Life insurance
Life Insurance To Fund A Trust
Using life insurance to fund a trust
Life insurance can be one of the best ways to fund a special needs trust. Types of life insurance for special needs child are term life to whole life or survivorship life. The type of life insurance that is chosen is dependent on the needs and objectives.
Term Life Insurance: A set number of years are provided coverage, from one to thirty years. This is the most affordable life insurance policy, but a policyholder can outlive the policy term and leave the trust without the needed proceeds. A convertible term insurance is better when buying for a special needs trust. This holds the option of converting the term policy into whole life policy at some point of time.
Permanent Life Insurance: This provides insurance coverage for whole lifetime. Lifetime coverage is beneficial in the sense that the policy death benefit can fund the special trust. These insurance policies provide a death benefit and an investment feature called cash value.
Survivorship Life Insurance: Otherwise known as second-to die insurance, this life insurance insures the life of two people and provides benefit after the death of the second insured person. In this type of life insurance, premiums are relatively lower and funds are available after the second person dies.
How funds from a special needs trust are used
The U.S. Department of Health and Human Services authorizes the trustee to use funds from a special needs trust to supplement government assistance, including disbursement of funds for the following expenditures:
- Rehabilitation
- Training programs
- Computer equipment
- Transportation, including a vehicle purchase
- Trips and vacations
- Companion services and home health aides
- Supplemental medical or dental care
Using life insurance to fund special needs trust is beneficial because benefits are paid out outside of probate court and without income tax deductions.
Government benefits for a special needs child are awarded based on the family income, but once the child turns 18 the benefits are awarded based on the child’s assets. Academy of Special Needs Planners advises parents to create a trust before children reach age 18. Setting up a trust now protects the child in the event of unexpected death.