Financial and Estate Planning for Children With Special Needs
- Financial and Estate Planning for Children With Special Needs
Parents of children with special needs know that each day brings small and large victories. Parenting children with special needs also comes with unique challenges, including increased financial responsibilities and more complex planning requirements for the future. The cost of therapies, medical procedures, equipment and caregiving — on top of wages lost as a result of caretaking duties — can be daunting. Because these children may continue to require care into adulthood, sound financial and estate planning is essential to ensure they're cared for even after you're gone.
Try not to get overwhelmed at the thought of financial planning for a child with special needs. This guide is focused on helping you plan one step at a time, learn what help is available and talk to other parents in your situation. A sound strategy can help you take concrete steps to manage your finances and gain peace of mind for your child's financial future.
Steps to Creating a Plan for Your Child With Special Needs
Planning for an uncertain and expensive future can be daunting. Parents of children with special needs often worry about who will care for their children and how their children will manage when they’re gone.
“Once you become a parent, you worry about everything,” says Valerie Zaloom Buccino, Esq., an attorney specializing in estate planning, special needs planning and guardianship. “This worry never ends, but for parents with children with special needs, this worry takes on a much different meaning.”
Though all parents need to plan for their children’s future, parents of kids with special needs have to take more steps than others. Breaking down the tasks and tackling them over time can help you feel less perplexed.
Step 1. Find Your Community
Parents who are living through similar circumstances can provide emotional support and a wealth of information. Finding your community where special needs families can search for advice, referrals and moral support is vital.
“Parents in a similar situation are going to be the most capable of directing people,” Dania Ermentrout, a case manager in North Carolina’s Medicaid program and parent of a medically fragile daughter, said.
They may have already solved the exact problem you’re facing. Eramentrout also recommends finding or starting a Facebook group to connect with other parents of kids with similar diagnoses. “That’s where I get most of my survival tips,” she said.
Christine Lai, founder of the Special Education Legal Fund and a parent of a child with autism, also recommends finding community online.
“The Internet is obviously a great thing,” Lai said. “But for families with special needs, it is a tremendous resource that people outside of the community might not understand. For a family that doesn't know anyone, no one in their circle has had this experience, or maybe they live in a remote area, this is a real lifesaver.
Step 2. Assess Your Financial Situation
Most people need to adjust to the level of expenses required to care for children with special needs. The first step in an effective plan is a realistic assessment of your current situation. Start asking and seeking answers for questions such as:
- Do you have assets to pay for your child’s expenses?
- Do you have debts you need to manage?
- Can you scale back on other spending to make room for new costs?
These questions may not have easy answers, but putting some thought into them will help you build your plan on a solid foundation.
Step 3. Learn the Landscape
Explore these vital programs and resources for kids with special needs, even if you think you don’t qualify.
MedicaidMedicaid covers care for children with disabilities, typically under Medicaid waivers specific to each state. Visit KidsWaivers or your state’s Medicaid agency to learn about programs where you live.
MedicareBetter known as insurance for older Americans, Medicare also covers some younger people with disabilities. If you qualify for Social Security disability benefits, you can enroll in Medicare Part A, which covers hospitalization, and Part B for doctor visits and medical equipment.
Social Security Disability BenefitsThe Social Security Administration provides cash benefits for children with disabilities and adults who became disabled before age 22 via Supplemental Security Income (SSI). SSI may be used for food, clothing and housing.
Step 4. Speak With Trusted Experts
Navigating education, insurance, finances and the legalities of raising a child with special needs is complex. It's a good idea to consult expert financial advisors, special needs attorneys and special education advocates. Ensure they have expertise in special needs issues and relevant programs such as Medicaid, Medicare and Social Security.
Step 5. Set Goals
Set short- and long-term goals for your financial plan and then expect to adapt.
When parents of a 5-year-old with special needs asked Buccino how to plan for their child outliving them, she answered, "We have to take this a step at a time. An estate plan will have to change as your child gets older."
She tells clients to plan for today, but be ready to adjust and amend the plan as things change.
"Kids with special needs often achieve more than we dare to hope for," Buccino says. "I've seen it time and time again. So we prepare for the worst, and once everything is in place, I ask them to put it aside, and allow yourself to hope for the best."
Step 6. Build Short- and Long-Term Strategies to Meet Your Goals
For many parents with children with special needs, it helps to consider short- and long-term needs when making plans for their children.
Short-Term StrategiesParents may face lost income resulting from the time required to care for their children. In a two-earner household, assess which parent's income is larger and more stable and who has access to better health benefits. If one parent decides to stop working outside the home to care for a child with special needs, both parents must acknowledge the loss of income and professional purpose for the parent who is suspending their career.
Based on potentially decreased income and increased expenses, build a budget and financial plan for the anticipated costs, and if possible, a cushion for unanticipated expenses. Look at your current health insurance coverage, and maximize your health savings or flexible savings account if you have one.
Families facing the cost of therapies, medical procedures and caregiving typically need to seek assistance and public benefits to help cover costs.
Waiting lists for services can be years long. Even if you qualify for benefits, there may be waitlists for programs like residential facilities or expert evaluations. Get organized to start the process as soon as you can.
Long-Term StrategiesEstate planning is important for all parents, but when you have kids with special needs, it is essential. Consult an attorney to develop an estate plan that should, at a minimum, include a will, health care proxy and power of attorney. These documents let you specify what should happen and who should care for your child if you die or become incapacitated. Discussing your wishes with family members or close friends can be difficult but will ultimately help protect your child in the future.
You may also want to write a letter of intent, an important estate planning document that does not require a lawyer. This type of letter documents your child’s needs and provides instructions for anyone who may need to care for them if you cannot.
Life insurance and retirement savings are important components of a long-term financial plan. Though you may find it challenging to save for the future, if you possibly can, you will contribute to your family’s financial health over time.
Step 7. Get Organized
Gather personal information for you and your child, including:
- Birth certificates, Social Security numbers and insurance policy information.
- Usernames and passwords for online services including banks, patient portals, investment accounts and social media accounts.
- Emergency contacts.
- Medical information such as names and locations of doctors and hospitals, diagnoses, medications, equipment and allergies.
- Financial information including investments, asset information, financial advisor information, information on your income and expenses like mortgages or other debts.
Legal documents such as a power of attorney and will.
These details can help in a crisis when the last thing you want to worry about is finding your passwords or making sure family members can access your key information.
Build your repository of information one step at a time, so it doesn't overwhelm you. Just imagine how much better off you'll be to have your information together if you need help.
Tools for Financial Planning
Raising a child with special needs can be extremely expensive, but there are ways to mitigate these costs. Special financial instruments exist specifically to help families raising children with special needs.
ABLE accounts are investment and savings accounts created by the Achieving a Better Life Experience Act enacted in 2014. They have specific tax advantages.
ABLE accounts are owned by the individual with the disability, but others can contribute. These accounts let families save for their children without risking eligibility for public assistance programs. For example, ABLE account savings don’t limit Medicaid eligibility, provided savings don’t exceed the state’s 529 savings limit.
The annual cap on contributions to an ABLE account is $15,000. Total contributions over time are limited to the individual's state limits on 529 accounts. People who are disabled receiving SSI benefits may face additional limits. SSI cash benefits might be suspended if the ABLE account exceeds $100,000. If the beneficiary dies, Medicaid may recoup costs for that beneficiary from their remaining ABLE account funds.
Funds can be used for qualified expenses like personal support, health care, assistive technology, education, transportation, housing or other services that help individuals with disabilities live independently and improve their quality of life.
ABLE accounts are for people with significant disabilities whose disability began before age 26. The individual can open an account after age 26, but their disability must have started before then.
If the individual has already qualified for SSI or SSDI, they can automatically create an ABLE account. If not, they may still be eligible with a physician's letter if they meet the age and disability criteria.
Special Needs Trust
Trusts are a legal way to transfer assets to a third party (the trustee) to benefit another (the beneficiary). Trusts are created by a "grantor," who typically works with a lawyer to establish the trust, name the beneficiary or beneficiaries, identify the trustee and transfer assets into the trust. The grantor can designate themselves as a trustee and name successor trustees if they become incapacitated or die.
Among the benefits of a trust are the efficient distribution of assets to heirs without court involvement, the ability to specify how you want the assets to be used, avoiding certain taxes and protecting assets from creditors or lawsuits.
A special needs trust (SNT) is a trust set up to benefit an individual with special needs to supplement public benefits without disqualifying them from those benefits.
- Funds from an SNT can be used for expenses that Medicaid or SSI does not, like education or vacation expenses, but not food or housing, which SSI would cover.
"We strongly recommend a corporate trustee because they are immortal," explained Christopher Waddell, Certified Financial Planner and Managing Director of the Waddell Group.
Corporate trustees provide continuity, professionalism, and protection against the possibility that relatives fail to guard the beneficiary's interests.
A first-party special needs trust contains assets owned by a person with special needs. The individual with a disability must own the assets, though a parent or guardian sets up the trust before the beneficiary turns 65.
The individual with a disability must own the assets, though a parent or guardian sets up the trust before the beneficiary turns 65.
When the beneficiary dies, the trust must reimburse Medicaid for their spending on that individual. First-party SNTs must be irrevocable, so they cannot be changed once they're set up. These trusts are appropriate if the individual with special needs has assets that would otherwise disqualify them from public benefits, such as from an inheritance or a lawsuit settlement.
Third-party special needs trusts are initiated by a third party who donates assets to the trust to help the individual with special needs supplement their publicly funded benefits while the donor is alive. Assets pass to the beneficiary when the donor dies. There is no age limit on third-party SNTs.
Unlike first-party SNTs, because the beneficiary never technically owned the trust assets, third-party SNTs do not need to reimburse Medicaid. On the other hand, they cannot hold any assets owned directly by the beneficiary, such as an inheritance or settlement payment.
Unlike first-party SNTs, because the beneficiary never technically owned the trust assets, third-party SNTs do not need to reimburse Medicaid. On the other hand, they cannot hold any assets owned directly by the beneficiary, such as an inheritance or settlement payment.
Nonprofit organizations create pooled special needs trusts for the benefit of multiple beneficiaries who create individual accounts within the pooled trust. These trusts can be low cost and more stable because they pool the assets of multiple beneficiaries. They can be appropriate for beneficiaries with few assets in their name. Like first-party SNTs, Medicaid must be reimbursed with remaining assets when the beneficiary dies, but the trust may be allowed to keep a portion of remaining assets to support others in the pool.
Special Needs Trust and Supplemental Security Income (SSI)
Some trusts are counted as assets of the trust beneficiary and could reduce the individual's Supplemental Security Income (SSI) benefits. To avoid unintentionally disqualifying your child from government assistance, be careful when using the funds. If your child receives cash from the trust, their SSI benefits can be reduced dollar for dollar. Using the trust to pay for food, housing and housing-related expenses like taxes or utilities, can also reduce benefits.
SNTs can pay for other items, but check the details with a special needs planner or attorney.
Life Insurance for Parents of Children With Special Needs
Life insurance is essential if anyone else relies on your income. When you die, life insurance pays out a death benefit meant to replace your income, cover your debts and pay for your funeral expenses.
Parents can protect their children who have special needs with life insurance, which can cover the child’s expenses after the parents are gone.
Some families may also consider buying a life insurance policy for the child with special needs. Though it may be unpleasant to contemplate, if you outlive your child, the life insurance policy can replace your lost wages and retirement benefits.
Whole life insurance typically covers the insured individual indefinitely — as long as they pay the premium — and guarantees a death benefit payout. Whole life insurance value accumulates over the life of the policy and can be expensive.
Term life insurance is guaranteed for a set period. If the insured person dies during that term, the insurer pays out the death benefit. There is no cash value to a term life insurance policy, so it is usually less expensive.
Guardianship or Conservatorship
Guardianship, also known as conservatorship, is the legal process of appointing a guardian to make decisions for another person.
Typically, parents make these decisions, but when children turn 18, parents no longer have decision-making authority on their behalf. Children with special needs may not be able to make decisions for themselves and may still need someone to support them.
To be appointed legal guardians, parents (or other responsible adults) need to petition the court. One parent or both could be designated guardian or co-guardians. If parents cannot agree on who should be the guardian, the court may appoint someone else.
Even if one or both parents serve as guardians, they should designate in their will who would take over for them if they die. Guardians should appoint successor guardians in the event that the chosen guardian dies or is unable to serve in that role.
Cost of Services for Adult Children Living With Disabilities
When children with special needs become adults, they may still need costly services. To ensure your adult child is financially secure, consider and incorporate these costs into your long-term financial plan.
Group Home or Independent Living Center
Cost$3,500–$8,950 per month
Group homes and independent living centers provide supportive residential services for adults with special needs. Staffed by counselors or other professionals, these homes can be appropriate for adults who cannot live independently but do not need more advanced care. The cost of a group home varies greatly depending on location. States will subsidize the cost of living in a group home for those who qualify, but the waiting lists can be long.
Cost$31 to $130 per day
Day programs provide adults with disabilities structure and support during the day but do not provide housing. Costs vary widely depending on several factors. The average price is $61 per day or $7,750 to $32,500 per year. The yearly average is $15,250, assuming five days per week for 50 weeks.
Personal Care Professionals
Cost$14 to $27 per hour
Personal care professionals or attendants (PCAs) help people with disabilities manage daily living activities like bathing, dressing or eating and basic chores like shopping or cleaning. They might be friends or even family members and be paid privately or through a public program. They can be hired independently or through a home care agency. Depending on the caregiver's needs and training, a PCA could be a home health aide, home care nurse or nursing assistant.
Long-Term Care Facility
Cost$47,000 average per year
Long-term care facilities are residential facilities for people with disabilities who cannot live at home. In assisted living facilities, residents live in apartments with access to support services like help with bathing or cleaning. Skilled nursing facilities provide more constant medical or nursing care. Costs range from $45,000 per year for assisted living, $85,775 for semi-private nursing home care and $65,000 to $120,000 per year for private rooms in licensed nursing homes.
Assistive Equipment and Technology
Assistive equipment can help people with disabilities live independently. Examples include mobility aids like wheelchairs or scooters, home modifications like ramps or grab bars, hearing aids and software or hardware that help people communicate like voice recognition programs. Some applications and software programs are free or low cost.
Insurance costs depend on the type of coverage. Of 22 million non-elderly adults with disabilities in 2015, 11% were uninsured, 48% were covered by Medicaid, Medicare or other public insurance and 41% had private insurance, according to Kaiser Family Foundation's "Medicaid Restructuring Under the American Health Care Act and Nonelderly Adults with Disabilities." Medicaid provides free or low-cost health insurance for people with disabilities, and Medicare covers some disabled people younger than 65. For adults who don't qualify for Medicaid or Medicare, Marketplace plans are available with subsidies for qualified people.
Medicaid programs vary by state and eligibility category. Enrollees typically pay no premiums and minimal if any copayments.
- Medicare Part A monthly premiums: $0–$458 per month
- Medicare Part B monthly premiums: $144 per month
- Marketplace plans: $331–$501 per month
Additional Health Care
Health insurance doesn’t cover everything, so people have to pay out-of-pocket for certain services that are not covered or for care from health care providers who don’t participate in their health insurance plan. Even with insurance, consumers pay some of the costs of medical visits and procedures, medications, and medical equipment.
- Medicare Part A: $1,408 deductible, $352–$704 coinsurance for 61 or more days in the hospital
- Medicare Part B: $198 deductible, 20% of Medicare-approved fees for outpatient care and durable medical equipment
- Marketplace plans: $28–$6,506 deductible, $1,187–$7,735 average out-of-pocket maximum
Increased Living Expenses
Cost$1,170 to $6,952 per year
People with disabilities face increased living expenses in categories such as housing, transportation and food. People with disabilities are more likely to face financial hardships because of the added costs of living and lower employment rates.
Expert Tips on How to Find Support and Navigate Challenges
- Recognizing the diversity of needs children and families may have, what are some common challenges families face with financial, legal or insurance issues related to their children's needs?
- How do these challenges change as children grow? How should parents prepare, and what should they prepare for over time?
- What are some strategies or resources parents may be able to use to help manage the financial burdens they’re facing?
- How do you recommend parents advocate for themselves and their children to access the resources they need?
- What else would you like parents raising kids with special needs to know or think about?
Resources for Parents of Children With Special Needs
As you develop a plan to secure a financial future for your child, you may find yourself in need of additional help with managing your money. MoneyGeek compiled a valuable resource list to help parents of children with special needs, ranging from training opportunities, support groups and financial assistance programs.
- Academy of Special Needs Planners: This organization of special needs professionals serves and advises people and families with special needs. It includes information on legal developments and a forum for exchanging best practices and providing information for consumers with special needs.
- The Arc Center for Future Planning: This guide is for people with intellectual or developmental disabilities to enable them to live as independently as possible after their parent or caregiver is no longer able to care for them.
- The ARC of the United States: ARC's advocacy efforts are aimed to promote a future of inclusive play, work, worship, community, travel and more for individuals who have intellectual or other disabling conditions. Their website offers information about current activities, links to ARC chapters in all states, and ways to become involved.
- Center for Parent Information and Resources: This site provides information about critical topics in special education and links to each state's parent training and information center, which are federally funded programs to help parents navigate this complex system.
- Council of Parent Attorneys and Advocates (COPAA): Composed of families, special education attorneys and advocates across the country, COPAA takes cases that will advance education law for families, provides training for parents to advocate in their processes or to become special education advocates themselves and supports the rights of families with kids in special education.
- Courageous Parents Network: This network empowers families and providers caring for children with serious illnesses by providing videos, podcasts and printed guides.
- Family Voices: This family-led organization promotes partnerships at all levels of health care and aims to improve health care services and policies at all levels.
- Federation for Children with Special Needs: FCSN provides support and help to parents of children with disabilities, their professional partners and their communities.
- Kids' Waivers: This site provides information on state Medicaid waivers and other programs for children with disabilities or medical needs. It includes program details and state-specific details.
- National Resource Center for Supported Decision-Making: This center offers resources, guides and toolkits to help families understand options available in the areas of health care, education and guardianship.
- Organization for Autism Research: This organization provides resources for advocates, families and educators, including information, scholarships for students with autism and research grants.
- Parent to Parent USA (P2P): P2P oversees a network of parent-to-parent programs across the country that offer emotional support to parents from trained volunteer support parents.
- Special Education Legal Fund (S.E.L.F.): Created to help families effectively advocate for their child in the special education system, this funding source provides up to $5,000 in grants to cover qualifying special education legal fees for families in Connecticut and education for agencies supporting families with children with special needs.
- Special Needs Alliance: Long-term financial planning is complex for families, particularly around issues related to a loved one's special needs. This site offers information about government programs, ABLE accounts, special needs trusts, condition-specific organizations and related information.
- Understood.org: This organization provides a wealth of resources for parents, including template letters to request an individualized education program (IEP) and guidelines for approaching getting support for kids with learning and thinking differences.
About the Author
Deb Gordon is author of "The Health Care Consumer's Manifesto (Praeger 2020)" about consumer markets in health care based on research she conducted as a senior fellow in the Harvard Kennedy School's Mossavar-Rahmani Center for Business and Government. She previously held executive roles in health care companies. She has published in the Harvard Business Review blog, USA Today, RealClear Politics and TheHill. Deb is an Aspen Institute Health Innovators Fellow, an Eisenhower Fellow, a former Boston Business Journal 40-under-40 honoree and a volunteer in MIT's Delta V start-up accelerator. She earned a B.A. in bioethics from Brown University and an MBA with distinction from Harvard Business School.
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