Planning for A Special Needs Child
Having a special needs child is not the grim sentence it used to be. Thanks to advances in medical technology, many special needs children live long and fulfilling lives. Yet the price may be steep. The lifetime cost of care for an autistic child is estimated at $2.3 million in the United States if they are unable to live on their own. Roughly 15% of Americans age five and older have some kind of disability, and over 75% of special needs adults do not work. If you have a special needs child, planning for their financial future can be daunting. However, it is possible to ensure a stable life for you and your children. The key is a well-executed financial game plan.
It’s important to engage a specialized financial advisor as early as possible. Planning for the long-term care of your child can be an emotional experience, and there are many factors to consider—including the means for them to survive if they outlive you. Your advisor may start by pointing you towards public programs that serve families with special children. For example, every state is required to have a free or reduced-cost early intervention program for developmentally-challenged kids. This first step can give your child the best chance of being able to live a normal life with minimal assistance.
For children with special needs, medical expenses can quickly pile up. Find out as soon as possible whether they qualify for public health insurance through Medicaid. The program offers a generous benefit package that includes long-term care, and can even be used to supplement private insurance.
To help with non-medical expenses, the Social Security Administration offers Supplemental Security Income for disabled children under 18 from households that make less than $1,220 a month, or $2,024 if they are blind. Even if your family makes more than that, you could still qualify after deducting allocations for adults and other non-disabled children in the house. For individuals with a disability, Medicaid uses the same standards of eligibility as supplemental security income so you may be eligible to receive both.
Even if your income is within the threshold, you may inadvertently disqualify your child from government benefits with other activities. To qualify for SSI, your child cannot have resources exceeding $2,000 which includes a life insurance policy where they are the beneficiary. There are some exceptions. For example, they can own their primary residence and one vehicle used for transportation. The best way to circumvent the resource limit, however, is with a special needs or supplemental trust. The trust would hold your assets and be named as the beneficiary of your life insurance, while its proceeds can furnish your child’s home and pay for their education.
Keep in mind that a special needs trust should be supplemental to government benefits. Your child’s SSI and Medicaid benefits may be reduced or lost if the trust disburses cash to pay for food or shelter, which counts as income for the child. You must also name a trustee who is not your child to execute the funds. This is not a decision to be taken lightly. They will ultimately determine how the trust will be used. Trustees are typically trusted family friends, another family member, or a lawyer. Another option may be a pooled trust where a nonprofit acts as the trustee.
Trusts can be expensive to maintain, and hard to justify without significant assets to contribute. Luckily, there is another savings vehicle you can use. ABLE accounts are a type of tax-advantaged savings account where funds are allowed to grow tax-deferred, or tax-free if withdrawn for qualifying disability-related expenses. Contributions are not tax-deductible and limited to $15,000 a year in 2019. However, this is the best vehicle to save and invest funds for your little one because the first $100,000 in a 529A account does not count towards the resource limit for SSI. Even if the state you live in doesn’t offer an ABLE account program, many states accept outside residents.
Prepare to be extremely vigilant about keeping track of medical expenses throughout the year, which can help you around tax time. That’s because you may be able to deduct a portion of medical expenses not covered by your insurance but are medically required (and stated by a doctor in writing) as long as you itemize and have receipts to back it up. Keep records of anything you think could be relevant. You’d be surprised what is eligible from “admission and transportation to a medical conference” related to your disease, to the gas you use driving to the doctor. For federal taxes, you can deduct only what exceeds 7.5% of your adjusted gross income, but the threshold may be lower for some state income taxes. If you paid somebody outside your immediate family to watch your child while you worked, you may also be eligible for a Child and Dependent Care Credit that lowers your tax bill.
If your child will need help throughout his or her life, you may want to think about what will happen when they turn 18. As legal adults, he or she may need to give you power of attorney in order to make medical decisions on their behalf. If your child does not have sufficient capacity to assign power of attorney, consider applying for guardianship or conservatorship. A guardian and a conservator are different positions but may be fulfilled by same person. As guardian, you are authorized to make personal decisions, such as living arrangements, while a conservator manages the person’s financial affairs. Be forewarned, petitioning can be a long and expensive process. Among other things, you will need a physician to state why your child is incapable of making decisions for themselves.
You may not want to think about your child without you to take care of them, but it would be foolish not to prepare for that possibility. Even if you are putting your assets into a trust, it’s important to have a will that names a legal guardian for your child. The guardian can be the same person as the trustee, but not necessarily. The guardian is responsible for your child’s care, while the trustee manages your assets to ensure they provide for the child as you intended. If your child requires specific care, consider leaving a Letter of Intent with detailed instructions. You should also mention your hopes your child’s future, so their future caretaker can try to honor your wishes.
As parents, you want what is best for your special needs child. This guide is a good place to start thinking about the steps to financial preparation. Many of the laws, benefits, and resources available will depend on where you live. A certified financial planner and an attorney who specializes in special needs planning will be your best resources.