Financial planning for a child with a disability or special health-care needs comes with unique challenges. Many federal and state programs limit the amount of money or property a person can have to still qualify for benefits. The Supplemental Security Income (SSI) program, for example, sets the limit at $2,000. If your child has more than this in savings at any time, they could lose these benefits. Although you want your child to get access to services, you also want to save money for your child’s future, so they can afford things that make their lives better but aren’t covered by their benefits.
Fortunately, with good estate planning and tools like a Special Needs Trust, you have the chance to provide for your child’s future.
It is especially important to keep a will when you have a child with a disability or special health-care needs. Without a will, you have less control over how your money and property will be distributed, and perhaps even more importantly, who will replace you as a guardian if your child needs one.
A backup guardian should know what would be expected of them if they were to gain custody of your child. To help them prepare, you might consider setting up a personal network and creating a Letter of Intent (LOI) for your child. These tools offer your child ways to have more people around them who understand their needs and can support them.
Secondly, it’s important to think about your child’s finances. If your child inherits money or property directly, they might lose their federal or state benefits. Setting up a Special Needs Trust ensures this will not happen. It is important that your will states that any money or property you want to give your child goes directly into the trust. It is also important to set up your life insurance or retirement policies to pay into that trust rather than directly to your child. If you don’t need to set up a trust for your child during your lifetime, you can set up your will so that one is created at the end of your life.
It is also important that your child’s grandparents and adult siblings have wills. Without a will, their money or property could go to your child automatically, even if the grandparent or sibling didn’t want to give it to them. If family members wish to leave your child any money or property, their wills should state that these go into your child’s trust.
In general, a trust is a legal way to manage money and property for someone else.
A Special Needs Trust, sometimes also called a Supplemental Trust, is a way to store an unlimited amount of money or property for a person with a disability or health-care needs without affecting their federal and state benefits.
Although you might think of a trust as something only for wealthy families, a Special Needs Trust can hold a modest amount of money and make sense for a child who receives benefits like SSI or Medicaid.
There are two common types of Special Needs Trusts:
The biggest difference between these trusts only shows up in how the assets of the trust are distributed at the end of your child’s life, which we all hope will be a long, long time away. With a self-funded trust, Medicaid could take a repayment for what it has paid for your child’s medical expenses. This will not happen with a third-party funded trust. Any leftover money from a third-party funded trust is protected and can be left to family members or charitable organizations.
It is a very good idea to work with an estate attorney and a financial advisor who knows the unique requirements for adult children with disabilities or special health-care needs.
Be very careful about using Internet documents to create a will or a trust. These were not created with your family’s unique requirements in mind.
Facing these issues can be pretty tough. But once you get started, you should take a deep breath and relax, knowing that you’ve taken big steps toward securing your child’s future.