The many uses of life insurancePart 4 – Special Needs Planning
Alan J. Mendlowitz, RICP, CRES
For a parent of a special needs child, it is imperative to understand the financial aspects of planning for their future. One of the most important aspects of this planning is ensuring that they have the financial resources they need to support themselves after you're gone. This is where life insurance can play a crucial role.
Life insurance can provide ongoing financial support for a special needs child in the event of your death. Here's how it works:
When you purchase a life insurance policy, you name a beneficiary who will receive the death benefit in the event of your death. If you have a special needs child, you can name them as the beneficiary of your policy. However, this can create some challenges.
If you leave a large sum of money directly to your child, it could disqualify them from receiving government benefits such as Medicaid or Supplemental Security Income (SSI). This is because these benefits have strict income and asset limits, and a large inheritance could push your child over these limits.
To avoid this, you can set up a special needs trust and name it as the beneficiary of your life insurance policy. A special needs trust is a legal arrangement in which you appoint a trustee to manage the trust's assets for the benefit of your child. The trustee can use the funds in the trust to pay for your child's needs, such as medical expenses, housing, and other necessities. Because the funds are held in a trust and managed by a trustee, they do not count as assets for the purposes of government benefit eligibility.
Life insurance can be a valuable asset to include in a special needs trust. The death benefit can provide ongoing financial support for your child, ensuring that they have the resources they need to live a fulfilling life after you're gone. And because the funds are held in a trust, you can be confident that they will be managed responsibly and used only for your child's benefit.
It's important to work with an attorney who specializes in special needs planning when setting up a special needs trust. They can help ensure that the trust is properly structured to meet your child's needs and comply with all applicable laws and regulations.
In conclusion, providing for a special needs child requires careful planning and consideration. Life insurance can be a powerful tool in this planning, providing ongoing financial support for your child in the event of your death. By setting up a special needs trust and naming it as the beneficiary of your life insurance policy, you can help ensure that your child's needs are met and their future is secure.
Here are some sources that provide more information about using life insurance in special needs planning:
1. "Special Needs Trusts and Life Insurance: A Perfect Pairing" by Forbes: https://www.forbes.com/advisor/retirement/special-needs-trusts-and-life-insurance/
2. "How Life Insurance Can Benefit a Special Needs Trust" by Investopedia: https://www.investopedia.com/how-life-insurance-can-benefit-a-special-needs-trust-4685306
3. "Life Insurance and Special Needs Planning" by The Balance: https://www.thebalance.com/life-insurance-and-special-needs-planning-4164351
4. "Life Insurance and Special Needs Trusts" by NerdWallet: https://www.nerdwallet.com/article/insurance/life-insurance-special-needs-trusts
These articles provide more in-depth information about how life insurance can be used in special needs planning and the benefits of setting up a special needs trust. They also offer guidance on how to set up a special needs trust and work with an attorney who specializes in special needs planning.