Parents of special needs children have a lot more on their plate than the average parent, and unfortunately, the same is true when it comes to life insurance planning. Parents of special needs children depend on their life insurance policies to step in when and if they can't, and many parents are solely dependent on life insurance to finance the lifetime care of their child after they're gone.
It's important for parents to assess their life insurance options as soon as possible, and it's equally important to be aware of factors that could have a huge impact on your child's future care and well-being.
Know the consequences of naming a special needs child as your beneficiary
If your special needs child acquires assets as a beneficiary (including gifts and inheritances) of over $2,000 or more at any given time, he or she may no longer be eligible for Medicaid, and they will have to dispense with the gift or inheritance before they can reapply. It's important to spread this information among friends and family members as well. Many well intentioned grandparents or relatives name their special needs grandchild or family members in their wills without realizing that their gift could be detrimental to that child's healthcare coverage in the short term.
Consider a special needs trust to avoid an interruption in your child's federal benefits
You can actually list a special needs trust as your life insurance policy beneficiary in lieu of an actual person. A trust protects your child and your money in several ways. A special needs trust allows a trustee (appointed by you) to access funds in order to pay for the ongoing costs of healthcare and quality of life of your special needs child, but money deeded to the trust generally will not disqualify your child for federal assistance.
Naming an alternate caretaker as your beneficiary may not be a better alternative
Even if your child has a sibling or other family member waiting in the wings to assume full responsibility of their needs and care in the event of your death, naming that individual as your beneficiary cannot ensure that the money you intended to put towards your child's lifetime care will be used in such a way. And remember, an inheritance counts as an individual's assets, which means it is not exempt from lawsuits, divorce proceedings, bankruptcies, etc. Life is unpredictable, so don't leave the needs of your child to chance. If you have additional family members you'd like to provide for after you're gone, you can also name them as your primary beneficiaries, in addition to the special needs trust.
Contact a trusted attorney or tax professional for more information regarding your specific circumstances.