Family Planning with Life Insurance


Here are three specific situations where life insurance can help with family planning.




For many individuals who have some wealth, upon the death of the first spouse, a substantial part of the deceased partner’s estate will flow into a Credit Shelter Trust created under the last will and testament of the deceased spouse. In this way, the money is kept out of the second to die’s estate and passes free of estate tax to children or loved ones. Oftentimes when there is some wealth, not all of the money in the Credit Shelter Trust is needed for the surviving spouse to live on, and the idea is to preserve the assets in the Credit Shelter Trust for the children in that there is no estate tax levied when the surviving spouse passes away and the Trust assets pass to the next generation.


If the money is a safety net for the surviving spouse and all of the funds will not be needed, the Credit Shelter Trust is a place to leverage up the dollars passing to children or other loved ones using life insurance. For pennies on the dollar, a policy can be funded with Trust assets on the surviving spouse that will result in a death benefit that can leverage up what is available to the next generation while also providing estate liquidity in that the Credit Shelter Trust can purchase assets from the estate to provide estate liquidity at the second death. This then increases the bequest that parents can make to the next generation or to multiple generations. A “Guaranteed-No-Lapse” Universal Life (aka GUL) policy is well equipped to be used in a Credit Shelter Trust, in that it is not needed to generate cash flow so cash value is unimportant. What’s important is the permanent guaranteed death benefit, and not paying for anything more than that guaranteed benefit.





As second marriages become more common, individuals may find themselves in situations where they would like to provide for both the children of their first marriage as well as the children and spouse of their second marriage. There is a desire to care for your children without having to take substantial assets away from your second marriage that might impact your family’s lifestyle after you are gone. Often, children from the first marriage only receive a remainder interest in trusts set up for the benefit of the second marriage and have to wait until the surviving spouse dies to inherit. This can lead to the children from the first marriage monitoring how the family from the second marriage spends money, potentially creating lawsuits against the second spouse and continuous friction between the survivors. One of the simplest ways to provide for children from a first marriage is to purchase a life insurance policy that can be held in a trust for your children.



A solution to this problem is purchasing a “Guaranteed-No-Lapse” Universal Life Insurance policy held in an irrevocable life insurance trust (ILIT) for the benefit of the children from the prior marriage. This way, children from the first marriage receive their inheritance at the time their parent dies without having to involve the family from the second marriage, or wait until the spouse from the second marriage dies. In the event of your death, the life insurance benefit can be administered in the trust to make sure it lasts or can be distributed directly to the children. This way, the children from the first marriage can be provided for and there is less potential conflict between the survivors from the first and second marriages.





Children with special needs and their parents must meet certain financial criteria in order to obtain federal and state aid. To qualify for federal benefits such as Medicaid, an individual must have a severe, medically determinable physical or mental impairment that is expected to last for at least one year or will result in death. Each state administers its own Medicaid program. One requirement is that a special needs child applying for Medicaid coverage may not have more than $2,000 in countable assets. It becomes extremely important to meet these requirements to avoid disqualification. If the child has too many assets outright and available to them, they will no longer be able to obtain the care the government provides and the cost of such care is extremely high.


What Happens When the Parents Are Gone?

Every parent with a special needs child fears the day they will no longer be here to take care of their child. Due to advances in medical treatment and technology, special needs children live much longer than in the past. Funding for the special needs child/adult must be done in such a way that it does not disqualify the special needs child/adult from the government provided care they require.


Typically, the parents and grandparents contribute to the child’s welfare. One of the best ways to provide ongoing benefits for the special needs child is through funding a Special Needs Trust with Life Insurance. The Special Needs Trust is the owner and beneficiary of the policy on either or both of the parents as well as any grandparents that can fund a policy on their own lives. Once a grandparent or parent passes away the policy in the Trust can fund the ongoing care for the special needs child/adult so their care can go on after the parent(s) pass away. The Trust provisions ensure that Federal and State Guidelines for assets ownership are not violated while at the same time providing for the special needs child.



The most cost effective way to provide these benefits is through a permanent life insurance policy. The “Guaranteed-No-Lapse” Universal Life (GUL) policy is a low cost permanent policy with a guaranteed death benefit and no cash value accumulation. The GUL death benefit will be there when it is needed and the Special Needs Trust will be funded and available after the parents are gone. 




For a free consultation, please contact us for an appointment.



 *This blog is strictly the opinion of Michael A. Malleo and not those of

ASH Brokerage Corp., nor any of our affiliates.


Malleo Financial Services LLC cannot and will not give any specific tax or legal advice.

Please consult your tax professional or legal professional for such advice.