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Financial Planning for Families with Special-Needs Dependents

Chances are you or someone you know has special needs. According to the U.S. Census Bureau, nearly one-fifth of all Americans have some kind of disability,1 a broad term that includes genetic disorders such as Down syndrome, physical limitations like complete or partial paralysis, and neurological conditions such as autism.

Twenty-five percent of those affected are school-age children who will likely deal with their disabilities for the rest of their lives.

On top of the day-to-day challenges of raising kids with special needs, parents and other caregivers must often bear a considerable financial burden. Depending on the disability, there may be medical costs with outsize insurance deductibles, specialized education programs, and physical aids such as wheelchair-accessible housing and transportation.

“Parents who have children with special needs often say they’re raising million-dollar kids, and that’s not an understatement,” says Tamara Blue, a Schwab senior financial consultant in Los Gatos, California.

She should know. For years now, Tamara has taken primary responsibility for a minor-age family member with special needs. As a result, “my biggest focus is getting caregivers to think about the single most important question they face, which is, What’s going to happen when I’m no longer here?” she says. “Many clients come in thinking a close family member or other designated guardian can do it all, but few people truly understand the magnitude of caring for those with special needs.”

Bring in the pros

There are really only two things families should determine from the start, Tamara says: How much money will be required to provide for the person in need—potentially for the rest of her or his life—and who is going to make the financial decisions?

Tamara’s advice in both instances is to seek professional guidance. For example, she points to care specialists (often members of the Case Management Society of America) whose primary focus is to help families predict what kind of expenses their special-needs children are likely to incur over their lifetimes.

In addition, many financial firms like Schwab have specialists who can discuss general special-needs planning topics. (They don’t provide legal advice, however, so you’ll need to consult an estate-planning attorney about what type of plan is most appropriate for your family; see “A helping hand,” below.)

Kim Frank, a tax, trust and estate specialist in Schwab’s Wealth Strategies Group, says that as soon as you’re aware your child has a disability, you should consult your attorney, as well.

“If your child receives governmental assistance—now or in the future—any money that passes to her or him directly through gifts or other sources can affect eligibility,” she says. “Even relatively small amounts can reduce or eliminate governmental assistance altogether and may need to be spent down before your child can requalify.”

Part of your estate plan may include a special-needs trust (SNT), which is designed to allow a beneficiary to maintain separate assets without affecting her or his eligibility for governmental assistance. That said, “it’s important to find an experienced trustee who knows how to properly disburse the funds,” Kim says.

Explore your financial-aid options

Tamara works to help clients understand the breadth of any state-based financial assistance that may be available to them. For example, she often refers them to websites such as Disability Benefits 101, which includes guidance on Supplemental Security Income (SSI) and other assistance from select states.

Another emerging solution is a tax-advantaged savings account made available to people with disabilities by the 2014 Achieving a Better Life Experience (ABLE) Act.2 You can contribute up to $14,000 in post-tax dollars to a single ABLE account per year. Although contributions are not tax-deductible at the federal level, they may be at the state level. Any growth in such an account is exempt from federal taxes, so long as the money is used for qualified expenses, such as education, housing and supplemental medical costs.

While most states allow total contributions of $300,000 or more over the life of these accounts, government benefits may be suspended if the balance exceeds $100,000 at any one time. Although benefits can be reinstated once the balance falls below this threshold, it’s better not to exceed it lest benefits be withheld.

“There are a lot of differences among ABLE accounts, primarily related to availability, fees and investment choices,” Tamara says. Check with the ABLE National Resource Center for more information.

1Americans With Disabilities: 2010, 07/2012.

2To be eligible, the beneficiary must meet the definition of disability under Title II or XVI of the Social Security Act of 1935 and must have become disabled before age 26.

Important Disclosures

Employees of Schwab are not estate-planning attorneys and cannot offer tax or legal advice or create and prepare legal documents associated with such plans. This information does not constitute and is not intended to be a substitute for specific individualized tax, legal or investment-planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, investment manager or legal counsel.

Schwab wealth strategists and financial planners are employees of Schwab Private Client Investment Advisory, Inc., a registered investment advisor and an affiliate of Charles Schwab & Co., Inc. Consultations with wealth strategists are only available to clients with at least $1 million at Schwab or who are enrolled in Schwab Private Client.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers are obtained from what are considered reliable sources. However, their accuracy, completeness or reliability cannot be guaranteed.

As with any investment, it’s possible to lose money by investing in an ABLE account. Additionally, by investing in an ABLE account outside of your state, you may lose tax benefits offered by your own state’s plan.


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