For parents of special needs kids, the entire dynamic of life planning is changed. While most parents plan to financially support children from birth to age twenty-five (the average age for North American young adults to become self-supporting), when a child has special needs, the progression of financial independence is slower.
Depending on the level of support the child requires, he or she may never achieve complete financial independence, which is a cause of great concern for parents. What happens after both parents are deceased, or financially or physically unable to care for the child?
Evaluating financial planning options starts with these five strategic steps.
In addition to the basic needs of life, including a residence and regular cost-of-living expenses, many special needs children have escalating therapeutic or assistive support and health care needs. Employer based group health policies help to minimize some of the health care expenses, and many families rely on supplemental insurance to bridge the gap between what is covered versus what is required. Unfortunately, the cost of private insurance (if it was to be provided by an estate) would escalate over time, with special needs care costs only partially covered by even the most comprehensive of private health insurance policies.
Most government assistance programs (they vary by state) provide basic health care for a special needs child. However, if the child has property or an investment worth more than $2,000 in assets, he or she can become ineligible to receive Supplemental Security Income (SSI).
Medicaid and SSDI are also options; however, for the average dual income family with a moderate or high income, they do not quality for either program, and that leaves fewer options and supports for families. But many do qualify, and it’s an avenue that can provide expense relief and more financial options.
While many families provide legacy planning (which can involve family support care from siblings or other relatives), often the financial requirements of caring for a child with special needs can be prohibitive to most people. Nonetheless, starting a dialogue with family members and creating a formal will helps by solidifying the next-of-kin care plan, and also helps establish the financial supports that will be in place for the guardian for the care of your child.
If you are unable to provide a legal will due to costs, a ‘letter of intent’ serves the same purpose, and should be kept in a safe place or issued to another family member to execute in case of an emergency. The letter should stipulate care instructions for next of kin should one or both parents become deceased or incapacitated by injury.
When planning for the care and financial well being of your special needs child, coming up with benchmarks and estimates on costs and needs are difficult. It is an expense that is worth it however, because talking to a financial planner will not only provide a reliable estimate on the amount of funds needed, but he or she will also build a savings or investment plan to help you get there. Establishing financial benchmarks, diversifying assets and investments and other expertise will help you provide for your child.
Can an insurance policy be part of your financial plan? While working with an advisor, he or she will mention the topic of life insurance as a strategic part of your financial plan to provide long term care. Not only should both spouses be insured against death or injury, but also against business loss or unemployment. As many families of special needs children are single income, the loss of a job can be catastrophic, and Jackson family law attorneys see families plan income replacement coverage to protect against unemployment for a period of six months to a year on average.
Few life insurance carriers will extend premium policies on a terminally ill or special needs child. Depending on the severity of health or cognitive conditions, partial coverage can be acquired; but in general, life insurance products are exceedingly difficult to purchase on behalf of a disabled child. Knowing that this is the case, many parents add large (and expensive) life insurance policies, which is an effective strategy and worth the cost when you consider most benefits are tax free upon endowment.
Making the child a beneficiary also helps protect access to government assisted programs, including Medicaid and SSDI, as they are not considered to be held assets until the policy is paid to the dependant. Avoid term life insurance policies, as in many cases, the child will require support after one or both parents are deceased. Opt for whole, universal or variable life policies instead.
Even though establishing a life insurance benefit payable to a special needs child is a good financial plan, when any asset (liquid or property) is received by the child or grown adult, it can disrupt eligibility for social programs. In fact, in some cases, the social support programs can request a repayment of support funds after any inheritance received by your child.
By establishing a trust fund for your son or daughter, you can ensure that the funds are managed by a trustee, instead of being received directly by your dependent. A special-needs trust also allows other family members and friends to endow the fund with assets such as real estate or other investments for the child, without threatening support program eligibility. Many families prefer that the trustee be selected as a different family member or friend, and not be the same as the individual who is the designated guardian.
Understanding the importance of a financial plan and executing one that will provide for the needs of your child is easier with legal and financial advisors who can help you navigate the system and avoid costly inheritance and care provision errors. With the help of family and friends, a supportive community and the right advisors, you can create a successful financial support legacy for your child.
Connie Jelliffe is a lawyer at Hancock Law Firm that offers legal services like estate planning, family law, business formation, civil litigation and more. Connie has graduate degree from the University of Southern Mississippi and the Mississippi College School of Law.