Beneficiaries with disabilities or special needs

Whether you’re just starting out in life or you’re entering retirement, designating a beneficiary with disabilities or special needs requires some extra thought and planning ahead.

Assumptions affect families

Many people make financial decisions based on ideas like, “I will outlive that person,” or “Their sibling will take care of them, when we’re gone.” But taking the time to create a plan for everyone’s future will give you the peace of mind you deserve. Here are some tips to follow:

Designate the person whom you actually want to receive the funds. This may sound obvious, but it’s risky to designate someone else as beneficiary, with the hopes that they will take care of your loved ones. Designate the person you want to ultimately receive the funds, unless there’s a specific structure already in place for them, such as a trust or ABLE account. You also always should designate contingent beneficiaries for the funds, in case of a beneficiary’s death.

Accounts with beneficiary designations pass outside of your will. A will is an important document to capture your wishes for the distribution of your assets upon your death. But when there’s an account with a designated beneficiary, the specific assets in that account are not dictated by the terms of the will. If you name “estate” as your beneficiary, the will (and ultimately a probate court) may dictate who receives your assets. Any financial instruments or accounts that have named beneficiaries avoid probate, or the process where a judge interprets the will.

Review your beneficiaries as life changes. Be sure you’re up-to-date with your beneficiary designations throughout different life events, like marriage, divorce, childbirth, adoption or the death of a planned beneficiary.

Resources affect government benefits

If loved ones with disabilities qualify for government benefits, any type of income or assets they receive can reduce or disqualify them from those benefits. This includes:

• 401(k) assets
• Life insurance payouts
• Inheritance money
• Child support
• Trust funds (unless designated as Special Needs Trusts)
• Other assets

These types of income and assets can be very helpful to individuals with disabilities, but they rarely completely replace the government benefits they will need throughout their lives. Before you designate a beneficiary who has a disability or special needs on any financial document, ask if he or she has a Special Needs Trust (SNT), or recommend that one be considered.

A special needs attorney can help you protect your beneficiary from the loss of government benefits by creating a special needs trust where the funds won’t interfere with state or federal eligibility requirements.

Action steps:

• Check your current beneficiary designations and account ownership structures.
• Be sure your will and other legal documents are up to date.
• Find a special needs attorney, and prepare a special needs trust, where applicable.
• Talk to a financial professional to get started.

Learn more:

• Types of Special Needs Trusts (SNTs)
• Setting up a Special Needs Trust (SNT)
• How to talk to my family about our Special Needs Trust (SNT)
• Questions to ask my Special Needs Trust (SNT) attorney