By Wes Lind, Life Quotes, Inc.

The term “trust fund” might elicit an image of a spoiled rich kid living off their parent’s money.

In reality, many parents use the proceeds from a life insurance policy to set up trust funds that provide financial payments to their children and limit their ability to spend all of the money at once.

Families who want to provide for heirs can put certain stipulations in place to control how and when the proceeds from the fund will be distributed.

The website WhyaTrust.com offers families information about the benefits of trust funds as well as the types that may best fit individual situations.

“Trusts allow you the option to gather up your resources and split them equally among your kids without a tax penalty,” explains Marc Belletsky, Director of Estate and Business Planning for The Hartford.

A policyholder who doesn’t want certain assets or funds included in their estate may also establish a trust.

“They’re money-machines that exist outside of the estate that can be used to help pay estate bills after death,” says Belletsky.

Trusts are also helpful if you have a child with mental disabilities that prevents them from being self-sufficient and earning a regular income. Through its creation, a trust can ensure your child receives regular financial support beyond you or your spouse’s lifetime.

You could even set up a trust to provide gifts to charitable organizations or seize assets from a spouse to prevent them from being given to another person if they remarry.

An Ohio school placed a cap on life insurance, but will not be canceling life insurance policies for 239 disabled retirees, the Akron Beacon Journal reports.

The Akron, Ohio school will offer life insurance policies with a death benefit that will not exceed $40,000, according to the Beacon Journal. Retirees will receive 125 percent of their annual pay if the payout is less than $40,000.

Initially, a letter was sent to retirees stating that they would receive the benefit for as long as they received disability benefits from one of the state retirement systems, reports the Beacon Journal. Later, letters were sent saying that the benefit had been canceled.

School board member James Hardy says officials need to be honest and provide the benefit to people who are entitled to it.

“Had I known that any letter had gone out in any way shape or form guaranteeing it, it would have at least made me stop and think about it,” Hardy told the Beacon Journal. “Having all the information, making sure we have fully vetted something is crucial,” he adds.

Life insurance is a valuable investment for individuals. Yet, as employers continue to look for ways to reduce costs, benefits like life insurance are seen as a place to make cuts.

By MassMutual

Paying for life-long care for a family member with disabilities can be financially overwhelming.

“Not knowing how your child will be cared for after you’re gone is a heavy burden that weighs on most parents of children with special needs,” said David MacLaren of Fortville, Ind., parent of four children, three of whom have special needs.

MacLaren and his wife Ann have 14-year-old autistic twin sons and two adopted daughters, one of whom is legally blind. A special needs trust funded by a combination of whole and term life insurance was just what they needed to provide for their children’s future care, while not endangering their eligibility for federal benefit programs.

“Combining a Supplemental Special Needs Trust (SSNT) with permanent life insurance, such as whole life insurance, is a powerful one-two combination that can ensure there will be financial resources available to pay for a loved one’s care over the long term,” said Kevin Clasen, a MassMutual Special Care Planner with West Point Financial, a general agency of Massachusetts Mutual Life Insurance Company.

For some families, the combination has answered their long-nagging questions and soothed their long-standing fears.

“We feel a tremendous amount of confidence and relief now that we have our plan in place,” said MacLaren. “We know who will care for our children, and how that care will be paid for.”