What's the Best Financial Protection for a Special Needs Child?
June 6, 2012
I'm 50 years old and in good health, but need to create a secure safety net for my 17-year-old son with autism. He's living at home now, and I'm worried in case something happens to me. I'm not wealthy; what are my options?
I'm glad you're asking this question—both for yourself and for the increasing number of parents who are faced with caring for a special needs child or adult. According to the Centers for Disease Control, approximately 20 percent of U.S. adults have a disability. Recent CDC data also states that one in 88 children has been identified with an autism spectrum disorder.
While handling the day-to-day care of a special needs child can be challenging, planning for the future is equally important—and potentially complicated. That's because, while there are a number of government assistance programs available, how you set up additional financial support can directly affect whether or not your child will qualify for public benefits. So it's not just a matter of providing a financial safety net; the methods you use are also crucial to the ongoing well being of your child.
Here are some things you can consider doing now to help give your son the security he needs—and give yourself some peace of mind.
Establish yourself as legal guardian
First, establish yourself as your son's guardian when he turns 18. Otherwise, your son will be considered an independent adult under the law, and you may not have access to his medical records or make decisions on his behalf.
Apply for government benefits
There are two government programs that your son could qualify for: Medicaid, which covers most medical services; and Supplemental Security Income (SSI), which provides a monthly stipend for basic living needs. In order to maximize benefits, apply for these benefits when your son first becomes eligible at age 18.
Consider a special-needs trust
SSI and Medicaid are a good start. But if you want to make sure your son has more than the bare bones, there's a catch. In most states, an individual with special needs can't have more than $2,000 in assets to be eligible for assistance. This means that if your son owns or inherits more than the eligibility requirements allow, he'll lose government support.
Fortunately, you can get around this problem by setting up a special needs trust (also called a supplemental needs trust). With this type of trust, designed especially for individuals with a disability, the assets belong to the trust, not to the individual, so there's no issue with continuing to collect government assistance.
You designate a trustee who will manage the assets and use them for your son's expenses above and beyond what the government programs cover. But it's important that the money isn't used for the same things the assistance covers. For example, it can't provide for basic expenses like food or shelter, but it can cover essential quality of life expenses such as clothing, vocational training, and travel. It's also important that the funds are not paid directly to your son. Both could cause him to lose his benefits.
It's important to note that this is a specialized trust that must be set up and managed carefully. You can fund it either while you're alive or as a part of your will. The rules vary by state and by the source of your funding so you'll want to consult with an attorney experienced not just in estate planning but specifically in special needs trusts. Two professional groups that can provide references to lawyers experienced in special needs are the Academy of Special Needs Planners and the Special Needs Alliance.
Refine your estate plan
At the same time you set up the trust, update your estate plan and leave specific instructions regarding your son. The basics should include:
- A will—Make sure to leave any assets designated for your son's care to the special needs trust, not directly to him. You can specify that the trust will be the beneficiary of a retirement plan or a life insurance policy.
- Trustee—Appoint a trusted individual or financial institution to manage the financial aspects of the trust.
- Guardian—Appoint one or more guardians for your son who manage the day-to-day care of your son after your death. They will make decisions about medical care, personal finances, and everyday living.
- A letter of intent—This should describe your desires for your son's care and plans and expectations for his future. Think of it as a guide for his caregiver.
Talk to your family
If you have other children, explain your plans. Tell them how you're dividing your assets and how you've provided for their brother. It may lessen their worries about the future.
Also, if there are relatives who may consider giving or leaving assets to your son, make sure they're aware of the trust and the importance of not putting money directly in his name.
Take care of yourself
While you're preparing for your son's future, don't forget about your own. Keep contributing to your 401(k) or IRA. And try not to dip into your retirement savings to cover your son's needs. Ideally, the two of you will have many more years together. You want to be financially secure yourself, so you can enjoy them to the fullest.
The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.