Beneficiary Designations

Certain assets can be left to a person designated as the beneficiary. Typically, these assets include life insurance, annuities and retirement accounts. Notwithstanding that you have a Supplemental Needs Trust, these assets can pass directly to your named beneficiary. For example, if your insurance policy names your children as the beneficiary and you have a child with special needs, then that child will receive one-third of your insurance proceeds upon your demise. If she is on government benefits such as Supplemental Security Income (SSI) or Medicaid, then receipt of the proceeds will likely result in your child losing those benefits.

Who Should Be Named the Beneficiary?

If you want your child with special needs to be a beneficiary of your assets, then the beneficiary designation should be to either a Supplemental Needs Trust established under your Will or to a Supplemental Needs Trust that you set up while you are alive.

This will allow your child to maintain government benefits while the Trustee can use the income and principal of the assets for his or her benefit. You can also direct who will receive the balance of these assets upon the demise of your child. There is no pay back to Medicaid under this type of Trust.

For example, if you want to leave your assets equally to your children, then you can do so while making sure that the portion passing to your child with special needs is placed into a Supplemental Needs Trust. For example, an IRA that passes equally to your three children can list the beneficiaries as: 1/3 to Mary, 1/3 to John and 1/3 to John Smith, Trustee of the Supplemental Needs Trust under the Will of Sharon Smith, dated July 25, 2011 for the benefit of Harry. This would protect the IRA proceeds for Harry who has special needs. When qualified retirement accounts are involved, then the trust must be carefully drafted to ensure that the pay out to the Trust can be over the child’s lifetime, thus deferring income taxes.

 How Do I Make Sure I Have the Best Plan?

It is important that you take the time to make sure you have considered all of your assets and how they will be dealt with under your estate plan. An experienced special needs attorney can make sure that you have a comprehensive plan in place, including proper beneficiary designations to protect your child with special needs.