Special Needs Planning and Retirement Benefits
Retirement accounts like 401(k)s and IRAs make up the majority of most people's savings. While these plans encourage saving b...Read more
Have you been thinking of meeting with a special needs planner to put a plan in place for a child or loved one but you just haven't made the call? Or have you already met with an attorney and not finalized your plan, even though you swore you would get to it yesterday? If either of these examples sounds like you, then a recent case from New Jersey should make you think twice about waiting to finalize that estate plan that you have been meaning to get to.
Margaret Flood had four children, including two daughters with special needs who received government benefits. Concerned about leaving an inheritance directly to the daughters with special needs, and thus cause them to lose their benefits, Ms. Flood consulted with an attorney about the possibility of creating a special needs trusts for them. However, Ms. Flood did not follow up with her attorney after the initial meeting, and time passed.
Tragically, Ms. Flood passed away before finalizing her plan. Because she died without a will of any kind, Ms. Flood's property became subject to New Jersey's intestacy law. An intestacy law is a state statute that dictates who will receive your property if you die without a will (some property, like retirement accounts and jointly owned property, passes outside of this system). Under New Jersey's law, Ms. Flood's $480,000 estate passed in equal shares directly to all four children, including the two daughters who could not receive funds without compromising their vital government benefits.
The administrator of Ms. Flood's estate attempted to undo the damage by filing an action in court seeking to create and fund two special needs trusts to hold the inheritances for Ms. Flood's daughters with special needs. The administrator argued that it was Ms. Flood's intent to create the trusts, and since her intent was clear, the court should put her probable plan into effect and preserve her daughters' benefits. This legal theory is sometimes used when a will or a trust is unclear and needs to be reformed after the fact in order for the instrument to function as its creator intended. In this case, the court allowed the administrator to establish the special needs trusts even though Ms. Flood had no will at all.
But Ms. Flood's heirs would run out of luck when the case was appealed to the Appellate Division of the Superior Court of New Jersey. That court reversed the lower court's decision and prevented the funds from flowing into the special needs trusts for Ms. Flood's daughters. The appellate court ruled that the trial court overstepped its bounds by bypassing the intestacy laws, and it further ruled that under New Jersey law, there was no option -- Ms. Flood's daughters must receive their inheritance directly, regardless of the effect that might have on their government benefits.
Ms. Flood tried to do the right thing and simply ran out of time to put a plan in action. Don't let this happen to you; if you are thinking about forming a special needs plan, there is no time like the present.