Disabilities affect millions of Americans, many of whom are young children with genetic disabilities who will be unable to live independently as adults. As the parent of such a child, you and your spouse don’t think twice about giving your special needs child all the love, care and attention he or she needs.
But what happens when you are no longer there to care for them? Who will attend to their daily needs, and who will foot the bill for their living and medical expenses?
As any parent of a special needs child knows, the daily costs of caring for their child can create an enormous financial burden. Between ongoing medical expenses, physical therapy and special education programs, wheelchair-accessible transportation and housing and more, the expenses never seem to end. And it only gets worse when the parents are no longer around – unless they engage in some long-term financial planning to provide support for their child.
Here’s how to put together a financial plan that will meet the lifetime needs of your special child.
Define your goals.
A good plan starts with outlining the objectives and putting them in written form. In this case, it requires answering two primary questions:
- What kind of life do you envision for your special needs child while you serve as the caretaker?
- Who will take care of your special needs child after you’re gone?
As you begin the difficult process of answering these question, it can help to write a to help organize your thoughts and clarify your goals. This letter should detail the care your child currently receives and your wishes for how that care should be carried out in the future. A letter of intent does not constitute a legal document. But it can serve as a valuable tool to help others who might care for your child when you no longer can.
If you have specific caregivers in mind, be sure to share the letter with them while you’re alive. If not, storing it with your will or other personal documents, or with an attorney, will make sure it gets read at the appropriate time.
Apply for government benefits.
Caring for a special needs child can be a costly proposition. Fortunately, many such children are eligible for federal benefits to help defray those costs. If your child is under 18 and you and your spouse (or your child’s legal guardians) have an annual combined income less than $30,000, your son or daughter is eligible for benefits.
Once your child reaches age 18, the government no longer considers your income when determining eligibility. Instead, it only looks at the income of the special needs adult. If your adult child’s income is less than $30,000 a year, he or she will remain eligible to receive government benefits.
Take advantage of tax deductions.
As you dedicate your life to caring for your child with special needs, be aware that some of your expenses are . For example, if you have unreimbursed medical bills that exceed 7.5% of your adjusted gross income, you can deduct those expenses from your income tax. Other options can include an and a .
To ensure you receive all the federal assistance and tax breaks you’re entitled to, it’s a good idea to seek advice from a professional. Social workers at your child’s school and or organizations that focus on helping those with special needs offer good sources of information. An accountant or tax pro can help make sure you handle the tax deductions correctly.
Create a special-needs trust.
To assist your special needs child as an adult, you or other family members may decide to gift them with money, life insurance proceeds or other liquid assets. However, this could inadvertently disqualify your child from receiving assistance by putting their net worth over the allowable limit. Considering the limit is less than $2,000 in many states and less than $1,000 in other, this doesn’t provide much support for your child.
Instead, establish a special-needs trust in the name of your child. This will allow you and family members to gift assets to the trust while maintaining your child’s benefits eligibility. A special needs trust is a fairly complex legal document, so be sure to work with an experienced attorney to make sure the document is properly written. You will also need to name a trustee. Select someone you can count on to act in your child’s best interests while overseeing the trust.
Fund your child’s special needs trust.
One cost-effective way to fund the trust is with permanent life insurance, although there are many other options. However, funding the trust should never disrupt your personal financial plan or retirement fund. Here again, it can be very beneficial to work with a financial planner with experience in special needs trusts.
The Importance of Seeking Professional Help
Financial planning for children with special needs is a complex endeavor, especially when dealing with tax deductions, trusts and trying to navigate the requirements for government benefits eligibility. Without the right knowledge and guidance you could end up making one or more of these costly mistakes:
- Bequeathing assets directly to you child. Your child may not have the capacity to manage the benefits, and it could disqualify him or her from benefits eligibility.
- Naming your child as the beneficiary of the life insurance policy, annuity or retirement plan. This could also disqualify them from government benefits.
- Directing your child's inheritance to another family member to manage for the child. This could leave the assets open to bankruptcy, divorce, creditors, seizure or litigation.
- Choosing the wrong kind of life insurance for the special needs trust.
Financial planning for special needs children can sometimes seem overwhelming. But avoiding this important responsibility could put your child at risk. Without a written special needs plan in place, your child’s future could turn out to be very different than the one you wanted.
So take the time to plan. Use professionals where needed. Communicate the plan to other family members who need to know about it. Once the plan is in place, you’ll gain the peace of mind that comes from knowing your child will be taken care of after your gone.
Disclaimer: For informational purposes only. IntelliQuote does not offer tax, legal or investment advice.