Naming contingent beneficiaries is a key step in estate planning.

In athletic competition, it is not enough to have one star player.

Illness or injury could quickly sideline this exceptional athlete.

Instead, it is essential to have a deep bench so your team can handle such unfortunate situations.

According to a recent The Mercury article titled “PLANNING AHEAD: The problems we have naming contingent beneficiaries,” the same is true of estate planning.

Choosing contingent beneficiaries may require strategic planning for how funds are inherited.

You may know who you want to inherit your assets.

For married couples, the primary beneficiary is generally the spouse.

Those with children may choose to name their progeny as contingent beneficiaries.

When doing so, parents may decide to make equal distributions to minimize conflict among their children.

Others may use their estate planning to provide more for the child with greater need.

These decisions are typically a matter of preference.

When naming contingent beneficiaries, you may face additional complications.

As direct beneficiaries, heirs with special needs may be disqualified from Medicaid or other means-tested government assistance and benefits at the local, state, or federal levels.

Yikes!

If you desire to make a loved one with special needs a contingent beneficiary, work with an experienced estate planning attorney to do so in a way where eligibility will be preserved.

Your estate planning attorney will likely recommend a Special Needs Trust.

If your heir only receives Social Security Disability rather than Supplemental Security Income or other benefits, you may be able to provide a direct inheritance.

Why?

Social Security Disability does not have income eligibility requirements.

Rather, eligibility is determined based on whether someone can work in “substantial gainful employment.”

If your contingent beneficiaries cannot handle funds independently, this may require naming a trustee or other financial manager.

Typically, this occurs when one or more heirs are still minors, have disabilities, or tend to mismanage money.

In these instances, trusts can be helpful.

Trusts can also protect the heirs from possible untrustworthy parents or stepparents.

How?

You can name a trustee you actually trust to manage financial distributions for your heirs.

You can also provide specific instructions and parameters for the use of funds.

For those who are not married or who have already had many loved ones predecease them, it can be helpful to work with an experienced estate planning attorney to create a plan to provide for contingent beneficiaries or charitable organizations while protecting against scammers.

Reference: The Mercury (Aug. 28, 2023) “PLANNING AHEAD: The problems we have naming contingent beneficiaries”