Future Planning: Using Life Insurance to Fund a Special Needs Trust

Often parents assume that they will fund a special needs trust, such as The Arc of Indiana Master Trust I,  with a portion of their estate through their will.  While this is certainly a good way to plan, it is not the only way to fund a special needs trust.

Many parents elect to purchase a life insurance policy specifically to fund The Arc Trust upon their death.  This can be a good decision for a couple of reasons.

First, it can be difficult to know how much we will need to provide for our own futures, let alone that of a loved one.  None of us has a crystal ball, so the future is a big unknown.  What will the state of the economy be when I retire?  Will I have health issues that will require extra cost and care?  Will I continue to work until I reach retirement, or will I make an unplanned job change?  What will be left in my estate after I am gone to provide for my child?

If a life insurance policy is purchased for the purpose of funding a special needs trust, parents need not worry if their estate will be sufficient to fund the trust.

If a life insurance policy is purchased with the intent of using it to fund a trust, the beneficiary of the policy should be the trust.  This allows the proceeds to be paid directly to the trust for the benefit of the child upon the death of the parent(s).  This is the other reason to consider a life insurance policy to fund a special needs trust  as the government benefits of the child will never be put in jeopardy if the proceeds are issued directly to the trust.

I do want to insert a word of caution here regarding life insurance policies.  Please be sure to research the different types of policies available and make sure that the one you decide to buy will hold its value, is from a reputable company, and that the agent is fully informed about your reasons for purchasing the policy.

While life insurance is not the answer for everyone, it can be a relief for parents to know that a policy purchased today can be used in the future to fund their child’s trust account.

If you would like further information on this, please don’t hesitate to contact The Arc of Indiana Trust office at 317-977-2375 or 800-382-9100.

Melissa Justice is the Trust Director for The Arc of Indiana Master Trust