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What is a special needs trust?

Learn how a special needs trust could help address the lifelong financial needs of an loved one with special needs.

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A Plan to Assist in Caring for Your Loved Ones If You’re Not There

Caring for a lifetime needs takes a plan - that’s exactly what you do when you set up a special needs trust, also known as a supplemental needs trust, for an individual with a disability.

The assets within the trust are designed to provide supplementary funds for expenses that aren't covered by government programs. These programs provide for life's basic needs, such as food, clothing, medical care, and shelter. Assets inside the trust, can be used for the supplemental needs such as, education, transportation, entertainment, travel, and out-of-pocket medical and personal care expenses.

How Do I Fund a Special Needs Trust?

Once established, anyone can contribute money or assets to the trust. Oftentimes, special needs trusts are funded through the use of life insurance. Over time, and after the death of the caregiver(s), it can provide a larger sum of money than making the same premium payments directly to the trust. Any type of policy is eligible, but when parents are the primary caregivers, typically Survivorship Universal Life (SUL) is used.

Having a trust, and a method of funding the trust, gives you the space to concentrate on additional family and personal priorities, knowing that the lifelong financial needs of the individual with special needs can be addressed.

Making Sure Gifts Help

Here’s a hypothetical situation. Let’s say Kate decides to lovingly gift each of her grandchildren $15,000 when they reach age 21. One of Kate’s granddaughters has Down syndrome; by directly accepting the gift, her assets may exceed the resource limits defined by Social Security, potentially rendering her ineligible for SSI and medical benefits.

What Could Kate Do Differently?

Kate could gift the money to the special needs trust, or she could purchase a single premium life insurance policy, listing the trust as owner and beneficiary. Over time, the guaranteed cash value and dividends (when payable) can be used for the trust's immediate use, or the dividends could purchase paid-up additional insurance to increase the total death benefit payable to the trust.

Lifecycle of a Special Needs Trust

  1. Parents (Grantor) implement a special needs trust. The first step is to get an attorney who is experienced in special needs planning and disability trust funds. Their knowledge and guidance are invaluable in what can and can’t be done.
  2. Funding the trust. Funding can be done through lifetime gifts of most anything of value, or the use of life insurance. Professional involved:
    • A qualified tax advisor experienced in gifting
    • Life insurance agent
  3. Administering a Trust. A Trust can be administered by a person or institution acting as a trustee. Professional involved:
    • An Attorney qualified in special needs planning and/or a qualified tax-advisor

Contact a State Farm® agent to get the conversation started about how to set up a special needs trust and develop your financial strategy. And be sure to consult your tax and legal advisor regarding your situation.

The information in this article is for informational purposes only and is not legal advice.

The information in this article was obtained from various sources not associated with State Farm®. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. These suggestions are not a complete list of every loss control measure. The information is not intended to replace manuals or instructions provided by the manufacturer or the advice of a qualified professional. Nor is it intended to effect coverage under our policy. State Farm makes no guarantees of results from use of this information.


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