special needs beneficiary
Life Insurance For Special Needs Child
The role of life insurance in planning for special needs child
Besides coming to terms with the reality of a special needs child, the parents need to face a few truths with grit teeth. The task of providing for special needs children after their demise lies upon the parents. There are state and federal government programs for medical care and income, but parents or other loved ones may bequeath small amounts to special needs children.
To safeguard against high costs of maintenance of special needs child, the answer lies in setting up a special needs trust which provides a financial safety net for children when parents are gone.
A special needs trust is a planning tool where proceeds from a life insurance and other assets are put together for the benefit of a special needs child. This is done without jeopardizing government benefits .A special needs trust is not an available asset to the beneficiary and does not qualify as income under rules for SSI and Medicaid. The assets are managed by a trustee, including allocation of investments and disbursement of funds.
The special needs trusts are further sub divided into three main types:
1. First-party trust: A first-party trust holds assets, such as an inheritance, for the beneficiary with special needs. This trust allows the special needs beneficiary to continue to receive SSI benefits. However upon the special needs individual passing away, assets remaining in the trust are used to repay the government for the medical care costs.
2. Third-party trust: Parents or other family members who want to help the special needs individual can fund this trust. All kinds of assets stocks or homes and their use to supplement government benefits can be used. Rather than reimbursing the government for medical care cost, in the event of special needs beneficiary passing away, the remaining proceeds of this can be passed on to other family members or a charity.
3. Pooled trust: A pooled trust contains assets for many beneficiaries with special needs rather than one. This trust is established by a charity and the assets are invested, while separate accounts for each beneficiary are maintained. In the event of a beneficiary passing away, a portion of that person’s trust goes to the nonprofit organization that manages the trust and the remainder is used for reimbursing the government for medical care.