These days the good news is that we’re all living longer; the bad news is that we’re all living longer.
An increased life expectancy makes financial and retirement planning more challenging for everyone; no one more so than parents of a special-needs child, as a longer lifespan means increasing costs for both parents and child.
According to a Harvard study (2014), synopsized here by Autism Speaks, the lifetime cost to financially support someone on the autism spectrum is $1.4 million; if that person has an added intellectual challenge, the number rises to $2.3 million.
Parents with special-needs children face the additional responsibility of ensuring their child will be provided for not only financially but physically and emotionally, long after they’re gone.
If you are a parent in this situation, developing a long-term financial strategy can help ensure that your child will continue to receive proper care, and maintain the lifestyle he or she is accustomed to. Not having a proper plan in place could squander potential opportunities and benefits and increase the risk of your child being victimized.
Below are four important ways to protect your special-needs child:
1. Do not make your special-needs child a beneficiary – naming them as a beneficiary in a will, retirement plan, insurance policy or other financial account may seem like the appropriate step to take, but it can have detrimental effects, including preventing the child from qualifying for federal benefits. Programs such as Medicaid and Supplemental Security Income (SSI) offer financial assistance to people with special-needs. However, to qualify for these programs, a special-needs person must have a limited amount of income and resources to their name. For example, to qualify for SSI, your child must have less than $2,000 in savings. To find more information about these programs and their guidelines visit The Centers for Medicare and Medicaid Services and the Social Security Administration.
2. 529 ABLE Accounts – similar to 529 college-savings plans, these accounts will allow tax-free distributions if the dollars are used to pay for qualified expenses; including housing, employment training, assistive technology and personal support. ABLE accounts can hold up to $100,000 in assets without jeopardizing the beneficiary’s eligibility for federal benefits. Families can contribute up to the maximum gift exclusion each year, $15,000 for 2018. To qualify for an ABLE account, disability must have been occurred prior to your child’s 26th birthday. Learn more about ABLE accounts here.
3. Consider a special-needs trust – a special-needs trust can act as a great supplement to an ABLE account, which may not fully cover your child’s lifetime expenses. An important distinction of a special-needs trust is the beneficiary has no direct control over the trust (a trustee must be appointed), which means it will not disqualify them from federal benefits.
When setting up a special-needs trust, parents need to consider how to fund it and whom to appoint as trustee. There are many nuances involved with establishing and administering these trusts, so parents should strongly consider hiring an estate-planning attorney who has specific experience with special-needs trusts.
Once you establish the trust, work with a Certified Financial Planner to create an action plan to appropriately fund it.
4. Long Term Care insurance – at some point the health-related expenses for a special-needs child may coincide with increased health expenses for the parents. Long-term care (LTC) insurance can help cover expenses and preserve the retirement savings of parents with special-needs adult children.
According to Genworth’s 2017 Cost of Care Survey, the median annual cost of a home health aide in the U.S. for 44 hours of care per week is $49,188, while the median annual cost of a private room in a nursing home is $97,452.
Long term care insurance is a complement to traditional medical insurance. Long-term care goes beyond medical care and nursing care to include additional support if you ever have a chronic illness or disability that leaves you unable to care for yourself for an extended period. You can receive long-term care in a nursing home, assisted-living facility, or in your own home. Learn more about why LTC is essential for any financial plan.
The bottom line is that it’s important to understand the critical financial planning dimensions and potential opportunities that may impact a special needs child’s overall quality of care and the resources available to them.
The best way to increase the probability of a good outcome for everyone is to start the planning process early. Financial plans can evolve over time but waiting until your child is older to begin planning, or not establishing an overall plan at all, could be very costly for all parties in the long run.