4 Steps to Create Financial Security for a Child With Special Needs
As any parent of a child with special needs knows, planning for the future often takes a back seat to managing each day as it comes.
“Sometimes parents of children with special needs are so overwhelmed with the day-to-day that that they can’t think about what might happen five years from now, much less 10 or 30 years into the future,” said Tom Canale, a Northwestern Mutual wealth management advisor. “And, unfortunately, there’s never going to be a perfect time to sit down and think long term. But when parents can find a way to make special-needs planning a priority, they are often surprised by how much more confident they feel about the future.”
As an expert in planning for dependents with special needs, Canale recommends parents take four essential steps when planning for the future of their loved ones.
1. Define and document your goals. What’s your vision for the life of your loved one with special needs? What do you want for him or her? Who will care for your child after you’re gone? As you think about your goals and visualize the future, consider completing a Letter of Intent that documents your wishes for your dependent. The letter is not a legal document, but it can be a big help to others who will assume responsibility for your loved one’s care when you are no longer able to do so.
Then, share the letter—and your expectations—with future caregivers while you’re alive. “I’m working with a couple now who have an 18-year-old son with Down Syndrome, and they’re starting to include his 21-year-old brother in our planning discussions because they know he’ll be caring for his sibling some day,” said Canale. “That’s the kind of foresight that is allowing the whole family to feel more confident about the future.”
2. Find the money. Many people don’t realize their loved one with special needs may be eligible for federal benefits. “One of the first things we do is look for the money that’s rightfully theirs, which can amount to hundreds of dollars a month,” said Canale. “Not long ago, I worked with a family who got three years of Supplemental Security Income (SSI) back pay for their child with special needs—a one-time check for $21,000.”
Who’s eligible for federal benefits? A child with special needs who is under age 18 may be eligible for benefits if his or her parents or guardians make less than a combined $30,000 a year. However, once the child turns 18, the federal government no longer considers the parents’ income when determining eligibility. Instead, it considers only the income of the person with special needs. If he or she makes less than $30,000 a year, that individual will be eligible for benefits.
In the meantime, as you care for your child with special needs, keep in mind that some of your expenses may be tax deductible—another potential source of “found” money, according to Canale. “We’ve worked with parents who deducted the cost of installing a pool for physical therapy, who deducted expenses associated with attending conferences on autism, and who deducted some tuition expenses for their child with special needs.”
To avoid leaving money on the table—either in terms of identifying opportunities to reduce your income tax burden or receiving federal benefits—Canale recommends getting expert advice. Learn more about qualifying and applying for benefits from school social workers or organizations dedicated to helping those with special needs, such as Easter Seals or Autism Speaks. Or reach out to the Special Needs Alliance or National Care Advisors, who will provide consultation for a fee. And an accountant can help you identify opportunities to deduct expenses related to special-needs care.
3. Establish a special-needs trust. During the lifetime of your child with special needs, you or other family members might want to leave money, life insurance proceeds or other assets directly to the child to help ensure his or her quality of life. But in doing so, you might unknowingly disqualify him or her from government programs because persons with special needs are eligible for most government programs only if they own assets worth less than $2,000 (or as little as $1,000 in some states). That’s where a special-needs trust comes in. By establishing a special-needs trust in the name of your loved one, you and other family members can leave assets to the trust rather than directly to the child, preserving his or her benefit eligibility.
To establish a trust, you’ll want to work with an attorney who has experience drafting special-needs trusts. You can find an attorney in your area on the Special Needs Alliance website or on the website of the National Academy of Elder Law Attorneys.
4. Plan to fund the special-needs trust. Once the trust is established, work with your financial professional to develop a plan to fund the trust. “In most cases, it’s not until the parents pass away that they need to leave money for the care of their child. Still, funding the trust has to be included in the parents’ overall financial plan now and considered alongside the family’s other financial priorities, such as education and retirement,” said Canale.
Planning for a loved one with special needs can be very complex, and as a parent, you can’t possibly be expected to manage it on your own. But it is up to you to step back from the day-to-day and make planning for the future a priority. By getting expert help to take these four essential steps, you may be surprised at much more confident you feel about the future.