When you start a new job you may be offered a range of employee benefits, from retirement accounts to life insurance. If you are the parent of a minor child or child with special needs, the decisions you make about these benefits could have dramatic future consequences. Here are a few issues to consider when it comes time to make those important employee benefit elections. (Of course, if you made different choices, there is always time to change your plan.)
Don’t name a child with special needs as a direct beneficiary of a retirement account
When you first set up an IRA or 401(k), you have to name primary and contingent beneficiaries to receive the funds in the account. Your first thought may be to name your spouse or partner as the primary beneficiary and your children as the contingent beneficiaries. If one of your children has special needs, this decision could be disastrous for several reasons. First, if your child is receiving government benefits, a sudden influx of income from an inherited retirement account could disqualify your child from those benefits. Second, retirement accounts will eventually pay out a set amount of money per year to the designated beneficiaries – this amount may be more than a person with special needs can or should handle on his own. One resolution to this dilemma is to set up a special needs trust to hold and distribute the retirement funds.
Evaluate how much life insurance you may need and designate the appropriate beneficiary
Many companies offer basic life insurance coverage with the option to purchase additional insurance at a discount. As discussed above, naming a child with special needs as the beneficiary of a large life insurance policy could create havoc for the child later on. However, life insurance does provide a great planning opportunity for parents of children who may require significant care because the death benefit can be used to fund a special needs trust with a significant amount of money. If your company offers additional insurance, it may be prudent to purchase it and name a special needs trust as the beneficiary. If you are concerned about being “fair” to your children without special needs when it comes to inheritance, you may opt to balance their inheritance by leave them a different asset such as your retirement accounts while using a life insurance policy to take care of your child with special needs.
Long-term disability insurance may be worth it
When you have a family to care for, you always need to give serious consideration to what your family’s financial position would be if you lost your job due to disability. Many companies allow employees to purchase long-term disability insurance and some offer it for free. If you are the primary wage earner and you don’t have substantial savings to care for your family, then it may make sense to sign up for disability insurance so that your family will be protected.
Whether you are staring a new job or you have employee benefits package in place, it may be helpful to go over your benefits with your attorney. With careful planning you may ensure a more secure future for your family.