Benefits of funding a special needs trust through life insurance

Parents in Ohio of a special needs child have specific estate planning issues to consider for the long-term well-being of a disabled family member. Using life insurance to fund a trust provides especially useful benefits to a special needs person.

Of particular importance is the protection of a special needs person’s future government assistance. An inheritance of only a few thousand dollars could cancel or reduce someone’s Supplemental Security Income for as long as three years. Proceeds from a life insurance policy could also disrupt this benefit, unless the money goes into a trust. This is accomplished by naming the trust as the policy’s beneficiary.

Usually referred to as a special needs trust, this legal entity receives the inheritance or life insurance benefit and enables the special needs beneficiary to still qualify for state and federal benefits normally provided to disabled people. The assets within the trust can then be designated for housing, transportation and healthcare for the trust’s beneficiary. A life insurance policy can help parents fund this type of trust if cash is not available.

Funding a special needs trust with a life insurance policy is only one example of how life insurance can fit into an estate plan. A person may want to use life insurance to fund a trust if the estate is very large or beneficiaries do not handle money well. A trust can also protect a beneficiary from creditors seeking access to an inheritance.

An attorney familiar with estate planning could advise a person on how best to apply life insurance and trusts in a specific situation. Establishing estate plans allows a person to avoid probate, a public process in which a court decides how the assets of an estate are disbursed.