Beware the Remote or Contingent Beneficiary with Special Needs

You may not want to leave any of the money in your estate directly to a relative with special needs, but the fine print in your estate planning documents might cause a catastrophic distribution anyway.

As you probably already know, you should almost never leave an outright bequest of money or property to a person with special needs because the receipt of assets could compromise the individuals government benefits. If you want to leave funds in your estate for the benefit of a person with special needs, your special needs planner will help you to establish and fund a special needs trust that will hold your loved one's inheritance for her benefit, while insuring that her government benefits stay intact. However, in many cases you may not want to leave any money for a relative with special needs, but your previous estate plan (possibly drawn up by a lawyer who doesn't specialize in special needs planning) may have other ideas. Let's take a look at how this might work.

Joanne has three adult children, Sarah, Emily and Doug. Sarah has two children, Emily has three children, and Doug has one child, a son with special needs who lives on his own and receives Supplemental Security Income and Medicaid. Joanne loves her grandchildren dearly but would like to leave her entire estate to her three children, with funds passing to a grandchild only if one of her children dies. Joanne visits a non-special needs planner who draws up a will stating that all of Joanne's property shall pass "in equal shares to my children or, if a child is not living, then to his or her issue." This will seems to fulfill Joanne's wish and, at first glance, it doesn't appear to cause any problems for her grandchild with special needs because Doug is going to receive the inheritance, not his son.

But first glances can be deceiving. If Doug dies before Joanne and she doesn't change her will before her death, Doug's son with special needs will inherit his father's share of Joanne's estate, and that inheritance will wreak havoc on his Supplemental Security Income and Medicaid benefits. A properly drafted estate plan will not rely on generic language and will address Doug's son's special needs by either creating a special needs trust to hold his potential share of the estate (even though it's only a remote share) or by skipping Doug's son altogether, if Joanne believes that this is appropriate. Doug may have already created a special needs trust for his son, in which case it is likely that Joanne could direct Doug's share of her estate right into the trust in case he passes away before her.

The one thing that you should never do is pretend that this isn't going to happen to you. A good estate plan takes into account all possibilities, even those that seem remote. Keeping your fingers crossed and relying on a child to survive you and inherit your estate is not an effective estate planning strategy, despite the fact that the odds are in your favor. If you've prepared your estate plan with a non-special needs planner, there is a good chance that he or she might not have taken your relative with special needs into account when drafting the "remote or contingent beneficiary" provisions of your documents. Schedule a review with your special needs planner today to make sure that your remote or contingent beneficiaries will not lose out in the future because of poor drafting in the past.

Article Last Modified: 09/02/2014