Things to consider when planning for special needs
As parents, we all want what is best for our children. For parents of children with special needs, the financial planning process can become extremely stressful and confusing. Many parents often take extended periods of time to create an action plan due to confusion, anxiety, and a variety of obstacles. But if parents are able to navigate through the many decisions and find the right strategy for their family, special needs planning can give comfort knowing there is a plan in place. Planning for a child with special needs is most effective when it is implemented in stages based on the child’s age. The following questions and insights can be discussed with your Financial Advisor to help you to map out together a clear plan for your family.
Questions to discuss when building a special needs Financial Plan
- What are the major expenses and concerns today as well as in the future?
- Where will the child live after parents are retired or have passed on?
- How will the future needs of any additional children and the parent’s retirement plans be affected?
- What is the child’s ability to take care of themselves physically and financially?
- What government assistance is the child eligible for?
- What are the intentions for education?
Assistance from Government Programs
It is essential to prioritize eligibility in the beginning of the financial planning phase with your advisor. These programs can provide great relief considering the high costs of lifetime funding and living expenses for the parents.
- Supplemental Security Income (SSI): Federal program designed to aid individuals with special needs with little to no income to meet basic needs. Children become eligible once turning 18 unless the parent’s assets are below standards.
- Medicaid: an individual who qualifies for SSI is automatically eligible for Medicaid. This program will provide medical and prescription needs, this is essential due to coverage for special needs being very limited
- Social Security Survivor/Disability Insurance (SSDI): funded through Federal government based on FICA taxes. Each payment is calculated from all FICA earnings made by the individual’s parents. It is required that a child is diagnosed prior to turning 22 years of age
- Eligible for individuals and their families to use by contributing funds which will grow tax deferred and distribute tax free when it is for a qualified expense
- 2020 current contribution limit is $15,000 without reporting as a gift to the IRS
- SSI benefits are subject to change if the account value exceeds $100,000. If so, benefits would be on hold until the account falls below $100,000.
- Similar to a 529 plan, there are several conservative, moderate, and aggressive investment choices
Special Needs Trust
- A trust designed to manage assets dedicated towards a special needs individual while protecting access to eligible government programs
- First & Third-Party Trusts
- First Party: irrevocable trust holding the assets of the individual with special needs. This can include an inheritance or settlement
- Third Party: established by parent/guardian for the benefit of a special needs individual
- Legal language specifies that the trustee will use their discretion of the trust to enhance the quality of life
Implementing a customized financial plan that best suits your family’s situation is the most important step you can take to having peace of mind. Examining potential situations, reviewing financial & estate planning documents, and going over the long term goals of all parties involved will help lay the foundation for an action plan.