Many dread beginning their estate planning. But while it’s certainly not fun to confront our own mortality, it’s another way to take care of your family. Even once you see an attorney and have your estate planning documents in hand, however, it’s only half the battle. As a recent article emphasizes, it’s crucial to ensure assets are aligned with your plan, especially when planning for special needs beneficiaries.
While estate planning documents form the framework of your plan, the way you own your assets will actually determine what happens to everything you own when you pass away. For example, if a husband and wife came in to plan for their two children, one with special needs, an estate planning attorney might create revocable living trusts for the parents with a special needs trust as one-half beneficiary of their estates.
Most attorneys create a special needs trust to ensure a special needs beneficiary continues to receive key government benefits—like healthcare coverage through Medicaid—that require an individual pass an asset-based test. Too many assets mean the individual is disqualified. Mom and Dad go home relieved they’ve finally completed and signed their estate plan. However, if the special needs child is named as beneficiary of a 401(k), for example, that could jeopardize their access to benefits.
In order for an estate plan to be effective, all assets must be “aligned” with the plan. In other words, the title on all assets and beneficiary designations must be in alignment with the names of trusts, etc. So that joint bank account owned by the husband and wife must now be in the name of the revocable living trust, for example. Even the title on a hose should align with the plan.
Life insurance, 401(k)s and other employer-sponsored retirement plans, IRAs and other contract-based assets are some of the most-often overlooked assets when aligning assets with estate plans. When setting up one of these accounts, many people name a spouse as the beneficiary and any children as contingent beneficiaries.
Naming an individual, however, is not the same as naming a trust, and at your death, the insurance company or custodian is required by law to honor the contract and your beneficiary designation. If you named a special needs child, not a special needs trust, as a beneficiary, you could jeopardize eligibility for means-tested government benefits. That could be especially damaging if it makes a special needs beneficiary ineligible for healthcare coverage through Medicaid.
Of course, this can all seem daunting, but at Family Estate Planning Law Group, we work with all our clients to align, verify and track assets. We help with initial alignment of assets with the plan, then work to ensure assets are properly aligned and receive verification from your financial institutions. But we all know that what we own changes over time, as do laws and family situations. To ensure your estate plan works not just today, but when it actually needs to—at your death—we work with all our clients on an ongoing basis to track changes in assets, family situation and the law.
For more information on why ongoing alignment, verification and tracking of assets is especially important for special needs beneficiaries, explore our website and contact us to schedule your consultation today!
Reference: The Poughkeepsie Journal (February 2017) "Proper Estate Planning More Than Just Documents"