This issue is particularly crucial for parents with special needs children.
A name often defines who we are and sometimes, even, who we become. This statement is also true for the name on your financial accounts. One of the biggest myths and misconceptions of estate planning is that a Will controls the disposition of all assets when you die. This is not the case and could lead to unintended and costly consequences.
A Will only controls assets that are in the person’s individual name – not assets that have a joint owner or assets controlled by beneficiary designation. Joint accounts and beneficiary designations replace the Will and often pass directly to the surviving joint owner or beneficiary even if the Will directs otherwise.
It is common for individuals with disabled children to establish a Special Needs Trust to be the recipient of their inheritance. Special Needs Trusts enable funds to be set aside for your child with special needs without disqualifying him or her from government benefits. If your child directly acquires money while receiving government benefits, he or she will likely be disqualified from the program unless the funds are protected by a trust. A properly designed and administered Special Needs Trust will supplement public benefits such as SSI and Medicaid without jeopardizing eligibility.
To ensure that your assets are distributed to the Special Needs Trust, rather than outright to your child, it is critical to identify how your accounts are titled and to know the manner in which an account will pass upon death. It is not uncommon for individuals to name their children as beneficiaries of an IRA account or life insurance policy. Likewise, an account or policy could automatically default to your children if a contingent beneficiary is not named. If this happens, it could bypass the provisions of a Will and cause assets to unintentionally pass to a beneficiary who receives government benefits. To avoid this result, it is often wise to designate the Special Needs Trust as the beneficiary of retirement accounts, life insurance policies, annuities, payable-on-death accounts and any other asset controlled by beneficiary designation.
However, simply having a Will or Special Needs Trust does not mean you have a coordinated estate plan that will achieve the objectives stated in your will. Proper estate planning today reduces the risk of unintended outcomes tomorrow. Such planning must include a review of your assets and an analysis of how those assets pass upon death to be sure the Special Needs Trust is properly funded.
Richard I. Miller is Chair of the Special Needs Department at Mandelbaum Salsburg in Roseland, NJ. Richard concentrates his practice in Special Needs Planning, Guardianships, Elder Law and Probate Litigation. He is a Certified Elder Law Attorney though the National Elder Law Foundation and has been selected as a New Jersey Super Lawyer from 2010-2016. Richard is a frequent lecturer on the topics of guardianships and planning for families with special needs children. He is married and a father of three. Most of his free time is preoccupied with his second job — Head Coach for Montclair Hockey Club for the Midget 16U team.