Ken Pope has practiced law in Ontario since 1980. He provides dedicated legal and estate planning services to families in Ontario and throughout Canada, with specialized support to families of people with disabilities.
My clients are always the parents of children with special needs and they all know that they need will’s with Henson Trusts to provide for the children when the parents are gone. But a lot of them say to me: “well I have a modest amount of money, I have a modest estate and I don’t know how much of that will be left when I’m gone, I have needs of my own when I’m old”.
So we always discuss the possibility of funding the trust with life insurance. Because it’s actually a very economical way to do this and it provides a certain amount of peace of mind because you know that if you die with nothing, you’ll certainly die with life insurance.
So for example, if you’re a female non-smoker and you’re 63, you could purchase a fixed premium for life insurance policy for about 200 dollars a month. That’s about $2,400 a year, to pay $100,000 on death. Now if you take the annual premium and divide it into the payment on death, which is paid directly to the trust, there’s no probate involved, you’ll find that that would be a contribution each year of about 40 years. You would have to save $2,400 a year for 40 years. Now if you’re a 63-year-old female non-smoker I think the likelihood of that is small. You may well live to be 102, I don’t think you’re going to live to be 103, frankly.
So you could consider that and if you happen to be a much younger couple, for example, suppose that you’re a husband 32, wife 29, you have three young children and the middle child who’s seven has autism. Well, I think that it’s a fair shake that for example, the mother may be at home with the children, dads working overtime. You’re not saving a lot of money, but you could buy life insurance on the parent’s lives and to insure the wife, the mother non-smoker age 29, the premium would be about 50 dollars a month. On the husband, a smoker would be about 85 dollars and if you had a joint and last policy with a fixed premium that pays on the second death, that too would be about 50 dollars a month. If you wanted a joint and first policy to pay upon the first death, whichever one that might be that would be about 100 dollars a month. So you can see that if you were the mother age 29 and you were paying 50 dollars a month that’s $600 a year, you’d have to accumulate $600 a year for 166 years, which obviously is not going to happen.
Now one of the reasons that this works is that all of the other people who buy life insurance yourself included, have term policies and they may be termed 20. But at a certain point when you either stop working at a certain employers workplace or you decide that you paid all these years and you don’t need to pay anymore and you quit, well obviously all those premiums are wasted because fortunately enough you didn’t die. So this is what’s called the lapse factor and the insurance companies, of course, make money when they collect premiums and you don’t die or you stop paying. In fact, only about 5% of term policies ever actually pay out, which is surprising, shocking perhaps, that’s one of the reasons they can afford to have much more affordable premiums on all of these fixed term policies.
So my suggestion is that you consider this, and these trust funding arrangements with insurance would immediately fund the trust, for example within 30 days of death typically. So that if your child’s needs are more immediate because you’re helping to provide for them on an ongoing basis each week or each month there would be funds available quickly, you don’t have to wait for the probate process to take its course.