Financial professionals

Securing a loved one’s future with a special needs trust

A special needs father and son smiling

When you’re the parent or caretaker of an individual with special needs, thinking about how your loved one will be cared for in the future is a concern. This is especially important if you want a level of care that goes above and beyond what may be provided by government benefits. A special needs trust funded with a life insurance policy may be a great option.

About special needs trusts

A special needs trust is designed to help you leave behind assets with the assurance they will be used to support an individual with special needs.

You and other family members can contribute to the trust and it can help take care of any supplementary needs the individual may have that are not covered by government benefits, without jeopardizing his or her eligibility for need-based benefits from Medicaid or Security Supplemental Income (SSI).

This is a big consideration because those benefits programs typically require recipients to have no more than $2,000 in countable assets and place limits on their income (varies by state).


  • The special needs trust is designed to coordinate with other programs, thereby helping to ensure the individual remains eligible for state and federal government benefits.
  • A special needs trust can help assure the caregiver that the financial needs of his or her loved one are met.
  • The cash value from the life insurance grows tax deferred and is accessible during the life of the caregiver via loans.1
  • Proper planning provides for the individual’s continued support, quality of life, and dignity.

How it works

  • A special needs trust is typically funded with a permanent life insurance policy on the life of the caretaker(s) of the person with special needs.
  • The cash value in the life insurance policy accumulates on a tax-deferred basis and can be accessed by the trustee on a tax-favored basis (if the policy remains in force), via policy loans.1
  • At the insured’s death, the death benefit is paid to the trust and the trust coordinates the funds with government benefits to provide financial resources for the care and support of the person with special needs. The death benefit of the life insurance policy passes to the trust on an income-tax free basis.
  • The trust can provide additional funds to enhance the quality of life of the person with special needs over the basics of food, shelter, medical care, and education that may be provided by government benefit programs.


  • The strategy will require the assistance of an attorney who specializes in special needs planning, along with your financial professional.
  • The individual with special needs generally should not be a designated beneficiary of any retirement accounts, life insurance, annuity contracts or brokerage accounts. These financial assets could jeopardize eligibility for government benefits.
  • When a special needs trust is used, the trust beneficiary cannot have direct access to assets — trust distributions should be at the trustee’s sole discretion.
  • Life insurance may be needed on the lives of the primary caregiver AND the primary breadwinner, if not the same person.

Next steps

AuguStar Financial offers support for you in planning for individuals with special needs, including a needs calculator and an informative Special Needs Planning brochure.

Contact your AuguStar financial professional today to start planning for your loved ones with special needs.

1 If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals, if taken, will reduce the death benefit. Withdrawals (partial surrenders) and loans from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the withdrawal or loan is taken and, if taken prior to age 59½, a 10% federal tax penalty may apply. Always consult with a tax advisor regarding your particular situation.

This material provides general information that is designed to be educational in nature and is not intended as specific tax or legal advice to any particular individual nor the law of any particular state. Please seek the advice of a qualified tax or legal professional for your specific situation.

Products are issued by AuguStar Life Insurance Company and AuguStar Life Assurance Corporation. Product, product features and rider availability vary by state. Issuer not licensed to conduct business in NY.

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