Securing Security

     Appropriate estate planning can help secure the financial and physical well-being of a family member with special needs.
     A Special Needs Trust can provide distributions only for those extra needs (see below) that do not disqualify the beneficiary from government assistance. 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 beneficiary, the remaining trust assets may be administered on behalf of other 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 other family members if the trust is or may be deemed to disqualify the intended beneficiary from government assistance. Should this poison pill provision be triggered in the future, the other beneficiaries could be under a moral, though not a legal obligation, to provide the trust assets for the special needs of their 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 of its beneficiaries. This trust has multiple beneficiaries, each with no specific right to any distribution of income or principal from the trust assets. To be most effective, any distributions must be at 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 may include 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

     Special Needs Trusts and Blended Discretionary Trusts both require one common denominator to effectively finance the long-term security of a family member with special needs: cash.
     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 people 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).