CLIENT GUIDE
Advanced Markets
Special Needs Beneficiaries
Planning For Your Loved Ones
John Hancock Life Insurance Company (U.S.A.) (John Hancock)
John Hancock Life Insurance Company of New York (John Hancock)
LIFE-5158 10/16
Guiding you through
h life.
Planning for a
Special Needs
Individual
As someone who loves and cares for an
individual with special needs, you may be
concerned about ensuring that your loved
one continues to receive the care he or
she requires throughout their lifetime.
How can you help make sure your loved
one has the resources needed to lead a
comfortable life?
By analyzing your financial situation,
assessing your loved one’s care needs,
and creating an Special Needs Trust (SNT)
funded with life insurance, you can create
a source of funds to help provide care in
the long term. Furthermore, if properly
designed, the SNT may help to preserve
current or future access to government
benefits and/or specialized care.
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The Special Needs of Your Loved One
Types of SNT’s
Individuals who are referred to as having “special needs” fall into
a wide spectrum of persons with physical, mental and emotional
disabilities. To maximize the quality of their lives, they may need
additional medical care, special educational support, physical,
occupational or speech therapies, as well as financial help to adapt
their adult living environment to their unique set of needs in an
effort to establish and maintain a relative degree of independence.
Generally there are two types of SNTs, referred to as First-Party
Special Needs Trust and Third-Party Special Needs Trusts. These
types of trusts should be drafted by an attorney familiar with
special needs planning.
Government Programs
Your loved one may be entitled to government programs that
can include access to residential and medical facilities that may
not be available through a private program. Many of these
programs, however, are extremely limited in the types and
amounts of services that they offer and may not be sufficient for
your loved ones needs, which can include medications, education,
training and transportation needs, living accommodations, home
modifications, implementation and maintenance of adaptive
equipment, specialized computers, and other aids for independent
function. It can be challenging to effectively supplement what
the government provides through Medicaid and SSI to ensure an
acceptable quality of life for your loved one.
Because elegibility for government benefits can be inadvertently
jeopardized, special consideration must be given so as to not
affect eligibility. Items that may jeopardize government benefits
include child support in a divorce decree, gifts, or inheritance
from well-intentioned family members. It is very important to
discuss these matters, especially if your loved one is benefiting
from these exclusive programs.
How a Special Needs Trust Works
A properly drafted SNT can be designed to round out the
government benefits a special needs individual receives by
providing for care and services not covered by those benefits.
Simultaneously, SNTs strive to ensure that any distribution from
the trust does not disqualify the special needs individual from
receiving ongoing governmental support. However, SNTs are
often used to provide ongoing care for a special needs individual
whose disabilities are such that he or she will not need, or qualify
for, government benefits. For such special needs individuals,
these supplemental trusts are generally designed to supplement
the income and/or care of the special needs beneficiary. Many
times, the SNT is drafted in such a way that if the special needs
individual’s disabilities change, the trust will not prevent the
beneficiary from qualifying for government benefits.
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First-Party SNT1
The primary benefit of the First-Party SNT is that the personally
owned assets transferred on a tax-free basis to the trust will
be disregarded for purposes of Medicaid Eligibility. However, in
exchange for Medicaid benefits, First Party SNTs are required
to provide a provision to pay back the state’s Medicaid agency
from the trust balance upon the disabled individuals death in the
amount the Medicaid agency paid for services rendered.
Third-Party SNT
A Third-Party SNT is created and funded for a special needs
individual with the trust’s assets coming from someone other than
the special needs beneficiary. Also called a Supplemental Needs
Trust, it can be used as an estate planning vehicle so that family
members can make gifts directly to the trust, increasing the pool
of assets available for care.
At the death of the special needs beneficiary, the remainder of the
SNT’s property can be paid to other beneficiaries, such as a child’s
siblings. In this way, the terms of the SNT can be structured to
benefit both the special needs individual and other family members.
Practical Considerations When Planning for an
SNT Individual
Making Gifts to Benefit a Special Needs Child2
Gifts and inheritances should be planned for in advance and
directed to the appropriate SNT to avoid compromising access to
valuable government benefits. Whenever possible, the gifts should
be directed to the Third-Party SNT so as to avoid application of the
Medicaid payback requirement associated with a First-Party SNT.
Ownership of Assets
Care should be taken, where applicable, to re-title assets if
maintaining eligibility for government benefits is a planning
objective. That is, continued joint ownership of property between
a parent and his or her special needs child will jeopardize ongoing
access to government benefits.
Guiding you through life.
NEEDS ANALYSIS
Advanced Markets
Special Needs Beneficiaries
Planning For Your Loved Ones
Client Information (Client A)
Client Information (Client B)
First Name:
First Name:
Last Name:
Last Name:
Gender:DOB/Age:
Gender:DOB/Age:
Underwriting Risk Class* (Legend on next page):
Inflation Rate (used to index income streams):
%
After Tax Growth Rate of Trust Assets:
%
Beneficiary Name:
Age:
Inflation Rate (used to index income streams):
%
After Tax Growth Rate of Trust Assets:
%
EXPENSES
Living Expenses
Monthly Amount
Start Age
End Age
Adjust for Inflation?
y Rent/Mortgage (today’s estimated housing dollars)
$
Yes
No
y Utilities (gas, electric, phone, etc.)
$
Yes
No
y Transportation (car payment/service, insurance, etc.)
$
Yes
No
y Personal Needs (clothing, food, etc.)
$
Yes
No
y Recreational Needs (activities of leisure)
$
Yes
No
Health and Care Expenses
y Custodial Care (non medical care, to provide daily
living activities such as eating and dressing)
Monthly Amount
$
Start Age
End Age
Adjust for Inflation?
Yes
No
y Respite Care (short term care or alternative care)
y Nursing Services
(in home skilled nursing or nursing home cost)
$
Yes
No
$
Yes
No
y Other (home monitoring, etc.)
$
Yes
No
y Health Insurance
$
Yes
No
y Physical and/or Occupational Therapy
$
Yes
No
NEEDS ANALYSIS
Education and Job Training
Monthly Amount
Start Age
End Age
Advanced Markets
Adjust for Inflation?
Yes
No
y Tuition/Fees$
Yes
No
y Books/Supplies$
Yes
No
y Other Employment/ Educational Expenses
Yes
No
y Tutoring/Job Coaching/Job Assistance
Other Expenses
y Emergency Fund
y One-Time Fixed Costs
(e.g., home modification, wheelchair)
$
$
Lump-Sum Amount
$
$
SOURCES OF INCOME
Monthly Amount
Start Age
End Age
Adjust for Inflation?
y Public Benefits
$
Yes
No
y Structured Settlement
$
Yes
No
y Beneficiary Income
$
Yes
No
Lump-Sum Amount
y Life Insurance (Existing) Death Benefit
$
y Assets Set Aside for Beneficiary Support
$
Other Comments:
Advisor Contact Information
First Name:
Last Name:
Company:Address:
City, State and Zip Code:
Phone:
Fax:Email:
*Underwriting Legend:
Super Preferred Non Smoker
Preferred Non Smoker
Standard Plus Non Smoker
Standard Non Smoker
Preferred Smoker
Standard Smoker
Uninsurable
Importance of a Letter of Intent
Considerations
It is also important to create a daily activity plan that is outlined
in a letter of intent in the event of the temporary or permanent
absence of a primary caregiver.
y If the life insurance is to be owned by the insured, the SNT,
rather than the special needs individual, should be named as
beneficiary for the intended share of the proceeds that are to
benefit your loved one. Otherwise, a direct payment of the
proceeds to the beneficiary could jeopardize his or her eligibility
for government benefits.
Funding a SNT
A SNT can be funded with a variety of assets, including stocks
and bonds. Many times life insurance is also used with SNT
planning.
Benefits of Using Life Insurance in a Special Needs Trust
y Provides the funds to help replace the services of a caregiver.
y Life insurance death benefit provides cash to fund the
trust over the lifetime of the special needs individual,
enhancing and/or supplementing the benefits provided under
government programs.
y The life insurance proceeds are generally received income tax free,
there are a few exceptions such as when a life insurance policy has
been transferred for valuable consideration.
y Provides liquidity to help equalize an inheritance for the benefit
of heirs.
y The life insurance allows for the completion of funding needs
through the death benefit regardless of the performance of
other assets in the trust.
y Depending on the state, the life insurance policy proceeds may
not be subject to the claims of creditors.
y A revocable Third-Party SNT will be includible in the grantor’s
taxable estate unless the trust is properly established during
lifetime as an irrevocable trust. Transfers to an irrevocable SNT
trust are subject to gift taxes. As a result, you may want to
create a giving program to maximize your use of lifetime gift
tax exemptions and to minimize gift taxes.
y Trusts should be drafted by an attorney familiar with such
matters in order to take into account income and estate tax
laws, including generation-skipping transfer tax applicable to
beneficiaries who are more than one generation removed from
you. Failure to do so could result in adverse tax treatment of
trust proceeds.
y The amount of life insurance protection you qualify for will be
subject to medical and financial underwriting requirements.
y Life insurance policies have charges associated with them such
as the cost of insurance and potential surrender charges. Please
consult with your tax advisor for more information.
To help you think about the specific care items to consider
funding for your special needs loved one, we have provided a
Special Needs Fact Finder to use as a starting point. Work with
an attorney familiar with special needs planning and include an
insurance advisor to assist you with the analysis.
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1. See 42 U.S.C Section 1396p d(4)(A) and d(4)(C) pooled SNT. Under certain conditions, a special needs individual may be permitted to transfer his or her personally owned assets
on a tax-free basis to a First-Party Special Needs Trust.
2. Annual exclusion gifts are the annual tax free gifts ($14,000 in 2016) a donor (i.e., mom/dad) can transfer to anyone individually or through the use of a trust, without using
their lifetime gift-tax-free exemption amount $5M indexed for inflation ($5,450,000 in 2016). To apply the annual exclusion to a gift, it must be considered a “present interest
gift” which allows a beneficiary of a trust the right to immediately withdraw (known as Crummey rights of withdrawal) the gift within a certain period of time.
Special Needs Trusts should be drafted by an attorney familiar with special needs planning to take into account eligibility for and preservation of government benefits, as well as
taxation and distribution of trust assets. This material does not constitute tax, legal or accounting advice and neither John Hancock nor any of its agents, employees or registered
representatives are in the business of offering such advice. It was not intended or written for use and cannot be used by any taxpayer for the purpose of avoiding any IRS penalty.
It was written to support the marketing of the transactions or topics it addresses. Comments on taxation are based on John Hancock’s understanding of current tax law, which is
subject to change. Anyone interested in these transactions or topics should seek advice based on his or her particular circumstances from independent professional advisors.
Insurance products are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA 02210 (not licensed in New York) and John Hancock Life Insurance Company of New
York, Valhalla, NY 10595.
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