Survivorship vs. Traditional Insurance in Special Needs Planning

Posted by Patricia Manko on Thu, May 03, 2012 @ 12:48 PM

survivor ins resized 600Most often, a parent’s primary concern is to provide financial security for their child in the event of their death.  Why is this so?  Perhaps it is because death is one of the certainties of life.  This is often the biggest planning gap which can cause a number of problems in special needs planning.  Each of the planning factors is immediately and equally important upon the death of a parent or primary caregiver – there is a major impact on all of the five factors. There are also a variety of strategies available to fill this gap as well as other planning gaps.  The key is to identify the most appropriate strategy to meet your planning goals.

For example, the use of estate planning tools – especially wills and special needs trusts – coordinated with some form of  life insurance – second-to-die insurance or individual life insurance - can provide a simple solution to fill
the financial and legal gaps upon the death of one or both parents. This is a very common planning strategy that is fairly easy to implement.

However, this strategy may not be the most appropriate solution for every family.  It may indeed address the Financial and Legal Factors, protect eligibility for Government Factors and provide the money needed to care for the child with special needs. While at the same time it may also create more gaps in the Family & Support Factors by giving the impression that the parents did not treat all children fairly or equally. It may also create Emotional Factors for the child who did not receive a direct inheritance like his/her siblings.  Coordinating all of the factors must be considered for each planning strategy.

A Special Needs Planning Story:
Who said that money can cure all problems?  When my parents died, my sister Misty was so irate that she did not receive a direct inheritance from their estate like the rest of us that she almost created a schism in our family.  When she learned that my parents intentionally did not leave her anything directly but left her inheritance to a special needs trust, with me as the trustee, she went into a total outrage.  We couldn’t even get her to realize that the life insurance proceeds that went to the trust left her with more money than the rest of us.  It was awful.   Misty had worked so hard to achieve her independence and manage her illness, that this created a set back in her progress.  She interpreted mom and dad’s actions to be condescending of her abilities to manage her own money and to be independent.  She did not understand that it was to protect her eligibility for her SSI and housing benefits and provide extra money for her when she needed it. And the fact that she now needed to ask me for money from her trust added another element of frustration.  It took several months and several thousands of dollars in legal, financial, and family therapy fees to work through this with her.  Clearly, we should have gotten her involved before my parents died.
 - Misty’s sister.

 

Tags: Special Needs Financial Planning, Life Insurance

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