Employees who perform services for the State of Illinois are eligible for retirement benefits under the State Employees Retirement System (SERS). Participants in the SERS program receive pension payments upon retirement and can name beneficiaries who will receive financial payments upon the participant’s death.
If you are a SERS participant, and if you have a loved one with special needs that you want to provide for after you are gone, you must understand the best way to accomplish your plan without your beneficiary risking adverse tax implications or loss of government benefits. You need to create a Special Needs Trust.
Why A Special Needs Trust Is The Best Vehicle for Pension Benefits
Since we are focusing on SERS benefits in this article, we won’t go into detail about special needs trusts here. For more details about special needs trusts, please take a look at our articles, “What are the different types of Special Needs Trusts and how can they benefit my child with special needs?” and “Why Your Special Needs Trust Should Be A Separate, Free-Standing Document” for more information.
Pension, retirement, and IRS rules are very complicated. One misstep could cost you or your beneficiary a lot of money if you don’t follow the correct procedures. If you want to use your SERS retirement benefits to protect and provide for a child with special needs, you cannot name that child as a direct beneficiary because you would risk losing needs-based government benefits.
Instead, you should establish a Third-Party Special Needs Trust where assets can be placed in an account for the benefit of the person with special needs, but they do not have direct access to those funds. Under this arrangement, a Trustee manages the account and provides the necessary funds to care for the special needs trust beneficiary. These funds are not considered when determining the beneficiary’s eligibility for government benefit programs, nor are the funds subject to reimbursement claims from Medicaid or other entities upon the beneficiary’s death.
Using A Special Needs Trust To Receive SERS Benefits
Create the third-party special needs trust first, and then you can designate the special needs trust as your beneficiary through the SERS process. There may also be requirements in how you file your taxes whereby failure to follow SERS requirements could result in loss of the SERS pension to the Special Needs Trust.
SERS will pay benefits to a special needs trust assuming the proper trust documents are provided to SERS that indicate the trust complies with applicable federal statutes depending upon what type of special needs trust is designated as well as any other proof of disability requirements they have.
SERS also offers a Reversionary Annuity option that reduces the participant’s monthly pension payments during his or her life to provide a lifetime income for a designated beneficiary after the participant’s death. This annuity is a separate option and in addition to the standard survivor’s benefits. If you choose this option, you should name the special needs trust as the designated beneficiary, not your child with special needs individually.
Ensuring Your Desires Are Accomplished
Pension, retirement, and tax rules are specific and complicated. Choosing the wrong options, or skipping important legal arrangements can result in a devastating outcome. Don’t let that happen to your hard-earned retirement benefits and your loved ones.
Rubin Law is the only law firm in Illinois exclusively limited to providing compassionate special needs legal and future planning to guide our fellow Illinois families of children and adults with intellectual disabilities, developmental disabilities, or mental illness down the road to peace of mind. For more information, email us at firstname.lastname@example.org or call 866-TO-RUBIN.