SPECIAL NEEDS TRUST FUNDING

Having met with hundreds of families over the past decade+ that have a child with special needs (and having family of my own in this situation), the most common theme is parents’ concern for their child after they’ve passed. This often “keeps them up at night” because they haven’t created a real plan or strategy. The second most common concern I hear is that they don’t want their child to be a financial “burden” on their other siblings. Second-to-die policies can be an effective way to help alleviate this concern because it can provide significant income tax-free funds for a special needs trust after both parents have passed away. This money can then be used to maintain the lifestyle the parents want for their child. As many of the articles we wrote below go into further detail on, using other assets such as retirement accounts can be potentially less than ideal from a tax perspective¹. There is also the risk that you may pass in a ‘2008-type’ year, possibly forcing your estate to liquidate investments, real estate, other assets, at a low level to fund your child’s needs. Second-to-die whole life policies, on the other hand, is guaranteed and independent of economic and market conditions.

Second-to-die whole life policies in particular (as opposed to universal life insurance) can build significant cash value² inside of the policy that can be accessed while the parents are still alive providing a “living benefit”. Though this does reduce the death benefit, sometimes that is OK and parents may strategically plan on using the cash value for themselves or their child to secure a housing arrangement, for just one example. In this sense, these policies can be quite flexible and don’t solely come into play upon both parents passing. This gives families more options down the road when deciding how to utilize their policy.