Providing for Children or Adults with Special Needs

Planning to meet the needs of children or adults who have special needs is often complex. Special financial planning techniques may be needed so you don’t jeopardize any government benefits they may be receiving. A further complication arises because many who have special needs require advice and protection throughout their lifetime from someone with legal authority to act on their behalf. For most persons with special needs, particularly those who are judged to be mentally challenged, two types of protections are required:

1. protection of the estate left to the individual;
2. protection of his or her person in some form of guardianship.

In practice, provisions for these two types of protection often overlap.

Why should families plan?

Some parents of a child with special needs are not able to see the necessity or benefit of estate planning for that child, although they are genuinely concerned about the long-term welfare of their child. Their child’s basic needs are presently being met by the state and in their thinking, will likely always be met by various levels of government funding. They, therefore, see no need to make provision in their will(s) for the needs of their child. For those parents who want to plan, but who have been told the child cannot have assets if government benefits are to be payable, specific planning options should be developed as a means of addressing the problem.

Will and trust provisions

The will should address such issues as guardianship of the child. Further, if funds are to be left at death, a trust can be established under the will to deal with the assets and provide for income/capital requirements for the child. If the child has a source of income, then he or she may be entitled to assistance depending on the amount of income. If the child owns marketable assets the authorities in most circumstances reject an application for assistance until such time as money realized for the assets have been depleted. In order to avoid a refusal of social assistance, the following points ought to be kept in mind:

  1. As it is unlikely that the survivor with special needs will ever be able to have the earning capacity that someone without special needs would have, they will be unable to purchase many of the same material items and afford the same travel expenses. Therefore, it is important to make provision in the will which will provide for those expenditures while not impairing the survivor’s entitlement to social assistance. As long as the testamentary gift or trust does not result in the hands of the survivor, he or she does not have an interest in the estate, and does not have an income which will affect his or her ability to receive social assistance.
  2.  It is very important to a family of limited means that what little savings they have at time of death not be depleted. It is important that their life savings be used over time to supplement what social assistance will provide to their survivor.
  3. Social assistance and other forms of government assistance only provides a minimum standard of living to recipients and occasionally will not pay for all programs which are available or in the best interests of the survivor with special needs. The vehicle available to avoid the depletion referred to above and to provide the material items, travel expenses and other amenities of life to the survivor without impairing their ability to receive social assistance is the discretionary trust.

How should the trust be worded?

A discretionary trust usually results from either:

  1. a specific fund of a specific amount being established in the will, or
  2. a portion of the residue constituting the trust. As long as the wording of the discretionary trust does not legally enable the survivor to the right to receive benefits from the trustee, the survivor does not have an asset. Drafting of the trust provision is therefore very important. In particular, the trust should be worded in such a way which will preclude the survivor from being in a position to demand or force the trustee to make payment on his or her behalf. The payments are therefore entirely at the “discretion” of the trustee.

Guardianship

In most cases, it is advisable to appoint a guardian for the adult survivor who has special needs. The guardian is an advocate of the survivor and is a person who makes decisions regarding the well-being of the survivor where the survivor is not capable of making such decisions. Again, the will can be used to make provision for the guardianship.

Life insurance

Some parents who do not have a large estate will wish to build up a fund for the child by naming him or her as a beneficiary of a life insurance policy. While insurance is a very useful method of increasing the family’s assets, it is generally not a good idea to make the child a beneficiary of the policy. If there are any serious questions as to the child’s ability to handle money, the insurance proceeds should be made payable to the parent’s estate in which event the money will be dealt with under the will of the deceased person. Alternatively, it could be paid directly into a trust established outside of the will in which case the trustee will dispose of the insurance proceeds in the manner described in the trust agreement.

The above should not be taken as providing legal, accounting or tax advice. You should obtain your own independent professional advice from your lawyer and/or accountant to take into account your particular circumstances.

Can I Buy Life Insurance on Someone Else?

Life Insurance Policy

You are allowed to pay the premiums and collect the benefits on a life insurance policy that insures a life that is not your own!

Can I buy life insurance on someone else? Or here is the one that really scares people. Can someone else buy life insurance on me and then collect the money if I die? I hear people asking these questions all the time and wanted to address both issues.

Can I buy life insurance for someone else?

The simple answer is, “yes”. You are allowed to pay the premiums and collect the benefits on a life insurance policy that insures a life that is not your own. For example, many people have life insurance on their children. Another example is that companies sometimes buy life insurance on their key employees so that they can recover from the negative financial effect that losing that employee might cause.

There are two things that you need to consider. One, you are going to need to have the consent and participation of the person whose life is being insured. Two, you are going to need to provide a reason to the insurance company that you will be affected financially if the insured dies. The only exception to this is life insurance on children. Usually the parent of a minor can purchase life insurance on the child without any additional reasons. If you have nothing to lose from the death of the person, then you don’t really have an “insurable interest” and in such cases would only gain financially from the death of the insured. Just being a relative does not necessarily create an insurable interest. You will have to prove that you are somehow financially affected by the death of that particular relative.

Can someone else buy life insurance on me and then collect the money if I die?

As you can tell from my comments in the previous paragraph it is going to be very difficult for someone to buy life insurance on you without you knowing about it. First of all they are going to need your consent and participation. Most life insurance policies require medical tests on the insured and I think you’ll notice the person coming over to your house to take your blood and to strap the EKG on your chest.

If a person purchases some kind of simplified issue or guaranteed issue policy without you knowing about it, then they are committing insurance fraud, which is a felony and would cause the policy to be voided.

Also if the person can’t prove insurable interest the insurance company is not going to let them buy the policy. The company will let anybody willing to give them the money pay the premiums, but the company is going to need to know that the person who is named the beneficiary of the policy has the insurable interest. Now if you originally purchase a policy you can usually transfer the ownership of the policy or change the beneficiary to whoever you want, but you will have to prove that the initial beneficiary has insurable interest.

Speak to a life insurance specialist at Solutions Financial to find out more on buying life insurance on someone else.

Protect Your Family

Photo of young family

Protect your family with Life Insurance

Your top priority if you have dependants is to ensure that they are protected financially if you were to die or be unable to work for a prolonged period. Here we concentrate on the role that life insurance can play in your financial plan.

Bear in mind that not only the loss of a breadwinner’s salary could cause financial hardship: if you are caring for children, your spouse or partner might need to pay for professional childcare and/or babysitters if you were to die.

Similarly, you should take into account any extra costs of running the home, maintaining the garden, and so on. A nation-wide government survey found that housework, still done mainly by women today, takes up more hours each day than paid work.

How much life insurance is required for my family?

Having identified that you need some life insurance to protect your family, the next step is to work out how much. You might require a lump sum, for example to pay off the mortgage, as well as replacement income, which could be provided by life insurance which pays out a lump sum which you could invest to produce the required income.

Are Canadians Under-Insured?

According to the Canadian Life and Health Insurance Association, more then 20 million Canadians are protected by life insurance with an average amounts owned were $156,200 for insured individuals and $312,200 for insured households.

That leaves approximately 30% of individuals without important insurance protection as well insured households only having an average amount of $312,200 of life insurance, this could represent many families being under-insured in Canada.

Creating awareness around the need for life insurance is paramount there are many brokers and insurance agencies in Canada available to help with your insurance needs, call a insurance professional whether you are protecting your family your business there is help out there.

Author: Peter C. Choma an insurance specialist with Solutions Financial

Reference: Canadian Life and Health Insurance Association. 2008 Edition of Canadian Life and Health Insurance Facts http://www.clhia.ca/e3a.htm