Estate of Scott, No. 04-19-00592-CV, 2020 WL 2736466 (Tex. App.—San Antonio May 27, 2020, no pet. h.).

Other Estate Planning Matters

Annuity Proceeds

 

Husband and Wife invested in an annuity which would make payments for their joint lives. However, upon the death of the first to die, the amount of each payment would be approximately 50% less. After Wife died, Husband continued to receive payments as if Wife were still alive because he did not give the annuity company notice that Wife had died. After Husband died, the fact that Wife had died ten years previously came to light and the annuity company made a claim against the estate for reimbursement of the overpayments. Husband’s independent executor rejected the claim. The annuity company then sued alleging breach of contract and fraud. The trial court found in favor of the annuity company and the independent executor appealed.

The appellate court reversed. The court explained that although the annuity contract clearly explained that upon the death of the first spouse, payments would be reduced, there was no express provision requiring that a surviving spouse notify the annuity company about the deceased spouse’s death. Although it would have been reasonable to imply this obligation, the court refused to do so. The court explained that implied covenants are not implied even if doing so would make the contract fair or that the contract would operate in an unjust manner without the implication. Likewise, the court refused to imply an obligation to repay amounts received in excess of the contract amounts. Basically, the court blamed the annuity company for not including an express provision requiring notification. Plus, the court explained, the annuity company should monitor death records to ascertain on its own if an annuitant has died.

The court justified its decision on two other grounds. First, the statute of limitations had run on the annuity company’s equitable claim for money had and received. Second, Husband did not commit a fraudulent act by not revealing Wife’s death because he had no legal duty to tell the annuity company that she had died. The fact that he may have a moral duty to do so was irrelevant.

Moral:  Annuity companies need to make certain they include express provisions in their contracts requiring a joint annuitant to notify the company when the other joint annuitant dies.

 



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