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What's in a Name: Why the Title on Your Financial Accounts Matter

A name often defines who we are and sometimes, even, who we become. The same is true for the name on your financial accounts. One of the biggest myths and misconceptions of estate planning is that a Will controls the disposition of all assets at death. This is not the case and could lead to unintended and costly consequences. A Will only controls assets in a person’s individual name – not assets that have a joint owner or controlled by beneficiary designation. Joint accounts and beneficiary designations supersede the Will and often pass directly to the surviving joint owner or beneficiary even if the Will directs otherwise. This issue is particularly crucial for parents with special needs children.

It is routine for individuals with disabled children to establish a Special Needs Trust to be the recipient of an inheritance. Special Needs Trusts enable funds to be set aside for disabled individuals without disqualifying the beneficiary from government benefits. If the recipient acquires money while receiving government benefits, he or she will likely be disqualified from the program unless the funds are protected with a trust. A properly designed and administered Special Needs Trust will supplement public benefits such as SSI and Medicaid without jeopardizing eligibility.

To ensure that assets are distributed to the Special Needs Trust, rather than outright to the child, it is critical to identify how one’s accounts are titled and know the manner in which an account will pass upon death. It is not uncommon for individuals to name their “children” as beneficiaries of an IRA account or life insurance policy. Likewise, an account or policy could automatically default to children if a contingent beneficiary is not named. Such an outcome could circumvent the provisions of a Will and cause assets to inadvertently pass to a beneficiary who receives government benefits. To avoid this result, it is often advisable to designate the Special Needs Trust as beneficiary of retirement accounts, life insurance policies, annuities, payable on death accounts and any other asset controlled by beneficiary designation.

Just because you have a Will or Special Needs Trust does not mean you have a coordinated estate plan that will achieve your testamentary objectives. Proper estate planning today reduces the risk of unintended outcomes tomorrow. Such planning must include a review of one’s assets and an analysis of how those assets pass upon death to be sure the Special Needs Trust is properly funded.
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