Life Insurance & the ILIT: Creative Funding Tools for the SNT

 In General

Estate Planning Solutions Series

Life Insurance & the ILIT:Creative Funding Tools for the SNT

One of the things I most enjoy about being an estate planner is the ability to provide clients with solutions to very real concerns.  This is no truer than when I’m helping a family craft a plan to care for their special needs child.  The relief I see them enjoy when the plan is set and the documents are signed is palpable.

When a family and I first sit down to design their plan, much is discussed.  A good portion of time is taken to understand the needs of the child living with a disability – what kind of medical, therapeutic, and educational care will he or she likely require during their lifetime?  And what is the cost of such care?  As we grapple with such important questions, the financial elephant in the room can loom large.  You see, while creating the special needs trust is paramount, we all understand that is not enough in and of itself; the trust must be properly funded to fulfill its purpose.

This is where life insurance and the ILIT can be incredibly useful tools.

Life Insurance

Where there are otherwise limited financial sources – or where perhaps more is desired because parents want to make sure to also leave assets to other children, for example – life insurance provides a wonderful solution.  What you may not be able to achieve by ordinary means, a monthly investment of a relatively small amount can yield a priceless sum of security and peace of mind.  There are different types of life insurance one can purchase, so it’s very important to talk with your attorney and financial advisor about what kind will serve you best; but when the goal is funding a special needs trust, a whole life or second-to-die policy are typically going to be the way to go.


An irrevocable life insurance trust, or ILIT, is a separate trust set up to own a life insurance policy.  One of the primary benefits of an ILIT is that the life insurance benefit amount that would otherwise be counted as an asset for estate tax purposes will not be included in your estate when an ILIT owns the policy.  However, even though ILIT’s have traditionally been used to take advantage of this estate tax savings solution, there is another benefit that even those with no estate tax concerns can benefit from: in the event that Medicaid is needed for the long-term care of the insured individual, a whole life insurance policy whose cash value would normally count as an asset, but is now owned by the ILIT, may not be considered a disqualifying asset.  I say “may” to caution that there are more necessary details to cover in order to ensure the desired outcome, but suffice it to say that the ILIT provides some additional planning options and asset protection opportunities that are definitely worth examination with your attorney.

While we have not dived deep into the mechanics of the ILIT, my goal as part of the Estate Planning Solutions Series has been to share with you how this particular estate planning tool can empower you to achieve your goals, and hopefully I’ve done that.  To discuss whether or not an ILIT might be for you, schedule and appointment today – we look forward to finding the estate planning solutions that are right for you!

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