Financial planning for children with special needs
Thursday, 7 May 2015
Raising a child is expensive, but if you have a child with special needs, the costs can be astronomical.
In fact, a study in the Journal of the American Medical Association Pediatrics found it costs approximately $1.4 million to raise an autistic child in the United States. In comparison, it costs about $233,610 to raise a typical child through age 17, according to a federal report.
In addition, you may be facing the prospect of financially supporting your child for his entire life. Unfortunately, this is likely if you have a child who may never be employed or doesn't have the skills to live independently. But as daunting as this may sound, there are basic steps you can take to plan for your child's long-term needs.
Here are key things to consider:
Open an ABLE account or trust
Paying for expenses like specialists, therapy, and medical equipment can leave many families unable to save for the future. But if you're able to put aside money, you should consider placing it in either a special needs trust, or a newly-available Achieving a Better Life Experience (ABLE) account.
While different in structure, both of these accounts offer one key feature: they have no impact on your child's ability to qualify for valuable government benefits or public assistance.
An ABLE account is a tax-free savings account for your child. It runs similar to a 529 Plan, allowing family and friends to contribute up to $14,000 a year to the account. ABLE accounts are regulated by the state, and parents of children with special needs should look into their state's plan.
A special needs trust offers no tax benefits, but also has no limits on contributions or account values. Its primary purpose is to pass assets to a disabled person without jeopardizing needs-based government benefits. These vehicles are also attractive because a trustee can be named to oversee the account.
Investigate Social Security benefits
If your child qualifies as disabled under Social Security guidelines, he will be eligible for Supplemental Security Income (SSI) and Medicaid benefits when he turns 18. Having more than $2,000 in assets can prevent your child from qualifying for these benefits. However, funds held in a Special Needs Trust or ABLE Account can be used to support the individual without affecting benefit eligibility.
Some families will also transfer assets to a sibling or other family member and assume the relative will pay for the disabled child's care. But a special needs trust can be a better solution for many reasons, including the fact that funds held in a trust are protected from legal judgments.
For example, if you leave money for your disabled child's care to your sister and she eventually gets divorced, those funds can be seized to settle her divorce—and possibly leave your child with nothing. Money held in trust is protected from such judgments.
Update your will
If both parents should pass away, a carefully-drafted will that transfers their assets to a trust will ensure the child qualifies for federal benefits upon turning 18. You may also want to select a guardian who would care for your child in the event of your passing. Obviously, the guardian must agree to assume this responsibility, and it should be clearly stated in legal documents to ensure your wishes are carried out.
A trustee—typically a lawyer or financial professional—should also be chosen to oversee the assets held in the trust or other savings accounts. A lawyer with expertise in special needs can help parents make smart choices and ensure the paperwork is in order.
Create a document of your child's needs
What would a guardian need to know to take good care of your child? List everything in one document, including your child's physicians, medical conditions, medications, therapies, dietary restrictions, routines, and other information.
This document isn't legally required, but providing this information to family members and other potential caregivers can be enormously helpful in case both parents pass, or are otherwise unable to care for the child.
Consider listing guardian on medical forms
During a first visit with a new doctor, patients are typically asked to fill out a form specifying who can have access to their medical records. Usually, access is given to a spouse, or another physician.
Privacy laws are strict, and accessing the records without this written consent can be very difficult. With this in mind, you may want to consider including the name of your child's guardian when completing the form so the guardian can access those records.
Have a plan for adulthood
Upon reaching the age of majority, your child will be legally entitled to make his own decisions about finances, medical care, and other important issues. If you think your child isn't capable, you can file for either guardianship or power of attorney, and also get a healthcare proxy. This will allow you to continue to make decisions about your child's welfare after reaching adulthood.
According to the Individuals with Disabilities Education Act (IDEA), disabled individuals can remain in the public school system until the age of 21, or until they graduate, whichever comes first. After that, parents can consider day programs or possible employment. If you think your child might benefit from a residential placement, you should start investigating options when your child is as young as 12 or 13, since it can take years to find the right facility and make arrangements.
There are many local and national resources for parents of children with special needs. A special needs lawyer or financial planner can help ensure that you get legal and financial documents in place and—just as equally important—find the resources and support your child will need in order to thrive.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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