Special Needs 102
Insuring Long-Term Security
In this article we will review two alternative planning techniques to the Payback Trust discussed in the front-page article, along with an effective method to help finance long-term security.
Special Needs Trusts
A Special Needs Trust provides distributions only for life’s extras that do not disqualify the special needs beneficiary. Distributions are made at the discretion of a disinterested Trustee. Authorized distributions may include dental expenses, special schooling, travel expenses, or even a television. Upon the death of the special needs beneficiary, the remaining trust assets may be administered on behalf of other non-special needs family members.
In some Special Needs Trusts, a poison pill provision may be included. Such a provision may instruct the Trustee to distribute the trust assets to non-special needs family members if the trust is or may be deemed to disqualify the special needs beneficiary from government assistance. Should this poison pill provision become triggered in the future, the other beneficiaries would be under a moral, not a legal obligation to provide the trust assets for their special needs family member.
Blended Discretionary Trusts
A Blended Discretionary Trust is often used for general asset protection purposes to protect an inheritance from the potential divorces, lawsuits and bankruptcies for its beneficiaries. This trust has multiple beneficiaries, each with no specific right to any distribution of income or principal form the trust assets.
To be most effective, any distributions must be in the sole and absolute discretion of the disinterested Trustee, without regard to any ascertainable standards such as health, education, maintenance or support.
Nevertheless, the Trustmaker(s) may prepare a non-binding letter of intent to provide guidance to the Trustee. A Blended Discretionary Trust is often used to include even grandchildren as eligible beneficiaries and avoid inclusion in the estates of the children for federal estate tax purposes by careful application of each parent’s generation-skipping transfer tax exemption.
Leveraged Funding
Payback Trust, Special Needs Trusts and Blended Discretionary Trusts all require one common denominator to effectively finance the long-term security of a special needs family member: money.
One of the most powerful financial tools to accomplish this funding requirement is life insurance. Simply put: life insurance provides a sum certain in cash at an uncertain time in the future with dollars purchased in advance at a discount.
In addition to individual life policies, a married couple may be insured together under a joint life policy that only pays its death benefit after the death of the surviving spouse. As a result, a joint life policy typically provides a greater return on investment than would two individual life policies insuring the same insureds for the same total death benefit. In addition, through careful legal planning, the death benefits of life insurance policies and their eventual proceeds may be excluded from the estates of the insured parents (or grandparents).
Conclusion
Eligibility regulations for government assistance are complex and vary in their application by jurisdiction. Accordingly, always seek competent legal counsel before committing your resources.
Click here to read Special Needs 101
In this article we will review two alternative planning techniques to the Payback Trust discussed in the front-page article, along with an effective method to help finance long-term security.
Special Needs Trusts
A Special Needs Trust provides distributions only for life’s extras that do not disqualify the special needs beneficiary. Distributions are made at the discretion of a disinterested Trustee. Authorized distributions may include dental expenses, special schooling, travel expenses, or even a television. Upon the death of the special needs beneficiary, the remaining trust assets may be administered on behalf of other non-special needs family members.
In some Special Needs Trusts, a poison pill provision may be included. Such a provision may instruct the Trustee to distribute the trust assets to non-special needs family members if the trust is or may be deemed to disqualify the special needs beneficiary from government assistance. Should this poison pill provision become triggered in the future, the other beneficiaries would be under a moral, not a legal obligation to provide the trust assets for their special needs family member.
Blended Discretionary Trusts
A Blended Discretionary Trust is often used for general asset protection purposes to protect an inheritance from the potential divorces, lawsuits and bankruptcies for its beneficiaries. This trust has multiple beneficiaries, each with no specific right to any distribution of income or principal form the trust assets.
To be most effective, any distributions must be in the sole and absolute discretion of the disinterested Trustee, without regard to any ascertainable standards such as health, education, maintenance or support.
Nevertheless, the Trustmaker(s) may prepare a non-binding letter of intent to provide guidance to the Trustee. A Blended Discretionary Trust is often used to include even grandchildren as eligible beneficiaries and avoid inclusion in the estates of the children for federal estate tax purposes by careful application of each parent’s generation-skipping transfer tax exemption.
Leveraged Funding
Payback Trust, Special Needs Trusts and Blended Discretionary Trusts all require one common denominator to effectively finance the long-term security of a special needs family member: money.
One of the most powerful financial tools to accomplish this funding requirement is life insurance. Simply put: life insurance provides a sum certain in cash at an uncertain time in the future with dollars purchased in advance at a discount.
In addition to individual life policies, a married couple may be insured together under a joint life policy that only pays its death benefit after the death of the surviving spouse. As a result, a joint life policy typically provides a greater return on investment than would two individual life policies insuring the same insureds for the same total death benefit. In addition, through careful legal planning, the death benefits of life insurance policies and their eventual proceeds may be excluded from the estates of the insured parents (or grandparents).
Conclusion
Eligibility regulations for government assistance are complex and vary in their application by jurisdiction. Accordingly, always seek competent legal counsel before committing your resources.
Click here to read Special Needs 101
There are other tax-cutting strategies in addition to those mentioned here. If you would like assistance in selecting tax-saving strategies that make the most sense in your situation, contact us today!