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Special Needs and Life Insurance

Written by Aaron Pinkston, Tue, Feb 09 2010

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I mentioned earlier that I updated my will and beneficiaries. One of the reasons behind doing so was to make sure my oldest brother was taken care of in his old age.

You see, I’m supposed to be the trustee of his trust after our parents die. He probably won’t live with my wife and I, but we want him close so we can help out and make sure he’s taken care of. We may in fact have very few responsibilities, but it’s a duty I don’t take lightly. I am an Eagle Scout. He is my brother.

And while my parents won’t leave gobs of money in the trust to help him, there is another purpose behind setting up the trust. We want to make sure he didn’t loose some social benefits he already gets – social security, Medicaid, and Medicare in the future.

If you have a special needs child or know someone who does, you need to read this. Think about your future – and your child’s future without you. You will be doing them a favor and making sure their future more closely matches your dreams.

If you leave money behind to your special needs child, you will usually wreck the current social benefits they receive. Then they will be forced to spend the money on their own, if they haven’t been declared incompetent. What could be worse is if they are declared incompetent and a guardian is appointed to them. Family members might fight over guardianship because who ever is the guardian controls the money.

You probably don’t want life to be like that for your children. Don’t screw it up. There is an easy way to take care them. Create a trust.

Yes, you’ll need to have an attorney do this for you, but it beats putting your special needs children, and the rest of your family, through this type of turmoil. The catch is you need to do it while you are still alive. So go ahead and call an attorney or three and talk to them about setting up a “special needs trust.”

Once you have the trust created, the rest of your planning will be easy. You will understand the purpose of the trust is two-fold:

  1. Keep your child’s benefits.
  2. Help provide for their other needs.

Now that you avoided messing things up for them by creating the trust, you can think about what assets in your estate you might leave them. It’s time to review the beneficiaries of things like retirement plans, life insurance contracts, and annuities. These types of financial plans pass by beneficiary and have nothing to do with your other plans. In most cases, you will want to name your child’s special needs trust as the beneficiary. This is also a good time to make sure your will reflects the same changes.

If you want to make sure a certain amount of money is available in the special needs trust, you might consider life insurance as part of your plan. Creating an estate with life insurance is very easy to do. Life insurance is all about trading a certain dollar to protect against an uncertain future. You can help make that future a little more certain.

This may seem like a lot of work to do, but you will have the help of your lawyer to walk you through the process. The important thing to remember is the reason you need to make these plans. Do it to help provide a smoother transition for your child. Do it to help protect their future. Start today.