6/27/2005

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"Trust for a disabled child?"

Dear Dave,

My husband and I are about 45-years-old. We adopted our medically-fragile foster baby about a year ago. She will probably always need someone to care for her. She has Spina Bifida, Epilepsy and Cerebral Palsy among other health conditions. We don’t want our older children to feel financially responsible for her if and when my husband and I are no longer around. We’re going to put together a special needs trust and I’m wondering how to fund that. I’ve heard of a form of insurance that pays after the second parent dies, would you recommend using that?

Lori in Knoxville, TN



Dear Lori,

A trust is a really good idea for this baby. I’d recommend funding it with a term-life insurance policy to start. You can switch the funding once you’ve built up enough cash to do it with a mutual fund. A term life policy will be very affordable. I wouldn’t take out the Second-to-Die policy that you referred to. It’s usually tied to a cash-value program and I would stay away from those at all costs. Cash-value insurance is a horrible investment tool.

I would encourage you to begin immediately building a cash nest-egg for investing in mutual funds because eventually you’re going to want to move away from that term insurance by the time you reach a retirement age. At that point, term insurance can become very costly.

-Dave

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