What Is A Special Needs Trust?
In addition to personal planning reasons for such a trust (the person may lack the mental capacity to handle their financial affairs) there may be fiscal advantages to the use of a trust. Such trusts (sometimes referred to as “irrevocable trusts”) may also avoid beneficiaries losing access to essential government benefits. It is a mechanism that will allow the parents of a child with a special needs (for instance, a blind child) to provide for the financial needs of such child if the parents can no longer do so.
Financial Assets To Fund Special Needs Trusts
Obviously assets are needed to fund the trust that will provide for the financial needs of the, in this case, child. The person with special needs could also be an adult. If there are no assets readily identifiable to fund the trust, the trustee of the special needs trust may purchase a life insurance policy on the life of the person who has been providing for the financial needs of the child, which upon the death of such person, will then fund the trust.
A special needs trust is designed to:
- Ensure that the assets are used to meet the financial needs of the person with special needs.
- Preserve the federal or state benefits that such person is entitled to receive
It should also be noted that:
- Using a life insurance policy to fund the trust, the death benefit proceeds are received by the trust income-tax-free.
- The death benefits can be excluded from the estate value for federal tax purposes.
- The trustee can access the cash value of the whole life policy if the provider who cares for the child can no longer provide such care.
NOTE: This writing is not legal advice. Each person’s situation is different and being a financial matter that requires the drafting of legal documents (for, instance, an irrevocable life insurance trust) an attorney, or legal adviser, must be consulted before reaching any decisions regarding the creation of the special needs trust. As life insurance agents, we will work with your attorney or legal adviser in selecting the best whole life policy to meet your financial situation. Or if you do not have a legal adviser, or attorney, we can recommend two or three for you to select the one you would prefer to work with.
If you would like us to assist you regarding your SPECIAL NEEDS TRUST, please, call our Toll Free Number (888) 950-8376, or go to Contact Us.