Idaho Estate Planning Three Common Mistakes When Naming Beneficiaries

By Lane V. Erickson, Idaho Estate Planning Attorney

Idaho estate planning is designed to help each individual create a plan that will take care of them while they are alive and allow them to distribute their money, property, and other assets to other individuals after they pass away. Usually, a person transfers their money and other assets to their family and loved ones who survive them. However, this isn’t required. In our experience, sometimes individuals choose to leave their estate assets to charities, sometimes to pets, and in some instances even to complete strangers through scholarships and grants. With some exceptions to claims that could be made by surviving spouses and dependent children, an individual is usually free to name whoever they want as the beneficiaries of their estate.

The problem is, sometimes people fail to name beneficiaries even when they have completed their own estate planning. It’s true that in most instances an individual who has a last will and testament has listed beneficiaries to receive their estate property. However, a last will and testament may not control some of the important items a person owns while they are alive which are actually not included as part of their estate after they pass away. These other items of property could include valuable things such as life insurance policies, individual retirement accounts (IRAs), a 401k account, and other similar investment accounts. In addition to this, a person may have POD accounts or TOD accounts as part of their estate assets. In addition to your basic estate planning these assets also need a well-thought-out plan as to who you want named as beneficiaries.

The purpose of this article is to help explain to you the importance of properly naming beneficiaries as part of your estate planning. To do this, we will discuss what happens when you fail to name a beneficiary, what could happen when you name an individual who has special needs as a beneficiary, and what could happen if you don’t update the beneficiaries you have named. Our goal in providing this information is to help you avoid some of the most common problems we see come up.

The first thing we’ll talk about is what happens if you fail to name a beneficiary. When it comes to most of the money, property and other assets people usually have in their estates it would be very uncommon and unlikely to not have named a beneficiary when a written last will and testament exists. Because of this, the first question we usually ask our clients when a loved one passes away is whether they have a written last will and testament. By knowing whether a written will exists, we usually have the ability to know whether there are beneficiaries who have been named.

However, many people die without a written last will and testament. When this occurs, there are no named beneficiaries but there will be beneficiaries who will be identified by Idaho’s statutes. These statutes are called the laws of intestacy, and they include a list of individuals who have priorities as the heirs or beneficiaries of the decedent’s estate.

But let’s move past whether a written last will and testament exists. Beneficiaries also need to be named directly on other assets such as life insurance policies, individual retirement accounts (IRAs), 401k accounts, and other similar investment accounts. When it comes to these assets, even if a written last will and testament exists, it does not control. Rather, these assets are controlled by a contract with the party that administers each of these assets.

For example, if you purchase a life insurance policy, you will be paying a premium to the life insurance company. In exchange, the life insurance company agrees in the contract that it will pay a sum of money to whomever you list as a beneficiary on that life insurance policy. If you do not name an individual on the life insurance policy, then that policy becomes a part of your general estate, and it will be administered and controlled by your last will and testament or the laws of intestacy. However, if you do name a beneficiary, your last will and testament will have no control over who receives the life insurance benefits after you pass away.

The same thing is true of the retirement accounts, investment accounts, and other similar types of assets. It’s for this reason that we recommend that our clients review all of their assets, including those listed above, to make sure that they have in fact named beneficiaries.

This leads to the second most common problem that can arise which is when our clients fail to think about individuals who have special needs that they have named as beneficiaries in their estate planning. It is important that our clients always consider who they are leaving money, property, or other assets to. When we say “who” we don’t mean that we are concerned about whether these individuals are related to our client. Rather, we are more concerned about what each individual’s current circumstances are. What we are really talking about here are individuals who have special needs.

If you have a family member or other individual who is disabled, handicapped, or as some other type of special need, these individuals may be receiving benefits from state or federal government agencies. When an individual is receiving a disability benefit, there are strict requirements about the amount of money that they can own, and the types of assets that they can have in order to still qualify for these benefits. If you name an individual who has special needs as a beneficiary in your estate, and then you pass away, this individual will receive the money, property, or other assets directly, and you may be inadvertently causing their disability benefits to cease.

One of the most basic discussions we have with our clients when it comes to estate planning is who their beneficiaries are and what their circumstances are. We do this as a way of avoiding any event where a beneficiary could lose the benefits they are currently receiving. When we do have a beneficiary that has special needs, we use other estate planning tools to allow a distribution to benefit that individual without disqualifying them from the governmental benefits they are currently receiving. This can be done through various types of trusts, and other estate planning options.

The third problem we often see when it comes to assisting our clients with their estate planning is that they fail to update their estate plan or the beneficiaries they have named in their estate planning. We often come across situations where an individual will list their spouse as the beneficiary to a life insurance policy. Then, down the road, those individuals divorce, but the owner of the life insurance policy fails to update the name they have listed as the beneficiary on that policy.

It’s for this reason that we suggest to our clients that whenever they ever go through a major life change they always review every aspect of their estate planning to see if any updates or changes need to be made. This would include changing the names of individuals listed as beneficiaries. The basic major life changes that we refer to include the birth of a loved one, the death of a loved one, a marriage, a divorce, someone moving away, or just the passage of a long period of time. If a person takes a few moments to simply review their estate planning documents and other items listing beneficiaries, the changes that need to be made usually jump right out and are obvious to them.

So there are the three most common mistakes that people make when it comes to naming beneficiaries as part of their estate planning. We have helped numerous clients review and keep their named beneficiaries in their estate planning updated. We are confident that 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 consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a 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.