Alert to Caregivers of Dependents with Special Needs…

Alert to Caregivers of Dependents with Special Needs:

You May Need to Change the Beneficiaries of Your Life Insurance, Annuities, IRAs or Other Retirement Accounts

By: Larry Ricke, CLU, ChFC
Chartered Financial Consultant Special Needs Planner

The process of planning for a dependent with special needs involves developing a total plan to provide for the dependent’s lifetime care. Ownership of assets must be coordinated with legal documents (such as trusts, wills and beneficiary designations) to avoid the loss or reduction of any government or other benefits for which the dependent may be eligible.

Assets can pass from one individual to another individual in a variety of ways. Assets may be transferred by sale or by gift. At death, assets may pass through a will or under intestacy laws and be distributed by the estate. Assets may be distributed by trusts.

Certain assets will be distributed through operation of law. These include assets held jointly (such as real property held in joint tenancy, or as tenants in the entirety) that avoid the probate process and go directly to another named person.

Other assets can pass through operation of contract. These usually include life insurance policies, annuities, IRAs, and certain other types of retirement accounts that permit the owner to name a beneficiary. These types of assets typically avoid the probate process (unless the estate is named beneficiary), passing directly to the named beneficiary.

Even the very best plans can go astray if all the pieces of the puzzle are not pieced together correctly. Distributions specified in wills can result in money going directly to a person with special needs (for example, a provision that requires that the residuary estate be divided equally among the decedent’s children, with the share of any predeceased child being divided equally among that child’s children or descendants of predeceased children). Payments made directly to a person with a disability may result in the reduction or even loss of government benefits.

How many caregivers of dependents with special needs today have named their dependent as the beneficiary on a group or individual life insurance policies, IRAs, 401(k) plans, profit sharing plans, or defined benefit pension plans? How many people have forgotten whom they have named as beneficiary? How many people never named a beneficiary? When the caregiver dies, the terms of those policies and retirement plans will govern the distribution of the money, usually requiring distribution to the named beneficiary or, if none is named or living, to the estate. If the dependent with special needs receives the money, this could produce disastrous results.

When planning for the financial future of someone with special needs, all beneficiaries of insurance policies, pension plans, IRAs, and annuities, need to be reviewed. If the caregivers have established a special needs trust for their dependent with special needs, the trust should be named as beneficiary, so not to compromise their loved one’s benefit eligibility. One mistake, a forgotten policy, or a beneficiary designation not updated, can unravel the best of plans!

Due to the complexity of federal and state laws, you may require a specially trained professional who can work with your other advisors to help you plan for the future of your dependent with special needs.

© 2019 Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001. All rights reserved.

This article was provided in partnership with the Southern Indiana Estate Planning Council. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. The law sometimes changes. Documents persist on the internet indefinitely. Information may not constitute the most up-to-date legal or other information. The author does not undertake responsibility to update the information. This particular article was provided by:

Larry E. Ricke, CLU, ChFC

Ricke & Associates


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