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The Financial Steps to Protect Your Child With Special Needs

Apr 16, 2018 5 min read Ilana Polyak

Key Takeaways

  • Consider a special needs trust for a child with disabilities.
  • Have discussions with siblings on what type of care they can provide.
  • Use life insurance to provide funds for the care of a child with special needs.


Ryan is the father of three, including a daughter, 14-year-old Mary, who has Down syndrome. While he is preparing Mary for an independent life when she reaches adulthood, he is also mindful that the future is uncertain.

“With my sons, they'll eventually be on their own. With a special needs child, we don't know if she'll ever be entirely on her own," Ryan says.

That's why Ryan and his wife have made sure to plan ahead.

All parents worry about how their children will live and thrive in adulthood. For parents who have children with special needs, those concerns are all the more pressing. Depending on the disability, the cost of care for a child with special needs can be astronomical. For example, the advocacy group Autism Speaks estimates that the lifetime cost of care for a child with autism is between $1.4 million and $2.4 million.

Parents of kids with special needs are understandably anxious about how they'll pay for care today, as well as in the future. Here's what you can do to plan for your child's future and ease your own worries.

Look to federal programs

Your child may be able to access government resources to pay for their care — if you plan early. Programs such as Supplemental Security Income (SSI), Medicaid, subsidized housing and the Supplemental Nutrition Assistance Program provide aid to disabled individuals. However, these programs are means tested; you must keep your child's income and assets below a certain level to qualify.

In 2018, the maximum monthly SSI benefit Opens in a new window is $750 for individuals and $1,125 for couples.

However, there is a limit   PDF Opens in a new window of $770 a month in unearned income and $1,585 in earned income for singles ($1,145 and $2,335 for couples, respectively) to receive SSI. In addition, individuals can't have more than $2,000 in savings. Meanwhile, each state sets its own income limits for Medicaid eligibility.

Supplement programs with special needs trusts

A special needs trust allows your child to access these government benefits while still leaving private funds to supplement care. Money from the trust is not counted toward the programs' income or asset maximums.

“If she's ever in a group home, her brothers can use this trust to help take care of her and make sure she's comfortable and living a productive life," Ryan says about the special needs trust he has set up for Mary.

There are two ways to create the trust:

  • At the time of your death: You can leave instructions in your will to fund the trust with assets from your estate. This is called a testamentary trust.
  • During your lifetime: When a trust is created during your lifetime, it's called a living trust. The advantage to this approach is that your estate can avoid probate and other family members can contribute their own funds to the trust. It also allows your designated trustee to gain experience managing the trust under your watch.


Get the right insurance

For most families, term life insurance is a cost-effective way to protect against the financial hardship of an untimely death. That insurance stays in place for a set number of years, perhaps 20 or 25, most often coinciding with the years when financial obligations are the greatest.

But families who have a child with special needs must think about insurance differently. They need life insurance for a much longer period of time.

“My fear is being taken early and not being able to be around as long as I possibly can," Ryan says.

Permanent life insurance costs substantially more. According to an analysis by the financial website NerdWallet Opens in a new window, a 30-year-old man in excellent health would pay $242 a year for a 20-year term life policy with a $500,000 death benefit, but $4,675 for a permanent life insurance policy with the same benefit. However, the coverage stays in place as long as you pay your premiums. You can use the proceeds for your disabled child's future care after you are gone.

Prepare your other children

If you have other children, your estate plans must take them into account as well. You may want to delegate responsibility for your child with special needs to one or all of them, but think carefully about how to structure this. Are the siblings the best choice to be trustee, guardian or trust protectors? Or is there someone else who might be a better fit for these roles? It is a great responsibility, and siblings may not always be the most prepared.

Think carefully about how you'll distribute your estate. Leaving all your assets to your other children with the understanding that they will use it for the benefit of their sibling carries risk. It creates a conflict of interest, for starters. What's more, if your non-disabled child has creditors, the inheritance — along with his or her other assets — could be subject to a judgment.

Knowing what's expected of them will help your other children educate themselves and prepare. Having honest discussions with them early on allows you to ease them into their future roles.


What you can do next

Caring for a child with special needs will last a lifetime — and beyond. While you are researching the best treatments and therapies for your child today, keep an eye on how they will receive the care they require after your death. Achieving a Better Life (ABLE) accounts let you contribute up to $15,000 a year after-tax in exchange for tax-free earnings. Accounts up to $100,000 in value won't limit SSI eligibility.


Please consult your tax and legal advisors regarding your particular circumstances.



Ilana Polyak is a freelance writer who specializes in personal finance and the financial advisory industry. Her work has appeared in The New York Times, Barron's, Kiplinger's Personal Finance, Bloomberg BusinessWeek and CNBC.com.


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