Grantors establish a Special Needs Trust
(SNT), an irrevocable trust containing appropriate provisions for distribution of assets to the
disabled beneficiary. Cash and/or income producing assets are gifted by Grantors to the SNT.
Depending on how the transfers are structured, the gifts of cash and/or assets to the SNT may
qualify as annual exclusion gifts or may be subject to gift taxes.
Trustee of the SNT purchases a survivor
life insurance policy insuring Grantors' lives, and the SNT becomes the owner and beneficiary of
this policy. At the death of Grantors, the SNT receives the life insurance death benefit proceeds
free from estate and income taxes. The Trustee has discretion to make distributions from the SNT
to or for the benefit of the disabled beneficiary.
The assets distributed to the disabled
beneficiary will contribute to his/her quality of life after Grantors have died.
A married couple wants to leave their assets to their children equally, but
one of their children is developmentally disabled and may be receiving public assistance provided by
Federal and/or State assistance programs. By establishing a Special Needs Trust (SNT), it will help
ensure the disabled beneficiary shares equally with his/her siblings in the parents' assets that are
gifted during their lifetimes or distributed at their deaths. The SNT will help provide for the
disabled beneficiary's personal care and assistance after the parents have passed away.
Planning by parents for a disabled child should be aimed at creating a
structure to provide for the beneficiary's welfare and financial security. The most important aspect
of a SNT, a type of an irrevocable trust known as a discretionary trust, is the standard for
distributing income and principal. The SNT should provide for distributions to or for the benefit
of the disabled child in ways that will contribute to the beneficiary's quality of life and in amounts
and for purposes determined in the discretion of the trustee.
A SNT may hold title to property, including but not limited to cash, stocks,
bonds, mutual funds, real property, and life insurance policies, for the benefit of the disabled beneficiary.
Because the need for the life insurance death benefit proceeds may not decrease for a disabled child as it may
with a non-disabled child after his/her parents have died, a SNT can own a survivor life insurance policy
to help provide financial protection for a disabled child. With the assistance of an attorney, the parents
create a SNT. The parents gift enough cash and/or income producing assets to the SNT so that the trustee
can pay the life insurance policy premiums. Whether or not these gifts are taxable depends on the parents'
ability to make annual exclusion gifts. The trustee then purchases a life insurance policy insuring both
spouses' lives, and the SNT becomes the owner and beneficiary of the life insurance policy. Upon the death
of the parents, the life insurance proceeds will be available for the beneficiary of the SNT and should be
free from estate and income taxes. The terms of the SNT allow the trustee discretion to make distributions
to or for the benefit of the disabled child in order to contribute to the beneficiary's quality of life.
The Business Planning Group
3186 Eaglecrest Lane, Clinton WA 98236
Phone: 206-255-5700 Fax: 206-260-2721
At The Business Planning Group, Inc.™ (BPG) our focus is to provide our clients with strategic,
knowledge-based consulting and advice. At times, we may also assist our clients with securities-related services.
However, these services may only be provided to individuals residing in the states in which we are registered or
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