Strategic steps in financial planning for a special needs child can go a long way toward helping ensure a parent’s peace of mind and a child’s future.
According to the National Institute for Health, there are approximately 11.2 million children with special healthcare needs in the United States. This means that, on average, one in every five households includes a child with special needs.
Other sources cite the number of special needs children as far higher, doubling or even tripling the NIH’s projections. While the discrepancy is likely based on how broadly special needs is defined, one fact is certain: families with a special needs child typically experience unique demands on their time, emotions, and finances. Some of these challenges can be managed with small but strategic changes regarding the financial planning for a special needs child.
The team at Financial Harvest is pleased to share with you these suggestions from VFO Inner Circle.
Raising children and grandchildren is challenging in the best of circumstances. But when a child has special needs or a disability, the hurdles can look more like mountains and the potholes can feel more like bottomless pits.
That’s especially true when it comes to paying for the many expenses that can accompany raising a special needs child as well as positioning assets for the child’s future. The good news: There are savvy financial moves that parents and grandparents of special needs children can make that may potentially deliver big benefits to both themselves, and future generations.
The good news: There are savvy financial moves that parents and grandparents of special needs children can make that may potentially deliver big benefits to both themselves, and future generations.
Multiple financial challenges
Parents of special needs children can face some unique financial concerns. For example, a child’s special needs often are identified when problems occur after the child is born giving parents no advance warning or time to research what it could take financially to address the issues. Also, while many health care needs require a one-time expense, special needs health care expenses are often ongoing requiring monthly, weekly or even daily services that could be needed for a lifetime.
What’s more, those ongoing costs might be highly inconsistent from year to year making it even harder to plan.
Navigating today’s expenses
Smart financial planning around special needs involves thinking about the foreseeable road ahead, along with the distant and more uncertain future. Start with some basic wealth planning, such as budgeting. In addition, many families qualify for financial help from government agencies. One example: Monthly Supplemental Security Income (SSI) is available to some individuals who meet the SSI disability standard.
Important: Don’t assume you earn too much or are too wealthy to get any benefits. The rules can vary from state to state, making it possible you’ll qualify for some form of assistance.
That said, it’s important to consider more advanced solutions. One is an ABLE account which is similar to a 529-like savings plan to help families caring for children or adults with disabilities. ABLE account contributions grow tax-free and withdrawals are tax-free when used for qualified disability expenses. Anyone can contribute to an ABLE account, including grandparents.
Another key benefit of ABLE accounts is that the contributions are shielded from asset-based limits that could jeopardize an individual’s ability to access government assistance. That means an ABLE account could be a good way to provide financially for a special needs child without making a direct financial gift to him or her that could jeopardize access to other financial support. However, there is a limit to this shield. If the ABLE account exceeds $100,000 the individual is no longer eligible for SSI.
Wealth Planning for the Future
Special needs financial planning also must address estate planning in the event you die or become incapacitated and are unable to care for your child.
Often, parents who want to help ensure their special needs child will be taken care of after they’re gone will set up a special needs trust that’s designed to hold and safeguard assets to benefit the child. Parents also set up these trusts while living to help supplement the cost of care. The trust can be established with terms and language for how and when the money should be used, although keep in mind that many specific terms must be met for the trust to be deemed acceptable. And as with many other types of trusts, a special needs trust can potentially protect assets if the child is sued or becomes divorced at some point in the future.
In general, there are two main types of special needs trusts that most families consider who have assets to invest:
- A first-party trust is set up when the assets contributed to the trust belong to the beneficiary—that is, your special needs child or grandchild. This can happen if the child inherits wealth or gets money from a legal settlement. The beneficiary is considered to be the owner of the assets in this scenario. The good news is that when those assets are put into a special needs trust, they’re excluded from government aid calculations determining eligibility for the types of benefits noted above. The bad news is, as with the ABLE account, when the beneficiary dies, the government can claim assets still in the trust to reimburse it for payments it made.
- A third-party trust is used when the funding assets come from parents, grandparents or anyone other than the beneficiary (who in this case would not be considered the owner of the assets). A third-party trust also allows a beneficiary to retain his or her government assistance but because the assets contributed belong to someone else, the government won’t seek to collect remaining assets when the beneficiary dies. The upshot: A third-party trust gives you more flexibility to transfer remaining wealth to another beneficiary such as another child or a charity.
As with other trusts, you must carefully consider who is the right person to name as trustee and how to best fund the special needs trust.
Conclusion
There are a number of steps that families with special needs children can take to help ease the financial burden of ensuring their children receive the care they need. Proper planning and guidance can help provide the families with peace of mind that their assets are protected for their children’s long-term benefit.
Of course, there is no one-size-fits-all answer given that one family’s particular situation can be quite different from another’s. But for families experiencing the confusion and uncertainty that accompany raising a special needs child, knowing that there are options to consider can be a helpful foundation from which to create a plan for today and well into the future.
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Financial Harvest Wealth Advisors helps clients and their loved ones take the necessary steps to protect their assets. We help our clients be prepared for the unexpected by having important conversations and sharing valuable information with the people they trust. Additionally with our professional networks we assist in creating and reviewing essential legal documents. If you or a loved one would like to ensure that you are taking the right steps now to protect your wealth and family in the future, please give us a call.
ACKNOWLEDGMENT: This article was based on information published by the VFO Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2023 by AES Nation, LLC.
This report is intended to be used for educational purposes only and does not constitute tax, legal nor investment advice. Financial Harvest Wealth Advisors is not affiliated with AES Nation, LLC, which is the publisher of the VFO Inner Circle Flash Report.
