Two main ways exist to use life insurance if a special needs child is in your family. In one situation, parents purchase life insurance for their child’s life, addressing the possibility of outliving them. Alternatively, parents employ a life insurance policy in a trust as part of their estate planning. Knowing their child with special needs prioritizes safeguarding assets after they die.
Alternatively, parents of a special needs child could purchase life insurance for a child to benefit family caregivers. These caregivers sacrifice career development, retirement savings, pension plans, and even social security benefits. This often adversely affects their future. Aside from helping make up lost income opportunities, the death benefit offsets potential funeral costs.
Special Needs Attorneys
Purchasing a life insurance policy will require a reputable advisor. Such a person understands pre-existing conditions, disabilities, and the ways a policy affects the beneficiary’s estate planning. Therefore, each family situation is different. However, consider many options to obtain life insurance. These include a graded life benefit, rating request, or policy based on your child’s functional level. Presenting psychological and medical issues in a favorable light during the application process is key to a positive outcome.
Life Insurance Policy Ownership
The special needs child should not own the policy as cash value. Instead, it is a countable asset for the purposes of SSI and special needs Medicaid programs. Thus, these federal programs set very low asset limits. What’s more, losing these crucial benefits may negatively impact the child. For example, the parent may opt to serve as the policy owner. That is, as long as no estate tax or long-term care issues exist which may cause complications.
Two Types of Trusts:
Stand-Alone Special Needs Trust –
- This trust type is similar to other irrevocable trusts and is created during the lifetime of the trust grantor. This independent trust entity can immediately receive asset funding from the grantor and maintains a unique tax ID number. A stand-alone trust also has the advantage of asset protection as trust assets are safeguarded from any potential liabilities from the trust grantor that may arise after establishing the trust. A stand-alone trust can be advantageous if the grantor has a larger estate requiring federal estate tax planning. Just as with an irrevocable life insurance trust, the special needs trust is irrevocable and allows gifting funds.
Testamentary Special Needs Trust –
- Creating this special needs trust type is either part of a parent’s will or, more commonly, an addition to the provisions of a revocable living trust, which becomes effective upon the death of the trust grantor. While a testamentary trust loses the immediacy of funding, asset protection, and estate tax planning functions of a stand-alone trust, it has greater flexibility in other ways. The goal of this trust type is to continue to provide caretaking services for the special needs child after the parent’s death. If the grantor’s estate is relatively small and without the need for estate tax planning, the gifting benefit will not be a major factor.
About Skvarna Law Firm in Glendora and Upland, California
Let a skilled attorney assist with your estate plan. So, contact us today to learn about your options (909) 608-7671. We operate offices in Glendora and Upland, California. Therefore, we provide legal services for individuals living in San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes the cities of Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Montclair, Pomona, La Verne, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
