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Living Special Needs Trust and Life Insurance Policy

Rockville, MD |

I want to set a living Special Needs Trust for my disabled child, which I will be a grantor and a trustee while I am alive. The child's father's Life Insurance policy proceedings are supposed to go to the trust. Do I have to create this living trust before it can be named as a beneficiary of the father's Insurance policy? What is the specific language: would it be sufficient to designate the beneficiary as "a trustee of John Doe's Special Needs Trust", or the trustee's name (but what about successor trustees?), the account number and the name of the financial institution must be provided? How to make the designation irrevocable?

Attorney Answers 4

Posted

You are actually looking for an Irrevocable Trust. A living trust is a legal term for a Revocable Living Trust. Revocable Trusts can be changed and modified at any time. Generally you are the life time beneficiary of your own Revocable Living Trust. Your child would be the secondary beneficiary.

Revocable Living Trusts are a great technique to use when you are planning for your child's care after your death. However, if you are planning to have various family members contribute to the trust while you are living you need to setup an Irrevocable Special Needs Trust.

An Irrevocable Trust usually cannot be changed except for limited circumstances. I would suggest you ask your attorney about whether a Trust Protector (officer who can fix errors in the trust) is appropriate in MD.

Technically speaking you can not list a SNT as a beneficiary until it has been executed. Before execution there is nothing to name. Most financial institutions require a trust certificate or the full trust document before they will list a trust as a beneficiary. Financial Institutions tend to be lax when it comes to the registration or beneficiary designation on the account. Usually the "John Doe Special Needs Trust" is a sufficient designation. Technically it should say "Jane Doe Trustee of the John Doe Special Needs Trust" I would not lose sleep over it as long as the registration reasonably identifies the trust.

Disclaimer: The foregoing answer does not constitute legal advice, is provided for informational and educational purposes only for persons interested in the subject matter. Each situation is fact specific and may be subject to state specific laws. Without a comprehensive consultation and review of all the facts and documents at issue it is impossible to evaluate a legal problem fully. This answer does not create an attorney-client relationship. No Tax Advice - Circular 230 Disclaimer - Any information in this comment is not intended to constitute a comprehensive and complete tax consideration analysis, and may not be used by the taxpayer to eliminate or reduce penalties by the IRS or any other governmental agency, nor for the purpose of promoting, marketing or making recommendations to other persons on any tax-related matters.

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Posted

I am not licensed in Maryland. This is not something you can do on your own. There has to very specific language to create a special needs trust. You will have to see an attorney about that.

You mention making the desgination irrevocable. What designation?

Third-party special needs trusts usually are set up as part of your estate plan. They are either testamentary (you make a will and include a special needs trust in it) or you make a revocable living trust and put it in there.

Are you trying to set up some other kind of trust now? Do you have assets to fund the trust now?

Yes, the trust has to be created before you change the beneficiary on anything. Each insurer has their own requirements but as long as you designate on the change of beneficiary form that the funds are to be paid to the "John Doe Special Needs Trust" that should be ok. You do not have to specifcy account numbers. But check with the attorney who drafts the trust for you.

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Posted

Thank you for your answer. I was talking about a living trust. I want to set it up now so other people could contribute into it. I'll get an attorney to do this in a month or two. In the meantime, I wanted to make sure the child's father correctly designates the trust as a beneficiary of his Life Insurance policy. I also want this designation irrevocable, meaning the beneficiary of the policy can't be changed in the future. I believe there is a way to do this, but I don't know how.

Posted

I agree with my colleague: have a lawyer draft this for you! This is not a do-it-yourself document. If you do not draft and manage a special needs trust properly, then all assets and income in the trust will be considered before federal, state and county services are provided for your disabled child, and may result in no services until all assets are exhausted. A special needs trust is designed to preserve and protect your child's assets while at the same time permitting the qualification for and receipt of government services. If there are no present assets to place in the trust, and you want to provide for the future, then you may be able to do this by means of a testamentary trust in your child's father's will, but that would have to be set up by him and the beneficiary of the life insurance policy would have to be designated as that testamentary trust. Please see a lawyer about this.

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Posted

Both attorney offer sound advice. You need to retain counsel for the reasons previously stated, namely, to ensure that the trust is drafted correctly. Also, operating the trust correctly to avoid tax and legal violations will require that you have an attorney that you can rely and consult with as issues of administration and planning arise.

Hope this helps.

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Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website for more tax, estate and business articles is www.sjfpc.com. and his blog is

LEGAL DISCLAIMER Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website is www.sjfpc.com. and his blog is <http://frommtaxes.wordpress.com/> Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

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