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Last-to-die policy serves a special needs child and siblings

Let us say that your son Gary becomes disabled as an adult due to injuries suffered in a car crash. You want to make the proper financial arrangements for his care, especially after you die, but you do not want to create any issues with the other beneficiaries of your estate, namely your twin daughters.

One solution is to fund a third-party trust using a last-to-die insurance policy.

The third-party trust defined

In a third-party trust set up for a special needs individual, the assets go to a trustee instead of directly to the beneficiary, who in our example, is your son Gary. When Gary dies, any funds that are left in the trust will be distributed to the contingency beneficiaries you name: in this case, the twin girls.

The last-to-die policy

You and your spouse may have your retirement plans all set up, but Gary’s disability at the age of 25 is unexpected and you are financially unprepared to deal with his continuing care. You want Gary to be eligible for Supplemental Security Income payments, but the government says that to do so, his bank balance cannot be more than $2,000 at any time. The third-party trust will provide extra financial security for your son, and a last-to-die policy will help you fund it. You and your spouse will pay an annual premium for the life insurance amount you specify, and the payout will occur after whichever of you is the last to die. The funds can go directly into the trust without having to pass through probate.

Exploring options

There are other options for you to explore; the last-to-die policy concept is not the only way you can ensure financial security for your disabled son. However, using this kind of life insurance policy to build a special needs trust that can ultimately benefit all your children is a good place to begin.

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