Please speak with a probate attorney ASAP. The children should not have been names as direct beneficiaries because it would force a minors' estate to be opened, which has happened here. Instead, you should have been names as trustee for the benefit of the children. In any event, you may be able to open a minors' estate which names you as guardian for the benefit of the children, and with court permission, would allow you to expend some money if needed for the kids. All this will depend upon your probate judge and the ability of your lawyer to handle the estate properly. Worst case scenario is that no funds are available until your children attain the age of majority (18). We do not have the benefit if the language in the beneficiary clause(s) so please speak to counsel for more specific guidance.
I am not familiar with any laws that allow an insurance company to unilaterally change beneficiaries on a policy. I believe that you need to have an attorney review your divorce paperwork, as well as the beneficiary designations, (and the letter that was sent to your ex), to determine why they are taking this position and whether there is anything you can do about it.
It could be that you waived your rights to the policy under your divorce judgment or property settlement. It could also be that your ex needed to re-designate you, following the divorce. More information is needed, but I do not see how you can handle this without the assistance of a skilled litigation attorney.
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Sounds like there are a couple things going on here.
You seem to indicate that the company initiated a change taking you off as one of the beneficiaries because of a new law. Haven't heard that before. Maybe it was a new company policy and they sent out notice to policyholders of their policy. Seems questionable. You should contact a local probate attorney to review everything ASAP. Also tell your attorney if you had a marital settlement agreement that covered life insurance.
The second part is the minor children as direct beneficiaries. Unless the beneficiary form or the policy contract provide otherwise, there needs to be an estate guardian appointed to collect and manage those proceeds. Or, as the company said, it will just sit until they can collect at 18.
Talk to a probate attorney.
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I agree with my colleagues before. As an estate planner who has handled matters like this before, I can tell you that because you and the decedent were divorced, opening a probate estate in the decedent's name is unnecessary, at least in Cook County. The same is likely true in Peoria County.
What the insurance company's legal department will probably require are "Letters of Office" from a court appointing you as guardian of your children's estates for purposes of having the funds released to you but only for their benefit. I know it may sound odd that you have to go to court to become appointed guardian of your own children's monies, but that's the law.
Irrespective of how your name was removed from the policy, the fact is that most insurance companies will not release proceeds to minors. You need to consult with an attorney.
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