The Centers for Disease Control and Prevention (CDC) estimates more than 60 million adults in the United States, approximately one in four, lives with a disability. Struggles
with mobility, cognition, hearing, vision, and other impairments make it difficult to make
decisions, provide adequate self-care, and live independently. As the parent of a special needs child, you know these struggles; you have been there to guide, support, and aid your child since birth. With your dedication to providing extra guidance and care, you have most likely lost sleep thinking about how your child will fare once you are gone.
Failure to plan for your departure can have serious consequences for your special needs child, so it's imperative you take immediate steps to put an action plan into place
to ensure your loved one has the care and support he or she needs well into adulthood. Financial planning for your special needs child includes creating a financial safety net for your child's needs as well as allocating assets for future medical care, education, and day-to-day living expenses. In some cases, this also includes taking advantage of government sponsored programs and assistance for those with disabilities. Below you will find a broad overview of financial considerations of planning for your special needs child's future.
Supplemental Security Income (SSI)
Depending on your income level, you may or may not be getting Supplemental Security
Income (SSI) payments for your special needs child who is under 18. Your child must
meet the following criteria for the Social Security Administration to find them eligible for benefits if your household income is below the maximum threshold:
- Your child must have a physical or mental condition or conditions which severely limits activity.
- The condition or conditions must last one year or lead to death.
If your household income level is above the maximum allowed for SSI benefits, your
special needs child might qualify for benefits once they turn 18. The SSA will evaluate their income as an adult. If the disabled individual has countable assets greater than $2,000 or makes income above the maximum for federal benefits, he or she will not be
eligible for SSI.
The medical treatment for individuals with special needs is expensive, and it can begin
as early as birth. Good health insurance is a must. If you have private health insurance,
you should be familiar with in-network and out-of-network coverage differences as well
as services and treatments which are covered. It's highly likely your child will not have coverage once they reach age 22 or age 26, when most private insurance plans make the cut for disabled child and student benefits. However, under the health care law, plans must cover treatment for pre-existing conditions from the first day of coverage.
This applies to coverage through private health plans in the Marketplace, Medicaid, and
So, once your special needs child turns 18, they might also be eligible for Medicaid benefits. Even if they live with you, the program uses your child's own income and assets to determine eligibility. If your child is receiving SSI benefits, the state often automatically approves them for Medicaid. Like SSI, if your child has assets greater than $2,000 or income above the maximum allowable amount, they may not be eligible, so this is where special needs trusts come in.
Creating a Special Needs Trust
The cornerstone of financial planning and estate planning for those who have special
needs children is often the creation of a special needs trust. A special needs trust allows you to financially provide for your child's future care and well-being without making them ineligible for SSI, Medicaid, or any other need-based government assistance. When you leave an inheritance directly to your child, it's likely they will be disqualified from receiving these benefits. A special needs trust gives you an indirect route to leave assets to your child, by leaving them to the trust.
Special needs trusts have strict laws, so you need to consult with an experienced estate planning attorney to set one up. A trustee, designated by you, manages the trust and uses the assets as needed on your child's behalf. In addition to holding cash, trusts can also hold stocks, bonds, mutual funds, real estate, personal property, and life insurance payouts. The trust often serves as a supplement to government assistance.
Some of the items trust assets provide disable individuals include:
- Cost of transportation or vehicle purchase
- Training, rehabilitation, therapy, and education
- Assistive devices and assistive technology
- Medical, dental, and vision costs
- Costs for entertainment
- Payment of insurance premiums
- Private nurses, companions, home health aides
- Other items to enhance quality of life and improve self-esteem
When utilizing the advantages of a special needs trust, the most important thing to remember is that any time you or a grandparent wants to name your child as a beneficiary to any policy or asset, it's almost always in your best interest to name the trust as the beneficiary.
529 ABLE Accounts
The Achieving a Better Life Experience (ABLE) program allows families to create accounts which are similar to 529 Education Savings Accounts (ESA), in that they allow tax-free use of the money for qualified expenses. While contributions to an ABLE account are paid with after-tax dollars, the money inside of these accounts grows tax- free. Some crucial factoids to remember when considering a 529 ABLE account include:
- Your child's disability must have occurred prior to age 26.
- Amounts increase every so often, but currently, you can contribute a maximum of
$15,000 each year.
- ABLE accounts can have up to $100,000 before your child has to worry about
suspension of SSI benefits.
- Money from ABLE accounts must be used for qualified purchases; the
government penalizes non-qualified purchases with a 10% tax.
When opening an ABLE account, DO NOT use it as a way to accumulate wealth. When your special needs child passes, the state Medicaid agency can make a claim against the account for any benefits and services received during your child's lifetime.