Special Needs Irrevocable Trust with Life Insurance: Ultra Trust

If you are a parent with a special needs child and would like to set up a Special Needs Irrevocable Trust, there are some things to consider such as gifting money or assets to your special needs child. How do you use life insurance to fund your Special Needs Irrevocable Trust?

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By setting up a special needs irrevocable trust, parents of these children can create an account that will contain assets to be used to care for the special needs child after the parents pass away. One of the most beneficial ways to fund these accounts is through life insurance, using death benefits upon the passing of the parent to fund the trust for the child.

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When trying to determine how to use life insurance in a Special Needs Irrevocable Trust, it is important to know what “special needs” entail. This is in reference to any child who has health-care needs, physical, developmental, or mental conditions that impairs their ability to function in a normal manner. Many of these special needs children will require additional assistance to perform daily tasks.
Special needs can be caused by different reasons, including physical and mental conditions. Common physical conditions can include heart defects, chronic conditions like diabetes, cerebral palsy, cystic fibrosis or dwarfism. Mental conditions can include retardation, ADHD, Tourette’s Syndrome and Autism.

Statistics of Special Needs

Based onstatistics gathered from Cornell University, more than 2.6 million children between the ages of 5 to 15 have a disability that qualifies them as being special needs. Out of those children, 30% have multiple disabilities.

Helping Parents with a Special Needs Child

The mentioned statistics may be truly unfortunate; however, there are many advisors who are able to give advice to parents and caretakers in regards to financial planning because there are special opportunities for these children and their parents. Most parents want to take care of the child the best they can even if they are not around to do so, and this includes financially.

Financial Aid for Children Over 18

If a child reaches the age of 18 and is unable to earn wages and support themselves in a financial respect, they may be eligible to receive funds from Social Security Income. They can also be eligible to receive health services through the state in the form of Medicaid.
However, it is also possible for these benefits to end immediately if the special needs child has any assets that total more than $2,000. This does not include the ownership of a home or vehicle. Each quarter, disabled individuals are only allowed to receive $60 of unearned income. This is a government regulation. The individual must also be unable to earn more than $500 a month. This is a harsh restriction preventing the special needs child to ever be able to sustain himself/herself and makes the child completely reliant on the parent(s) and government assistance.
When special needs children turn 18, Federal assistance can be applied for and for many parents, the amount that could be received will not offer much help. In these cases, parents will continue to use their own funds and assets to provide care for the child for the remainder of their life.

About gifting to special needs children

When gifting to a child with special needs, there are some common errors that are often made. These include:
  • Gifting money or assets to the special needs child directly. This could cause the financial aid to cease providing the child is more than 18 years old.
  • The identical problem could occur if money is gifted after the child’s parent or grandparent has passed away.
To protect this from happening, parents who have special needs children should change where the assets of the beneficiary are assigned to. These should be immediately changed to a special needs irrevocable trust, including assets and money in IRAs and 401(k) plans.

Explaining Special Needs Irrevocable Trusts (SNTs)

When planning for the well being of a special needs child, it is important to consider the child’s welfare after the passing of the parents or the caregiver. This is one of the main fears that parents face. They often wonder who will care for the child and if the level of care will be enough to enable the child to life a fulfilling life.
To make sure that the child is, in fact, cared for in an appropriate way, a special needs irrevocable Trust can be established. To ensure that the child will be able to continue receiving financial aid, all gifts must be made to a trust in which the child is the beneficiary.
Since the assets will then be the property of the irrevocable trust and not the actual child, the assets that are located within the irrevocable trust cannot be counted as assets when considering financial aid eligibility.

How to Fund a Special Needs Irrevocable Trust

Life insurance is one of the best tools to use when looking to fund an irrevocable trust for a special needs child. This is because when the parents die, the death benefit from the life insurance policy will be in the trust without any income, gift, or estate taxes. That money will later be used to care for the child with special needs until his or her death.
In short, these trusts are irrevocable trusts and the trustee will have complete discretion on how the assets are to be used. The trustee will handle and manage all distributions from the trust. When this is done properly, all assets in the trust will be used for the caring of the child and will in no way disqualify the individual from receiving financial assistance from the state.
Category: Estate Planning, Ultra Trust

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