In our previous blogpost, we introduced the concept of a special needs trust. Now we will discuss how does a special needs trust work.
Funding of the Special Needs Trust
A special needs trust is typically funded with a permanent life insurance policy on the life of the caretaker(s) of the person with special needs. The cash value in the life insurance policy accumulates on a tax-deferred basis and can be accessed by the trustee on a tax-favored basis, via policy loans.
When the Caregiver Dies
At the insured's death, the death benefit is paid to the trust and the trust coordinates the funds with government benefits to provide financial resources for the care and support of the person with special needs. The death benefit of the life insurance policy passes to the trust on an income-tax free basis.
In Summary
In our next blogpost, we will discuss the benefits of the special needs trust.
Funding of the Special Needs Trust
A special needs trust is typically funded with a permanent life insurance policy on the life of the caretaker(s) of the person with special needs. The cash value in the life insurance policy accumulates on a tax-deferred basis and can be accessed by the trustee on a tax-favored basis, via policy loans.
When the Caregiver Dies
At the insured's death, the death benefit is paid to the trust and the trust coordinates the funds with government benefits to provide financial resources for the care and support of the person with special needs. The death benefit of the life insurance policy passes to the trust on an income-tax free basis.
In Summary
- Parent/Caregiver - gifts premium to trust to pay life insurance policy premiums.
- Special Needs Trust - pays premiums and provides funds to supplement government benefits for beneficiary.
- Life Insurance Policy - pays death benefits to the trust.
- Person with Special Needs - receives care from the caregiver with funds from the special needs trust.
In our next blogpost, we will discuss the benefits of the special needs trust.
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