Securing the Future For Your Disabled-Handicapped Child Through a Special Needs welfare Trust
I paid the proceedsIt will pay the Inheritance tax will billI will pay the Inheritance tax will billI will pay the Inheritance tax will billIf you have a disabled or handicapped child welfare Trust you worry about their future. Your mind races with question after question. Who will take care of our child if we die? How will our child be for? Will government benefits be adequate? What if government benefits end? Will our child obtain adequate medical attention when we are no longer around.
Who will be our child’s guardian? If you do not have the answers to these questions you should be. Even if you are a family with limited means you can secure the future of your child through an instrument called a Special Needs Trust. A Special Needs Trust provides the financial infrastructure that blends the public support you receive from the government with private support from the family. If you have a disabled or handicapped child, a Special Needs Trust is a necessity. Not having one guarantees an uncertain future for your child.
Special Needs Trust
A Special Needs Trust gives you the ability to coordinate public benefits your child receives from the government with private resources. It is a marriage between public and private funding for your child in the event you are not longer able to provide care for your child.Welfare Trust Careful planning for a Special Needs Trust can allow your child to become and remain eligible for government benefits, such as Medicaid and Supplemental Security Income, while permitting the use of personal family resources that can be for nonbasic needs and quality of life extras (vacations, sporting events, camp, travel expenses, games/toys, entertainment, grooming supplies, medical or dental services etc).
Types of Special Needs Trusts:
General Support Special Needs Trust – This type of Special Needs Trust is to serve as the primary source of benefits for your child. It is for families with the financial means to provide the best care money can buy. Such a trust does not rely on public support for any part of their child’s welfare. It may be through a will, ongoing lifetime gifts or life insurance.
Supplemental Care Special Needs Trust – This is the most common type of Special Needs Trust. It is to maximize the use of public funds to provide for the basic needs of their child. Public support is the primary or sole source of benefits for your child, with this type of trust. It is designed to allow your child to become and remain eligible for government benefits.
Limited financial
Families with limited financial resources are the ideal candidates for this type of trust. Someone may fund it through a will, ongoing lifetime gifts or life insurance.Welfare Trust They fund primarily many Supplemental Care Special Needs Trusts by “second-to-die” life insurance policies, which covers both parents, and pays out upon the death of the second parent.
In order to qualify for Supplemental Security Income Benefits (“SSI”), your disabled child cannot hold more than $2,000 in assets (excluding a car and a home). SSI benefits average about $400 per month and this money must be spent on basic needs (food, clothing and shelter expenses). Eligibility for SSI also qualifies your child for food stamps and Medicaid. Furthermore, Medicaid eligibility also qualifies your child for many local community services, as well. The Special Needs Trust provides for the needs of your disabled child without disqualifying him or her from receiving SSI and Medicaid.
The trust document requires that you designate a trustee to oversee the trust. This trustee may be a family member, a financial institution, a financial advisor, a committee or a family friend. This document must clearly set forth that they may not use the trust funds on basic needs (food, clothing or shelter). Violating this directive means the potential loss of government benefits.
More information
For more information regarding this, please consult with an estate attorney.
Tom is a Certified Public Accountant, a Certified Financial Planner, CLTC (Certified Long-Term Care) and President of Cerefice & Company, the largest CPA firm in Rahway, New Jersey. Works with clients helping them manage their money, retirement planning, college savings, life insurance needs, welfare trust IRAs and qualified plan rollovers with an eye towards maximizing tax benefits and minimizing taxes. Tom is founder of the Rich Habits Institute and author of “Rich Habits”.
A trust is a way of making a gift, whilst maintaining some control over who benefits from it and when it becomes available. Rather than the gift being passed directly to the intended beneficiaries, it is transferred to and held by people known as trustees. The gift can be anything from a house to a life insurance policy. For the purpose of this article we will only consider life insurance policies or combined life and critical illness policies.
What is required to form a trust?
There are four key parts to a trust: –
- Settler – Customer or owner of the life insurance policy.
- Trust Form – The legal document which formulates the trust.
- Trustees – Key individuals appointed to by the settler as trustworthy to ensure the settlers wishes are acted upon.
- Beneficiaries – The individual(s) who will benefit from any proceeds.
A trust form may also require a witness to counter sign each of the sections.
Why use a trust?
If you already have a life insurance policy then you have already considered that your loved ones/dependents are looked after should the worst happen to you. However, it is worth considering following two scenarios: –
Yourself and spouse have a joint life policy protecting your mortgage, the policy will payout proceeds to cover the remaining balance of the mortgage on death of the first life. The proceeds will be to the remaining spouse. However something to both lives the will be in accordance with the estate, and a beneficiary may not be willing to settle the mortgage/loan debt, the estate may not have a ‘last will and testament’ and rules of intestate may apply causing delays, and the policy are split amongst the relatives of the
You have taken a level term assurance policy protecting your family of common law husband/wife and two children. You have a ‘last will and testament’ in place but the policy plus estate are over the inheritance tax threshold. The estate will require an investigation looking at assets, debts, gifts within the last 7 years. Forms will need to be including PA1, IHT400 and IHT410 since the estate + policy is over the threshold.
Trust
I will pay the Inheritance tax will bill first as someone cannot access yet the policy. which could force sale of asset or a loan to be. A probate interview and payment of £90 will be prior to the grant of representation all before the proceeds are to the spouse as the representative. If there was no ‘last will and testament’ in place. The remaining spouse could not have applied for letters of administration or received any part of the estate including the life policy proceeds and will to make a claim for a share of the deceased estate under the Inheritance (provision for family and dependents) Act 1975 obviously this will incur legal costs.
There are many more scenarios than the two above and independent. Advice is to ensure you have your life policy set up correctly. Steve Wentworth formed his firm Wentworth Financial Services in November 2007, having been in the industry since November 2002. We offer a free service to see if we can add.
