Life Insurance and Special Needs Trusts: A Match Made in Heaven?
Special needs trusts don’t typically buy life insurance policies. However, a trust is often the beneficiary of a policy. Parents set up a trust to hold assets and help pay for their child’s lifetime care after they are gone. Then, the parents designate the trust as the beneficiary of their life insurance policy.
Why Not Buy Life Insurance on the Child?
Setting up a special needs trust generally doesn’t involve buying a separate life insurance policy for your child with disabilities. Doing so could potentially reduce or eliminate government benefits they were receiving at the time of your passing — which defeats the very purpose of creating a Special Needs Trust (SNT) in the first place!
Protect Government Benefits
The Right Approach
Designating your existing life insurance policy as a beneficiary of your special needs trust is often recommended. This allows death benefit payments to pass directly into your trust — without any delay due to probate proceedings, and without affecting government benefit eligibility.
How It Works
Working With an Attorney
A Special Needs Trust must be carefully drafted by an attorney who specializes in this area. The life insurance component — however — is something you can put in place today, quickly and affordably. Get your policy set up first, then work with an estate attorney to ensure the trust is properly structured as the beneficiary.
