There can be many stresses involved in raising a child with special needs, not the least of which are the expenses involved. According to one study Opens in new window, the lifetime cost to financially support someone on the autism spectrum is $1.4 million; if that person has an added intellectual challenge, the number rises to $2.4 million.
That’s why it’s important for parents of children with special needs to have a good grasp on the day-to-day expenses, as well as a plan to manage their child’s financial needs in the future, particularly after they are gone.
If you’re a parent in this situation, developing a long-term financial strategy can help ensure your child will continue to receive proper care and maintain the lifestyle he or she is accustomed to. The following tips highlight some of the things you should — and should not — do when it comes to establishing a financial plan for a child with special needs.
Do: Determine how much money is needed
You should have a good understanding of how much money will be needed down the line to allow your child to receive the care required, as well as maintain their current lifestyle. Whether you’re enlisting the help of a financial advisor or opting to figure this out on your own, a great first step is to put together a spreadsheet with all your child’s monthly expenses – everything from food and clothing to outside care and recreational activities.
You should also figure out how much money your child qualifies for through government programs to offset the costs of care. The difference between his or her total monthly expenses and government assistance can give you an idea of how much additional money is needed going forward. (When making longer-term estimates, keep in mind that costs are likely to increase over time and, as your child ages, there could be additional expenses that need to be covered.)
Don’t: Make your child with special needs a beneficiary
Naming a child with special needs as a beneficiary in a will, retirement plan, insurance policy or other financial account may seem like the simple thing to do, but it can actually be a big mistake, preventing the child from qualifying for government aid.
Programs such as Medicaid and Supplemental Security Income (SSI) offer financial assistance to people with special needs. However, to qualify for these programs, a person with special needs cannot have any significant assets to their name. For example, to qualify for SSI, your child must have less than $2,000 in savings. You can find more specific information about these programs and their guidelines by visiting the websites for The Centers for Medicare and Medicaid Services Opens in new window and the Social Security Administration Opens in new window.
Do: Open a 529A account
A great way to save for the future of a child with special needs is through a tax-deferred 529A savings account. A 529A is similar to a 529 account, which is commonly used to pay for college or other education-related expenses, though it is specifically aimed at people with disabilities.
The money in the account, which can be funded with contributions of up to $14,000 per year, can be used for qualified expenses such as housing, education, health care, transportation and other forms of personal support. In addition, the funds in the account below $100,000, are not counted toward the beneficiaries’ total assets, so eligibility for public assistance is not impacted.
Don’t: Leave money to a caregiver
Another mistake to avoid is leaving money that’s intended for a child with special needs to another relative instead. While you may hope your relative will use the money to care for your child, unfortunately, there are no legal guarantees it will be used as intended. Even if your relative has the best of intentions, if the money is in their name, life events could put the cash at risk and prevent some or all if it from being used for your child’s care.
Do: Consider a special-needs trust
A special-needs trust that names your child as the beneficiary can act as a great supplement to a 529A plan, which may not fully cover your child’s lifetime expenses. In a special-needs trust, the beneficiary has no direct control over the trust (a trustee must be appointed), which means it doesn’t disqualify them from federal programs.
Also, because the trust can only be used to support the beneficiary during his or her lifetime, you don’t have to worry about the money falling into the wrong hands. When setting up a special-needs trust, parents need to consider how to fund it and whom to appoint as the trustee. It’s important to note that there are many nuances involved with these trusts, so parents should consider hiring an estate-planning attorney who has specific experience with special-needs trusts.
While planning for the future – particularly for a time when you will no longer be around – can be an overwhelming task, it can also offer you the peace of mind of knowing that your child will be properly taken care of. What you do now can make a big difference for your child in the future.
For Compliance Use Only:0292480-00001-00