die and will not form part of the deceased estate for distribution in terms of the will.
However, the value of the proceeds will be (subject to a few exceptions, such as in the case of company-owned policies) taken into account for estate duty calculation purposes.
As such, where the deceased has nominated a beneficiary to their policy, no mention of the policy should be made in the deceased’s will as the proceeds fall outside of the deceased’s estate.
You have mentioned that the beneficiary of the policy is married out of community of property, and we have assumed that the accrual system is included. When the insured person passes on, the proceeds will be paid directly to the nominated beneficiary and will form part of their separate estate. In the event that the marriage dissolves either through death or divorce, the funds will be included for the purposes of calculating the accrual.
If you have not had an estate plan drafted, we strongly advise that you do so to ensure that you and your loved ones are adequately provided for in the event of a tragedy.