Broker Check

Estate Planning

For Special Needs Trust

Children with special health care needs have chronic physical, developmental, behavioral, or emotional conditions. It is estimated that between 12 and 13 percent of children have special needs. (The Center for Children with Special Needs:


The government offers a number of programs that offer financial assistance for things such as medical care, group housing, personal attendant care, vocational rehabilitation, job coaching, transportation assistance, and more. However, the government also puts conditions on receiving these benefits in that none of the efforts may be duplicated. Money is provided on an as-needed basis. If an individual receives funding for any of these purposes from another source, the government has the authority to cut back support, such as a reduction in Social Security benefits.

As a caregiver leaving behind a loved one with special needs, you might be tempted to simply make provisions in your will for him or her to receive a bequest or become the beneficiary of any life insurance or qualified plan. However, these funds may jeopardize his or her eligibility for government benefits. If the assets are in excess of statutory limits, he or she may lose entitlement benefits such as Social Security and Medicaid. Even a large bequest may inadequately replace terminated entitlement benefits depending on the duration of your loved one’s life and any medical conditions.

A unique wealth sharing solution

Many caregivers turn to what is known as a “Special Needs Trust” funded with life insurance. It is an estate planning tool that can help assure the funds to maintain a loved one’s ongoing health care needs and guarantee his or her continued care. The trust is irrevocable, so you should seek legal consultation for how to best structure one based on your needs. There are two types of trusts:

  • Testamentary Trust – Creates a gift payable at death, established through a will. At death, a Special Needs Trust is created based on the terms and conditions specified in the will. The trust receives all assets indicated in the will in addition to proceeds from any insurance policy(ies) so directed.
  • Inter-Vivos (Living) Trust – Creates access to the liquid funds in the trust to help pay medical or supplemental expenses while you are living, and leaves money in the trust to take care of your loved one after your death.

As part of the trust agreement, the beneficiary may not own or have direct access to the funds. Trust funds should only be used to provide for expenses not covered by entitlement benefits, and the trustee must be other than the beneficiary and have absolute discretion regarding the disbursement of funds for the beneficiary’s supplementary needs.

How it works

Life Insurance allows you to guarantee the money will be there to help care for your special needs loved one even if you are not. You can purchase a policy paying premiums for as long (or as short) a period as you choose, depending upon your preference and current financial situation. Permanent life insurance in the trust can provide a guaranteed death benefit and/or tax deferred cash value that can be used in the future through loans or withdrawals to help meet expenses over the years after your death. When properly structured, the trust ensures that benefits are received in addition to entitlement payments.

If you have any questions regarding any of the information contact, Allan Hancock, (814) 844-8849