By Lane V. Erickson, Idaho Estate Planning Attorney
A sad statistic is that in the United States only about 31% of all adults have ever done anything about completing their own personal estate plan. As an estate planning attorney for the last 20 years, I know that most people don’t do their plan because they don’t understand it, and because they don’t really know how to start.
We try to make the process as simple and easy as possible. We start by providing our clients with a free Estate Planning Questionnaire. We then follow that up with a free 30-minute consultation so that we can answer our client’s questions and help them understand the things they can do as part of their estate planning that will both protect themselves while they are alive and provide for their family and loved ones when they pass away. We spend a little bit of time during this free consultation talking about life insurance and how it works as part of a person’s estate plan.
The purpose of this article is to explain how life insurance works with an estate plan. Please keep in mind that this article is just a starting place. There is much more information that a person should understand and know as they are creating their own customized estate plan that may include life insurance. Our goal is to provide our clients with as much information as possible so they can make meaningful decisions that will be helpful to them and to their family and loved ones.
To keep things simple the best starting place is to explain why life insurance is not controlled by your written last will and testament. We will then discuss how a divorce decree could affect your life insurance and whether a second marriage might affect your life insurance as well.
Is Life Insurance Controlled by a Written Will?As you’ve likely gathered from the statement above, your life insurance is not controlled by your written will. The reason for this is that life insurance is a contract between the person who purchases the life insurance and the insurance company. Because it is a contract, the life insurance company is controlled by the contract and not your written will.
For example, if you state in your life insurance contract that the beneficiary of your life insurance policy is your wife, then it really doesn’t matter what you say in your written will. In other words, your will could say that you want your life insurance proceeds to go to your kids. Or, alternatively, you could say that you want your life insurance proceeds to go to your parents, or a sibling, or any other person. None of this really matters though because the life insurance contract controls who will get the money.
Because of this, whenever we are helping an individual complete their estate plan, we discuss life insurance. We help our clients understand that they have the ability to change the named beneficiary on their life insurance policy whenever they want and as often as they want. We also help them understand the importance of making sure the beneficiary that is listed is the person they really want as their beneficiary.
The reason we do this is because life does not stand still. Every person goes through major life changes. These could include the birth of a loved one, the death of a loved one, a divorce, a marriage, someone moving away, or just the passage of a long amount of time. Any of these things could affect who they want to be named as the beneficiary of their life insurance contract. For this reason, we suggest that our clients review the beneficiaries they have listed on their life insurance often to make sure they are correct.
Could a Divorce Decree Affect Life Insurance?Keep in mind that decrees that are entered by a court could have an impact on your ability to change who the beneficiaries of your life insurance are. For example, if you get a divorce, and part of the divorce decree requires you to list your children as the beneficiaries of your life insurance policy until they reach the age of 18, then that is what you are required to do. In other words, if you were to change the beneficiaries of the life insurance from your children to say a new spouse, or to some other person, it’s possible that this change could be void by reason of the divorce decree.
Even if the changed listing of the beneficiary in your life insurance contract is not void, your estate could still be on the hook to provide the same benefit to whoever the divorce decree required. In other words, if you were supposed to have named your children to receive a $25,000 life insurance benefit and you changed who the beneficiary was before you died, then your estate would likely be required to pay the $25,000 to your children from other assets.
Does a Second Marriage Affect Life Insurance?A second marriage is another example of the importance of keeping the beneficiaries your name on your life insurance current. If you listed your first spouse as the beneficiary of your life insurance, and you don’t change that after your divorce and your second marriage, then your first spouse may still be entitled to receive that life insurance benefit under the contract you have with the insurance company.
Remember, life insurance is a contract. The insurance company is required by that contract to make a payment to whatever beneficiary you have named. The insurance company is not required to find out if the person you have named is a divorced spouse or someone you now hate. It’s your job to change who the beneficiary is on your life insurance when a change is needed.
Enlist an Idaho Estate Planning Attorney to Help YouOur team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho Estate Planning problems.