Most Common Mistakes in Naming a Beneficiary
By Lane V. Erickson, Pocatello Estate Planning Attorney
Without question, the most important thing your estate planning documents can do is to protect you while you are alive. This is done through specific documents that are part of your estate plan including your durable power of attorney, your power of attorney for health care, and your living will. After this is completed, the next most important thing your documents can do is give you the ability to decide who you want your property, money, and other assets to go to after you pass away. In other words, your estate plan isn’t really a plan at all until you decide who your beneficiaries will be.
This may sound completely crazy but it's not uncommon for clients to come to us with a last will and testament they've either created on their own or that they received from another attorney or other professional that does not name any beneficiaries at all. This is especially true when individuals attempt to create their own estate plan by finding documents online, or by purchasing and using software, or by getting documents from any other source other than from a qualified estate planning attorney.
At the Racine law office our team of premier Pocatello estate planning attorneys are available and capable of helping you. We have helped numerous clients for over 70 years in the creation of customized estate plans that meet their individual needs. Our team includes partners Randy Budge, and Lane Erickson, and attorneys Nate Palmer and Dave Bagley. Each of our attorneys has received the highest ratings possible on several legal rating services.
The purpose of this article is to identify some of the most common mistakes our clients make when naming a beneficiary. Our goal in providing this article is to help you avoid making these same mistakes in your own estate plan.Not Naming a Beneficiary
As I previously mentioned, we sometimes do have a client bring to us a last will and testament they created on their own or from an online service or from software that they purchased that never actually names a beneficiary who will receive their belongings, including their money and property after they pass away. Additionally, many of our clients are surprised to learn that their last will and testament may not control all of the items they own while they are alive.
While it's true that a last will and testament does control property you have in your possession, it does not control items that lawyers call third-party contracts. These include familiar things such as individual retirement accounts (IRAs), 401K accounts, life insurance policies, pensions, annuities, and other similar items. In other words, even if you do have a valid last will and testament and even if your last will and testament says that your life insurance policy should go to your son, if you do not name your son as the beneficiary in the life insurance contract itself, your last will and testament will not control who your life insurance monies will go to when you pass away. The same is true for all the other accounts listed above.
Actually naming one or more beneficiary in your last will and testament and on your other documents is the key to actually having an estate plan. So if you do have your last will and testament completed, and you have any of the items listed above, you need to make sure that you have actually named or designated as a beneficiary on each document.Naming a Beneficiary Who has Special Needs or a Disability
Another common problem people have when they do their estate planning, especially when they named beneficiaries, is list individual who are disabled or who have special needs. In most instances individuals with special needs or with disabilities are receiving benefits from a federal or state agency. However, to qualify for those benefits, the individual was required to show that they were eligible because they only owned a limited amount of assets, especially money. In other words, to qualify for these programs, an individual cannot have a bank account full of money. These benefits are generally based on financial need.
If in your estate-planning you name a beneficiary who is disabled or has special needs to receive all or a portion of your estate, you may be creating a problem. Upon your death, the individual you named will receive exactly what you say they are supposed to get. If they receive a large amount of money or other assets that are liquid, this may disqualify them from continuing to receive their disability benefits.
This is such a big deal that it is one of the basic questions we have in our Estate Planning Questionnaire and that we go over with each of our clients as we discuss what they intend to do. We educate our clients about ways that they can leave a portion of their estate to a family member or loved one with disabilities or special needs without disqualifying them from receiving the benefits they are already qualified to receive.Not Updating Beneficiary Designations
An additional common mistake many people make when it comes to their own estate plan is that they fail to keep their beneficiaries updated. Time has a way of changing the circumstances in everyone's life. Many of these changes are significant because they change who our family members or loved ones actually are. Some of the biggest changes that can happen in our lives are that we have someone in our family or who is close to us be born, or pass away, or become married, or get a divorce, or they might move away. Any one of these big changes could have an impact on our estate plan.
For example, let's suppose you are a divorced parent of three adult children. You have no grandchildren yet. You complete your estate plan which says that all of your estate will go to your surviving children. A few years go by and one of your children has children of their own who are all young. Now suppose that this child of yours passes away. In this instance, your grandchildren will not receive any portion of your estate because of the way it is written.
The major life change that occurred is that you had grandchildren. Because of this it should have triggered your review of your own estate documents to see if you needed to change who the beneficiaries would be. A simple change in your last will and testament would have said that your estate goes to your children, or, if any of your children predecease you then to their issue, which would be your grandchildren.
There are numerous ways that the naming of beneficiaries is vitally important to your own estate plan. If you have questions or concerns about the beneficiaries you currently have listed, or if you feel that changes are needed, we can help.Enlist a Pocatello Estate Planning Attorney to Help You
Our team of Pocatello 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 firstname.lastname@example.org or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Pocatello Estate Planning problems.