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Estate Planning Update: Adjusting for a Beneficiary’s Disability

Estate planning is all about preparation and ensuring that your assets are distributed in line with your wishes. It’s a comfort knowing your loved ones will be cared for just as you intend. However, life’s unpredictability sometimes throws a curveball. What if a beneficiary becomes disabled after you’ve finalized your estate plan?
September 8, 2023
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Do You Need to Revise Your Estate Plan?

The short answer? Absolutely. A change as significant as a beneficiary’s disability necessitates a review of your estate plan. This is not just a legal requirement but a moral obligation to ensure your loved one’s changing needs are adequately addressed.

Why Consider a Supplemental Needs Trust (SNT)?

If your now-disabled beneficiary is on government benefits or might need them in the future, a direct inheritance could jeopardize their eligibility. A SNT allows you to earmark assets for the beneficiary, ensuring they don’t count against them for means-tested government benefits.

Moreover, the funds in the SNT are versatile, catering to a range of needs that enhance the quality of life for the beneficiary — from education and therapy to recreation and certain medical expenses.

Protection Against Financial Exploitation

A disability might render a beneficiary more susceptible to financial scams, exploitation, or even dissipation from well-meaning but inexperienced family members. Thus, safeguarding their inheritance becomes paramount. Even if they aren’t drawing government benefits, consider a trust structure with a named trustee to manage the assets.

Navigating the Tax Labyrinth

Taxation can be a complex beast, especially when it comes to inheritances for disabled beneficiaries. For instance, an inherited IRA passed onto a disabled individual can offer certain tax advantages. Collaborating with an attorney ensures your estate plan is as tax efficient as possible.

Updating Essential Documents

A beneficiary’s new disability status might affect more than just your will or trust. If they were your chosen Health Care Proxy or the agent in your Power of Attorney, and their disability affects their decision-making capacity, updates are in order. These documents play a pivotal role in ensuring your wishes are upheld, especially as you advance in age.

As life’s events unfold, so too might the circumstances of our beneficiaries. Such changes call for a proactive approach, ensuring our estate plans evolve accordingly. If you find yourself in a situation where a beneficiary’s status has changed, reach out to your estate planning attorney. Together, you can ensure that your estate plan not only remains compliant but also that your beneficiary’s best interests remain at the heart of your plan.