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Step 5: Funding Your Trust:

Image result for financial planningAlmost any asset can be used to fund a special needs trust, but liquid assets are usually the best. Funds from a trust will be used to meet the supplemental needs of its beneficiary. Illiquid assets such as a home, other real estate, or collectables are valuable but cannot buy a TV, tickets to a ball game, or pay a bill. Often, the trustee will end up selling non-liquid assets.

Life insurance is one of the most cost effective ways to fund a trust. It offers immediate liquidity, is income tax free and provides full funding capability from the day it is put in place.

Many clients often ask about funding their trusts with term insurance, as it is initially inexpensive and relatively simple to understand. However, term insurance, which is generally designed to last for a 10, 20 or 30-year term period, can often be a poor choice for trust funding. The goal of term insurance is to protect a family from the premature death of the “bread winner.” While term insurance meets this goal well, it is usually not in place when the insured person reaches their natural mortality.

To fund a trust, you need insurance that you can be confident will be in place when you die, even if you outlast your expected mortality. This is what permanent insurance is for. It is more expensive than term insurance, but it will be there at the end as long as the premiums are paid and the policy remains in force. For couples, a second-to-die policy, i.e., an insurance policy that pays at the death of the second of two insured individuals, is often a cost effective strategy.

While parents are alive, they should continue to meet financial requirements of their special needs child from their savings and cash flow. Upon their death, assets and insurance are used to fund the trust. It is often a good idea to establish a special needs trust as part of the process of creating your will and other estate documents. However, funding is usually deferred until the death of the grantor. That way, any assets you have are unencumbered and portable while you are alive. Once assets are placed in trust, they must be used according to the directives of the trust.

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California Insurance License #: 0J12618, 0I43753

Zev Grossman Bruce Maier Aron Mestel Ainka Munroe has earned the Retirement Planning Specialist (RPS) title. The Retirement Planning Specialist title is awarded by Equitable Advisors, based upon the Financial Professional's (FP) receipt of a Certificate in Retirement Planning from the Wharton School, University of Pennsylvania. In a collaboration between the Wharton School and Equitable Advisors' affiliated life insurance carrier, coursework for the certificate was developed exclusively for Equitable Advisors FPs, and the title may be used only by FPs who have completed the required coursework and maintain the title through ongoing continuing education requirements. To verify that an FP has earned and holds the title in good standing, contact us at atretirement@equitable.com. Complaints about an Equitable Advisors FP should be directed to customer.relations@equitable.com.

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