Nearly 57 million Americans cope with special needs and the rising associated expenses, according to the National Organization on Disability. And according to the Caregiver Action Network, in the U.S., 14% of caregivers care for a special needs child; 16.8 million are caring for special needs children under 18 years old and 55% of these caregivers are caring for their own children.
If you have a child with special needs or you care for a family member with special needs, then you know how much time and money it takes to provide them with everything they need. Simply planning their day-to-day requires some effort, but don’t forget about their long-term planning needs as well.
If you’re the parent or caregiver of a loved one with special needs, follow these four important financial planning steps:
1. Protect Your Child’s Eligibility for Government Benefits
Be sure there are no assets listed in your child’s name that exceeds a total of $2,000. Having any assets worth more than $2,000 would disqualify your special needs dependent from many federal and state assistance programs, such as Social Security and Medicaid.
Be sure any friends and family members know this legal tidbit as well. If grandma wanted to leave an inheritance to your child or write a very generous check to help, this could put your child over that threshold and the government could freeze your child’s benefits. They can bestow assets, but ask them to put it in your name not your child’s.
2. Protect Your Child by Purchasing Life Insurance
Raising a child costs a lot of money. Raising one with special needs typically requires a substantial amount more. The average cost to raise a child from birth to age 18 is $240,000; for a special needs child those expenses can quadruple.
The parent of a child with special needs spends an average of $330 per month out-of-pocket just on medical expenses. Who is going to pay for these expenses if you die prematurely? You need to have a plan in place to make sure your loved one is taken care of when you are not able to do so any longer. That plan is buying life insurance with a special needs trust listed as the beneficiary.
Because life insurance proceeds would be included in your child’s assets if you named them the beneficiary, naming a special needs trust instead can protect your child’s government benefit eligibility. We’ll get into a more in-depth discussion about life insurance and special needs trusts further down in this post.
3. Create a Will
When caring for a child with special needs, it is extremely important to craft a will that states who would be the legal guardian of your loved one should you die. It would be up to the state to decide who should care for your child if there is no will in place. It is recommended that you hire a lawyer who works specifically for people with special needs and is aware of your state’s disability laws to create the document.
Be sure to state in your will that your special needs child is not the heir of your estate, but that the special needs trust is. Without a will in place, laws in many states will, by default, make your child your heir. Again, this would disqualify them from government programs.
» Learn more: The Importance of Writing a Will
4. Don’t Postpone Planning For Your Own Future
You need to plan for the fact that when you are of retirement age, you still may be caring for your special needs child. It’s time to budget and think through the next 10, 20, 30 years. You may have to effectively plan for two generations.
When your child turns 18, the government considers them a legal adult. Depending on your child’s disability, you may need to be appointed legal guardian of your adult child if he or she will not be able to make decisions about their medical treatments and finances. If your child can be considered competent at times, then having him or her name you as durable power of attorney may be the easiest route for your loved one.
One of the best ways to fund a special needs trust is with life insurance.
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The Benefits of a Special Needs Trust
As I mentioned earlier, purchasing life insurance and naming a special needs trust as the beneficiary can be an ideal way to ensure your child will be financially supported even after you’re gone. A special needs trust has many functions, but two really stand out:
- A special needs trust can preserve the beneficiary’s eligibility for government benefits such as Social Security, Medicaid, and housing, among other programs.
- A special needs trustee can manage the funds on behalf of your loved one.
Special needs trusts can be complicated so it is best to work with an attorney who has experience in special needs planning. A professional can ensure the trust is appropriately written. If prepared properly, a special needs trust can accomplish a variety of goals, such as:
- It can allow you to leave property and resources for the benefit of a family member with a disability without losing important public assistance.
- It can prevent siblings from being over-burdened with caring for a sibling with disabilities.
- It can help the grantor to equitably distribute the estate.
- When properly funded and managed, it can help ensure there is enough money to sustain an individual with a disability over time.
A special needs trust can help provide for many aspects of life. To protect the beneficiary’s government benefits; however, the trust should not be set up to provide directly for basic shelter, food, or payment of cash to the special needs family member.
What it can help pay for includes, but is not limited to:
The Trustee of a Special Needs Trust
When preparing a special needs trust, you need to name someone who will be in charge of managing the assets in the trust. This person is called a Trustee. The trustee needs to be chosen carefully since this person will have sole discretion in making distributions for the benefit of the special needs individual.
An ideal trustee would have the following qualities:
- Similar values to yours
- Financially savvy
- A strong advocate for your beneficiary
The trustee has a lot of responsibility, so it’s important to note that it does not have to fall on one person. The trustee can be a combination of an individual and a corporate trustee.
Funding a Special Needs Trust
Sure, a special needs trust sounds great, but where is this money going to come from? Nursing services, transportation, therapy, service animals, etc. All of these things cost money.
Well, you (and any family members or friends who wish to do so) can fund the trust with personal assets, such as savings or Certificate of Deposits (CDs). You (and others) can also name the trust the beneficiary of a will. One of the best ways to fund a special needs trust though is with life insurance.
The benefits of using life insurance to fund a trust:
- Cost effective – provides a large sum of money for comparatively low premium payments
- Typically protected from creditors
- Death benefit is income and estate tax free if properly structured
- Can easily distribute proceeds between care for your special needs loved one and any other children or family members you wish to financially protect
- Brings peace of mind that your loved one will be cared for even after your death
» Calculate: Life insurance needs calculator
Final Questions to Consider
Prudential Insurance Company has come up with questions that the caretakers of loved ones with special needs need to consider:
1. What is the nature and extent of the individual’s disability and what is his or her prognosis? To what degree can he or she care for him or herself, both now and in the future?
2. What are his or her education and vocational goals?
3. What is his or her current educational and/or employment status? Will it continue, or might there be significant changes in the near future?
4. What is the current financial status of the caregivers, the loved one with special needs, and other family members? Is there a possibility of an inheritance? From whom? Is that person involved in the planning process?
5. Is there a possibility that the individual with special needs might receive a sum of money from a personal injury claim, a life insurance benefit, or any other source? If so, when? If so, have appropriate trust arrangements been made so that these assets are not owned directly by the individual?
6. Does he or she qualify for government benefits? If so, is that need thought to be permanent? If not, for how long is the qualification expected to continue?
7. Is there a specific income that is being targeted?
8. What is his or her legal capacity? Is there a need for a guardianship either now or in the future? Until what age will the guardianship be needed?
9. Does he or she need assistance with financial management? Can he or she handle finances in either large or small amounts?
10. Will there be a need for additional funds to provide for his or her needs at the death or disability of the parents?
11. At the death or disability of the parents, who can substitute for them? What if no family member is able to do so or later decides not to for whatever reason?
12. Where will he or she live in case he or she is not able, or does not want, to live at home? In that case, what additional costs are involved and what will be the source of that funding?
13. How will his or her financial needs following the death of the parents affect the shares of the estate available to other children? How will that be dealt with and communicated to those children?
With these steps and questions in mind, don’t put off planning any longer. No one knows what the future will bring. If you already have life insurance, but haven’t set up a special needs trust—it’s not too late. Life insurance beneficiaries can be updated at any time. Remember, if possible, have an estate planning attorney who is well versed in the world of special needs documents help you.
If you do not yet have life insurance, you can start the process by getting a free term life insurance quote. No contact information required.
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Image credit to: Nathan Anderson
About the writer
Writer, Editor, and Co-host of Quotacy's Q&A Fridays
Natasha is the content manager and editor for Quotacy. She has been in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. When not at work, she's probably studying and working toward her Chartered Life Underwriter (CLU) designation while throwing a tennis ball for her pitbull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.