Idaho Estate Planning Can a Creditor Get Non-Probate Assets

By Lane V. Erickson, Idaho Estate Planning Attorney

Whenever we talk about estate planning, most people focus on their assets. In other words, most people focus on who will receive their money, property, and other assets after they pass away. It’s good that people do think about this because this focusses them to come up with a plan of how to distribute their estate after they pass away.

Probate is the process where an individual’s wishes and intentions stated in their written last will and testament are carried out by the personal representative they have chosen. Additionally, probate is the process where the deceased person’s creditors are paid so that all the estate debts are satisfied. Sometimes, the assets and money in the estate are not enough to pay all the deceased person’s debts and expenses. When this happens, the question is always asked, can the creditors get access to or have a right to collect against non-probate assets to satisfy those debts?

Non-probate assets could include things such as life insurance, a 401k account, and IRA account, a bank account with a payable upon death (POD) designation, as well as investment accounts. Before we talk about some of these things below, I will state that it is in everyone’s best interest to have a written estate plan in place. This is because it gives the individual the ability to choose who they want to be in charge of their estate, and also who will receive the money, property, and other assets after they pass away.

To get started with estate planning, we provide our clients with a simple Estate Planning Questionnaire they can download from our website and fill out to collect the information needed to make decisions about their estate plan. We found that most people don’t get their estate planning done because they don’t know how to start. Our Questionnaire is the very best and easiest way to begin the process.

Once the questionnaire is completed, we offer a free 30-minute consultation to review the information and to talk with our clients about the options they have for their own individual estate plan. By doing this, our clients have the ability to ask any question they want and to get all the information they need, including the flat fee prices we charge, before they make any decisions about their estate planning. We encourage you to download our Questionnaire and to schedule the free consultation so we can answer your questions and help you get started with your own customized estate plan.

We will start with bank accounts when it comes to the types of assets that creditors may be able to access in order to pay the debts owed to them. If a bank account is still in the name of the decedent only, then this clearly becomes an asset of the estate which can be attached and used by creditors to pay the debts owed by the decedent. However, when there are joint account owners, or there is a POD designation, some people think this protects the account from creditors. This is not true.

The reality is that any basic bank account that was owned by the decedent is an asset of the estate. Because of this, even when there is a POD or a joint account holder, that bank account will be subject to the creditors of the decedent. In other words, the creditors can use the money in that bank account to pay the debts that exist.

Life insurance is a little different. Life insurance is a third-party contract by an insurance company where the decedent paid the premiums in exchange for the promise that when they pass away, a lump sum payment will be made to whichever beneficiary they designated in the contract. In most instances, because it is a third-party contract, creditors cannot access life insurance to pay the decedent’s debts. However, this is not always the case.

In some instances, a person who obtains life insurance forgets to name a beneficiary. When this happens, there estate becomes the default beneficiary. In other words, when they pass away, the life insurance company pays the life insurance money to the estate. When this happens, that life insurance money becomes an asset of the estate that creditors can access to pay debts.

Additionally, if the life insurance does name a beneficiary, but that beneficiary passes away before the person who purchased the life insurance, then again there is no live beneficiary the insurance company can pay the life insurance proceeds to. In this instance, once again, the decedent’s estate becomes the default beneficiary of the life insurance proceeds. Once this happens, creditors can access those monies to pay the decedent’s debts.

A similar thing happens with retirement accounts. These types of accounts would include 401ks, IRAs, pensions, and sometimes annuities. Simply put, if for any reason there is no live beneficiary that the third-party contract identifies, then the estate of the decedent becomes the default beneficiary.

Because of this I regularly tell my clients that they should review their beneficiary designation forms regularly. They should do this to make sure that the people who are named are the people that they would. Additionally, by doing this they can see whether that person has passed away and they need to update their designations.

If you have questions about the types are kinds of non-probate assets that your creditors may have access to, we can help. We have assisted numerous clients in creating customized estate plans and we are confident we can help you too!

Our 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.