Think you’re finished with your planning project because you’ve signed the many, many documents your attorney prepared? Not so fast! You must now “fund” your plan.
“Funding” means transferring asset ownership and updating beneficiary designations of your accounts to incorporate your new documents. If funding is not completed, your assets will not be distributed according to your wishes and directions outlined in your plans. Improper or incomplete funding can also incur probate proceedings, cause disputes among heirs, and loss of government benefits for those with disabilities.
Top 6 Estate Planning and Special Needs Planning Funding Mistakes
Here are the most common funding oversights:
- Naming a beneficiary who has a disability directly instead of a special needs trust. When a disabled person inherits assets, eligibility for essential government benefits like SSI, Medicaid, and SNAP is immediately jeopardized, if not outright disqualified. To correct this, the assets must be transferred to a disadvantageous type of trust that could have been avoided with proactive planning.
- Not updating the deed to your home. If your plan includes a living trust, the best practice is to retitle your home in the name of the trust. Real estate is otherwise subject to probate, regardless of its value or whether you have a mortgage balance. Be sure to double-check your paperwork if you aren’t sure whether your home is held in trust. Note: this applies to out-of-state and investment properties, too!
- Life insurance beneficiaries are outdated. Once policies are purchased, people understandably file them away. In the meantime, life happens – and because policies are not “front of mind”, they are often forgotten when a life event prompts necessary updates to life insurance beneficiaries. Among the many mistakes: no beneficiary named, outdated designation of an ex-spouse, naming a minor child, naming a person with a disability, and understanding that beneficiary designations overrule designations in a will.
- Incomplete asset inventories. Our clients will remember completing the “Asset Inventory” when they started their planning project with us. Not an easy task, but so critical! During our review, we regularly identify assets that were not included in the initial inventory. A forgotten asset can be a liability in planning!
- Not checking and verifying. Who you want as your beneficiary may not actually be who already is currently named as your beneficiary. Don’t trust your memory to accurately recall paperwork that you completed years ago. Make the calls to your financial advisor; visit your banks; verify accounts online to confirm and/or update beneficiaries.
- It’s not “One and Done.” Funding is not a one-time step –it’s an ongoing responsibility. Checkout our Plan Review worksheets included in our January newsletter to assist in your plan review.
The cost of incomplete funding is high – for a disabled individual, the loss or interruption of Medicaid, SSI and/or SNAP is catastrophic – not to mention expensive, stressful, and time consuming to correct. Probate proceedings cost many thousands of dollars in legal fees and court costs. It is impossible to quantify the loss of assets transferred to an unintended (and unwanted) beneficiary. These consequences are more common than you might think – our Firm devotes about 30% of our practice to remedying these complicated problems. This is why we address funding and its importance with every client we represent.
We recommend conducting a “self-audit” of your assets annually or whenever a major life event occurs — moving, changing jobs, getting married or divorced, having children, retiring, or establishing a special needs trust are key milestones that signal the need to review your estate and special needs plan.
Take the First Step
Funding your estate and special needs plan ensures that your hard-earned legacy goes to the people and causes you care about, without unnecessary complications, stress, and expense. If you’d like to conduct a “self-audit” or are ready to plan your estate, we invite you to contact us.
