Using life insurance to fund a trust for your disabled family member

When you make an estate plan, you take into consideration the needs of all the family members who you want to give a benefit for. One child may have disabilities and may or may not presently require government benefits. You may think that you don’t have much assets to leave behind for their lifelong support. Are you worried that they will be able to work to a degree, but not be able to earn a good enough living, and won’t be able to live independently in the community?

Life insurance can really help in this situation. You might leave the tax-deferred accounts (IRAs) to the other kids and make your life insurance payable to a trust for the needier child. It’s worthwhile to sit down with a life insurance specialist to review your existing policies and discuss the possibility of exchanging older policies for better ones. This is sometimes referred to as “conversion.” For instance, you may have a term policy with a “conversion privilege.” If your policy has a sizeable built-up cash value, sometimes you can exchange one policy for another (a section 1035 exchange under the Internal Revenue Code) and use the cash to pay the premiums for a much larger policy. Often the cash that has built up is like a hidden asset — it’s there, but you don’t think about it the way you think of your other liquid assets.

Estate planning is the process of achieving peace of mind. Setting up a trust for the one who cannot manage on their own, rather than leaving them at the mercy of other family members or leaving them solely dependent on government programs, may be just what you need to feel good about your plan, and life insurance in some cases can be the right tool to use.

Call us for advice on estate planning, elder care planning and special needs trusts… 732-382-6070