SPECIAL NEEDS PLANNING: New Year’s Resolution – Beneficiary Designations

By Vivian J. Villers, CFP, AIF, CWS


New Year’s Resolution – Beneficiary Designations

As part of comprehensive planning, it is important for parents of a child with a disability to periodically review beneficiary designations, both primary and contingent, on ALL pertinent documents. Accurate beneficiary designations are critical.

When a person with a disability is receiving SSI and Medicaid from the government, they cannot own more than $2000 in cash or investments. If there is an incorrect or missing beneficiary designation and a disabled adult child receives an inheritance, they can lose their government benefits and will need to spend down that inheritance or legally redirect it to a payback trust (for which they will need to pay an attorney). Then they will need to reapply and requalify for SSI and Medicaid. The individual with a disability cannot disclaim or refuse the inheritance.

Why not make a New Year’s resolution to double check ALL beneficiary designations?

Documents to be reviewed include:

  • Wills and other estate documents.
  • All life insurance policies, including any employer-provided insurance.
  • IRAs, SEP-IRAs, 401ks or other similar accounts, such as 403bs.
  • Non-qualified annuities and TOD/transfer-on-death accounts.

Here is what to look for:

  1. Make sure that both the primary and contingent beneficiary designations are complete – no missing required information – and there are no “blanket” designations such as “all living children” or “The Estate.”
  2. All beneficiaries should be current and relevant. Any deceased, divorced, subsequently disabled, or “temporary” individuals should be removed. For example, did you name someone as a “temporary” beneficiary until you could have a Special Needs Trust created and a) you created the trust but never changed the beneficiary designation or b) worse yet, it has been several years, and you still do not have a Special Needs Trust and one person now will inherit ALL the assets?
  3. Do not leave an extra portion to a sibling to hold on behalf of the disabled adult child. That money would technically be owned by the sibling and potentially included in a bankruptcy, lawsuit, divorce, etc., and the asset intended to support the child with a disability is gone.

I recommend that you send a written, signed letter to the appropriate administrator, life insurance or annuity company. Ask that the company provide a complete list of all primary and contingent beneficiaries and that they respond to you IN WRITING via a signed letter. A computer printout may not be reliable. In one case, (“Pension Pickle,” NY Post, 1/31/2005), the computer printout was incorrect and deemed invalid.

Some final thoughts:

  • Ask other family members to check THEIR beneficiary designations. You do not want a grandparent or aunt to make a “blanket” bequest causing a person with a disability to inherit.
  • Remember, you cannot correct or undo an inappropriate beneficiary designation after the owner of the account is deceased.

Do it now. Your next crisis is not on your calendar.

Vivian J. Villers is a long-time Sigma Financial Corporation representative. For over 20 years, she has provided financial planning advice for families and individuals with special needs. Vivian serves on the Board of Directors of The Arc of Illinois and has two family members with disabilities. She is a recognized authority on special needs financial planning and frequently speaks on the topic to both families and professionals.

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