SSB LLC

Retirement Account Caution: Change in Firm or Provider Requires Confirmation of Beneficiaries

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Here is something to be aware of if you have IRA, 401(k), 403(b) or other retirement account.  At Samuel, Sayward & Baler  we are careful to advise you about how to designate the beneficiaries of your retirement accounts consistent with your estate plan.  In some cases, customized beneficiary designations are required to ensure these accounts are distributed properly to achieve your planning goals.

There are two circumstances in which these beneficiary designations can be disrupted and over which you have no control:

  • If your financial advisor changes firms. Although your accounts may move with your advisor to the new firm (if you so choose), your beneficiary designations may not necessarily move along with your retirement accounts.  If your financial advisor has changed firms, be sure to confirm with your advisor that beneficiaries have been correctly designated on your new retirement accounts established at the advisor’s new firm.
  • If your employer or former employer changes its 401k or 403b provider. Beneficiary designations on employees’ or former employees’ accounts typically do not move over to the new provider, and beneficiaries must be re-designated. This is another circumstance where action is needed to ensure that beneficiary designations are correct.

If the owner of a retirement account passes away with no beneficiary designated on that account, the account is payable to the account owner’s estate. Although the funds in the account may still be distributed consistent with the owner’s estate plan (assuming the account did not have a beneficiary designation different from the rest of the owner’s estate plan), there will be no opportunity for continued tax deferral or a so-called “stretch” payout of the retirement account over the life expectancy of the beneficiary.  The account instead must be distributed in a lump sum to the owner’s estate, or at best over a 5-year period, and the income tax payable on the account must be paid all at once.  This is a very bad result from a tax planning perspective.

If one of these situations occurs, do not delay in ensuring that your beneficiary designations are in place and are consistent with our recommendations and your estate plan.  In all cases, we recommend that you request written confirmation of beneficiary designations so that you can confirm that beneficiaries are designated correctly.  If you would like us to review your designations we are happy to do so.

Ask SSB

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Q:        It’s likely that my mom will need to go into a nursing home soon.  She does not have a lot of money but she still owns her home.  Will we need to sell her house to pay for her care?

A:        As with all long-term care matters, your question is more complicated than it seems.  The short answer is ‘no’, your mom will not be required to sell her home to pay for her nursing home care.  Medicaid, often called MassHealth in Massachusetts, is a state and federally funded program that will pay for the long-term care costs of people who are both medically and financially eligible for the program.  In order to be eligible for long-term Medicaid benefits, the applicant cannot have more than $2,000 of ‘countable assets.’   Bank accounts, investments, retirement assets such as IRAs, the cash value of life insurance, and deferred annuities are examples of countable assets.  A person’s primary residence is not a countable asset.  As such, someone who has less than $2,000 of countable assets and owns her home may be eligible for Medicaid to pay for her long-term care nursing home care.  However, that is not as good as it sounds.  For one thing, a nursing home resident who is receiving Medicaid benefits must pay all but a small portion of her monthly income to the nursing home.  As such, unless the home is rented out, or unless family members are willing and able to pay the real estate taxes, insurance, water and other utility bills, there is no money available to maintain the home.  Further, the state wants to recover the benefits paid on behalf of the Medicaid recipient and will place a lien on the property.  The house will likely need to be sold following the death of the MassHealth recipient in order to satisfy the lien.

There are many other factors that need to be considered in connection with the home and Medicaid eligibility including the marital status of the applicant, whether any gifts were made, and whether there are any exceptions to the prohibition on transfers in a family’s situation.   Because of the complexities involved in applying for Medicaid benefits to pay for long-term nursing home care, it is advisable to consult with an experienced elder law attorney as soon as you anticipate that nursing home care may be necessary. Please call us if you find yourself in this situation.

Wills • Trusts • Elder Law • Long-Term Care Planning • Estates

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