A process server comes to your door and delivers a summons, and something called a complaint for interpleader. What does that mean? How do you respond? For most people in that situation, the answer is to put the papers in a drawer and hope the matter goes away. But if you do that, you may be giving up your right to receive a large sum of money.

Interpleader is a legal proceeding involving a stakeholder, usually a life insurance company or a trustee, who is holding funds but is uncertain as to who is the rightful payee. It is not unusual for life insurers to face competing claims from different individuals who each claim to be the rightful beneficiary of a life insurance policy. Life events may also create doubt as to the rightful payee – the Supreme Court was called upon several years ago to determine who was entitled to life insurance benefits under a policy that named the insured’s spouse as the named beneficiary. But the insured had divorced his wife several years earlier and lived in a state that had enacted a uniform law that automatically negates spousal life insurance beneficiary designations upon the entry of a divorce judgment. As a result, the life insurer did not know whether to pay the ex-wife or the contingent beneficiaries, the children of the decedent. The wife ultimately won that case because of the federal ERISA (Employee Retirement Income Security Act) law’s preference for the beneficiary named in the records maintained by the plan administrator. However, that result was not foreordained.

Trusts are often established for the benefit of the “children” of an individual, but does that mean illegitimate children qualify as well? The trustee may need to file an interpleader in a situation like that, just as a life insurance company may file an interpleader when questions arise as to the rightful beneficiary.

What occurs in an interpleader action is that the party holding the funds files a complaint with a court and names the potential beneficiaries. Soon after the complaint is filed, the funds at issue are deposited with the clerk of the court and the parties are left to assert their claims against one another before the court, which ultimately decides on the rightful beneficiary or the proper allocation of the proceeds. If one of the potential claimants fails to take any action, the other claimants receive the life insurance or trust proceeds by default.

Because the failure to act immediately upon receipt of a summons in an interpleader action can have devastating financial consequences for rightful heirs and beneficiaries, it is critical to retain an attorney experienced in handling interpleader cases as soon as possible to protect your rights. The lawyers at DeBofsky Sherman Casciari Reynolds P.C have that experience and can help you recover what is rightfully yours if you are named as a party to an interpleader lawsuit.

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