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Financial Planning for Children or Adults with Special Needs

Financial Planning 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. Many who have special needs require advice and protection throughout their lifetime from someone with legal authority. This person has the authority to act on their behalf. For most persons with special needs 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. In their thinking this need 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. Some parents want to plan, but have been told the child cannot have assets if government benefits are payable. Specific planning options should be developed as a means of addressing the problem. In this case, Financial Planning for special needs is critical.

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. This is done under the will to deal with the assets and provide for income to the child. If the child has a source of income, then he or she may be entitled to assistance. The amount to assistance is dependent on the amount of income. If the child owns marketable assets the authorities, in most circumstances, reject an application for assistance. This is in place 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:

Social Assistance

  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?

During Financial Planning, 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.

Financial Planning: 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. They make decisions regarding the well-being of the survivor. This is key where the survivor is not capable of making such decisions. Again, the will can be used to make provision for the guardianship.

Financial Planning: 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.

Key Person Insurance

https://www.solutionsfinancial.ca/insurance/life-insurance/

Key person insurance helps protect the company in the event of a death of a key stakeholder.

As a business owner, you may depend on a number of key people for the successful function of your business. Many businesses have been built around the strengths and skills of a few individuals whose knowledge, or experience makes them a valuable asset to the business.

Key person insurance can help protect the value of your company and help keep the company running in the event of a death of a key stakeholder in the company. Replacing the knowledge of a vital employee can take time and money and can jeopardize the continuation of the business.

A key person life insurance policy can offer the following benefits:

  • Help heirs of the estate to meet tax obligations without effecting the operation of the business.
  • It insures creditors do not call loans and customers will have knowledge that the business will operate as usual.
  • Helps reduce the financial impact of the death of a key person by covering the expense of finding and training a replacement.

How Key Person Insurance works

The employer would be the owner and beneficiary of the policy. The key employee would be the life insured, but would receive no benefit from the existence of the policy.

Example: John is the owner of a Stereo shop that employs 5 full-time employees. John relies heavily on Margaret, his store manager, who looks after the day-to-day operations of the business while he is looking for new products to sell in the store. Margaret dies suddenly by a tragic accident. This would have an impact on the company and cause a huge financial blow.

The “key person” life insurance policy that John purchased on Margaret’s life provides the company with a tax free lump-sum payment, enabling John to overcome what might have been a deadly blow to his business. The insurance provides immediate cash to cope with reduced profitability, resulting from the death of his manager.

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.