When Your Child has Special Needs, You Need Exceptional Financial Planning

Parents do everything in their power to ensure a good life for their children. For the vast majority, financial planning for a child’s future consists mainly of a will and a college fund.

But for many others, that’s not the whole picture. Here’s a good example: I work with a family who has a child with complications from Down syndrome. They were told their child would live only four or five years. That child is now 36 years old.

How can they plan for a future that’s so uncertain?

Depending on the severity of their challenges, some children with disabilities may never become fully independent. Some will need care for the rest of their lives. And their lives are getting longer due to advances in modern medicine.

More and more parents are faced with this challenge. It’s a full-time job, and when both parents work outside the home, it can seem insurmountable. Here are some of the ways I help them put the pieces in place to prepare for the future.

Coordination of Benefits
Without a strong effort here, everything else will be more difficult. Medicaid is the biggest factor, but different states have ancillary programs like long-term care, respite care for the caregiver, occupational therapy, speech therapy, behavior therapy and more.

Medicaid is actually one of the most important factors in a family’s financial plan. Some – particularly those with ample income – don’t file for Medicaid benefits because they think the federal program is only for low-income families. They need to know that Medicaid is not solely a means-based program. A disability is a qualifier for Medicaid, regardless of economic status, so filing for these benefits is one of the first things I advise. We’re aiming to cover all the bases, and because parents are planning for a future in which services will be more costly than they are today, we need to marshal every possible resource.

But here’s where it gets complicated. If the child ever has more than $2,000 in their name at any given time, even as an adult, they no longer qualify for Medicaid. This is why it’s important to appoint an executor for managing and disbursing funds in a way that keeps the child from losing federal Medicaid benefits.

Insurance
Insurance and investments, including retirement accounts, can be structured with the right plan to provide benefits for parents’ retirement and their dependent’s care.

Trusts
For passing assets from parent or grandparent to child, the most common vehicle is a special needs trust, also known in some jurisdictions as a supplemental needs trust. It allows the disabled beneficiary to enjoy the use of assets held in the trust for his or her benefit without losing essential needs-based government benefits.

It’s a specialized, irrevocable trust that must conform to federal and state statutes. Because of the complexity and the requirements dictated by the IRS, it takes a specialized attorney to help. The language must be very specific, so it’s important to work with an attorney who specializes in this area.

Everything Else
These families grapple with many other difficult decisions like, “How do I set this up so it’s fair to my other children?” or “How do I give my semi-independent adult child some freedom but also protect funds for her future benefit?” and “What if my spouse and I die in an accident when my child is still under 18, and other family members are not equipped to care for him?”

I always tell them the same thing: It’s not just about the money. Parents need to put in place a formal plan for guardianship. In South Carolina, when a child turns 18, regardless of ability, they’re considered an adult. They can buy a car, vote, get a credit card and make medical decisions. Other states have similar laws. I encourage parents to set up powers of attorney so they’re planning not just for their own retirement, aging process and eventual death, but also for their child’s passage through these same stages. I’m covering some really sacred ground with my clients, and it’s an honor for me to guide them through it.