As we live longer, it is becoming more important to plan for where we will live when we are no longer able to live on our own. This planning often means considering moving into a retirement community. Once the decision is made that moving into a retirement community is the best option for you, the next step to think about is how to pay for it. Retirement communities often have different options for retirees to pay for the cost of living in the community. A very popular option is a prepaid plan that often requires an up-front balloon payment that covers a specified time period.
What happens when you pass away before the specified time period ends? An often unknown component of this type of up-front payment plan is that you may have the right to designate a beneficiary on the "unused" portion of the up-front payment. Under this type of payment plan, if you pass away prior to using all of the initial down payment on the retirement home, any leftover funds can end up passing through your estate (which could mean a probate). If this is the case, then it is usually advisable to name a beneficiary to receive any leftover funds. If your estate planning document is a living trust you would want to make your trust the beneficiary.
If you are currently (or considering) living in a retirement home and you prepaid for your living expenses, you should check with your retirement home to find out if you have the right to name a beneficiary for any leftover funds.