Special Needs Financial Planning for Families: Key Considerations

My son was born in the early hours of a snowy December morning, weighing a sturdy 9 pounds, 6 ounces. Throughout his first year, he was always at the top of the growth charts and surpassed developmental milestones, leading our family to joke that he would be a future linebacker. He was strong, determined, and always on the move. My husband and I began envisioning the next 18 years, dreaming about coaching little league, helping with homework, and eventually moving our son into college.

To our surprise, around his first birthday, we noticed he began to fall behind in his milestones. A year later, he was diagnosed with Autism Spectrum Disorder (ASD), and our vision for his future was less clear. He is almost five now, and our weeks are filled with therapy appointments, IEP meetings, and learning everything we can to meet his ever-changing sensory needs. His diagnosis was a humbling reminder that you can’t predict the future, but you can adapt to life’s changing circumstances.

In investing and in life, the future is uncertain. There is no crystal ball to predict how the market will perform or the trajectory of my son’s development. The more we try to predict future outcomes, the more we will be wrong. The answer to uncertainty isn’t to avoid investing or planning altogether but to embrace a flexible approach. Just as diversifying investments mitigates risk, effective financial planning for special needs means preparing for multiple alternate scenarios.

All parents worry about their children’s future, but those of us with children who have disabilities often harbor additional concerns. Creating a financial plan is not just an investment in your family’s future – it’s also an investment in your peace of mind. Below, you will find key considerations to remember when developing a financial plan for your family when you have a child with special needs.

How Much Do Families Need to Save for a Special Needs Child’s Future?

As we learned more about our son’s development, we realized we were no longer planning for just a four-year college education and our own retirement. We are now looking at a much longer timeline — one that could potentially span his entire lifetime. While it’s challenging to provide a one-size-fits-all figure, a 2014 study published in JAMA Pediatrics estimates that the lifetime cost of supporting an individual with ASD ranges from $1.4 million to $2.4 million, depending on the level of support needed. To put this into perspective, this figure is nearly 22% higher than the Brookings Institution’s estimate of $310,605 to raise a typically developing child.

When calculating how much you might need to save, consider factors such as daily living expenses, long-term care, medical costs, therapy expenses, educational expenses, and support services. Ultimately, the amount you need to save will depend on your family’s unique situation and your child’s specific needs.

Consulting with a financial advisor can provide valuable guidance in creating a comprehensive plan that balances your own financial goals with your child’s. Taking proactive steps today can help ensure your child's needs are met throughout their lifetime.

Balancing Savings and Government Benefits for Special Needs Children

Financial planning for special needs families must consider how government benefits can support your disabled child financially and what limitations or exceptions may exist so that you can maximize those benefits while independently preparing with savings and other resources.

Understanding Available Resources

Navigating government benefits for individuals with disabilities can be complex, but several programs provide essential support:

• Supplemental Security Income (SSI) SSI is a needs-based program that offers financial assistance to individuals who are disabled, blind, or 65 and older with limited income and resources. Resource limits to qualify for this benefit are $2,000 for an individual or $3,000 for couples.
• Social Security Disability Insurance (SSDI) SSDI provides financial assistance to individuals with a qualifying disability that prevents them from working. To qualify for SSDI, individuals must have a work history and sufficient credits earned through Social Security taxes paid on earnings.
• Medicaid Medicaid is a means-tested program that provides medical coverage to select low-income groups, including individuals with disabilities.
• Medicare Medicare is a federal health insurance program that is primarily for individuals age 65 and older. After two years of receiving SSDI, individuals become eligible for Medicare.

While these benefits are crucial, they often fall short of providing a comfortable standard of living to individuals with disabilities. Many individuals count on these benefits but find it necessary to supplement them with additional savings to maintain their quality of life.

Understanding the eligibility requirements for these programs is essential when creating a savings plan for your child’s future. By strategically planning your savings, you can maximize the benefits your child receives while ensuring they have the resources needed for a fulfilling life. Consider consulting a financial advisor specializing in special needs planning to help you navigate these complexities and develop a balanced approach to safeguard your child’s future.

How to Save For the Future Without Jeopardizing Your Child’s Eligibility for Benefits

Learning how to save for a child with special needs is important. Becoming the beneficiary of certain assets can jeopardize your child’s eligibility for government programs like Medicaid and Supplemental Security Income (SSI). Two effective savings strategies to help maintain your child’s eligibility for benefits include ABLE Accounts and Special Needs Trusts.

What’s an ABLE Account?

Achieving a Better Life Experience (ABLE) accounts are tax-advantaged savings programs designed for individuals with disabilities. These accounts allow disabled individuals and their loved ones to save and invest money for qualified disability expenses without affecting their eligibility for means-tested public benefits. Qualified Disability Expenses (QDEs) include a range of costs that help enhance your child's quality of life and independence. These can cover:

• Basic living expenses (housing, food, heat, clothing)
• Education and transportation costs
• Medical care and employment training
• Assistive technology and support services
• Financial management and administrative expenses

Pro Tip: Keep in mind that any assets in an ABLE account exceeding $100,000 will count as a resource for SSI.

How to Use a Special Needs Trust (SNT)

A Special Needs Trust, also known as a Supplemental Needs Trust, is designed to benefit individuals with disabilities by covering expenses not provided by public assistance programs for the duration of their life. A Special Needs Trust is a great tool for financial planning for lifetime care of special needs children. Like ABLE accounts, assets held in an SNT protect a beneficiary's eligibility for needs-based government benefits since the beneficiary does not own the assets in the trust.

To qualify for an SNT, the beneficiary must meet the following criteria:

• Be under 65 years old
• Have a disability that prevents financial self-sufficiency
• Have a disability that began before turning 65*

*Individuals with disabilities that began after age 65 can use a Pooled Special Needs Trust, which must be professionally managed. See below.

There are several types of SNTs, depending on who funds them and how they are managed.

Third-Party Special Needs Trust

Third-Party SNTs are the most common SNT, established by a family member of a disabled individual for their benefit. These trusts are often used to cover supplemental expenses to manage an inheritance once the donor has died. Third-Party SNTs can be funded in several ways, including savings, investments, and via life insurance policies. One of the key advantages of a third-party SNT is that the government is not entitled to reimbursement for Medicaid payments made on behalf of the beneficiary upon their death, as is a first-party SNT.

Pro tip: Check your beneficiary designations to ensure they are set up properly to preserve your child’s eligibility for needs-based government benefits.

First-Party Special Needs Trust

When a disabled individual has their own assets, an irrevocable trust called a first-party or “self-settled” SNT can be used. First-party SNTs are commonly used for disabled individuals who receive money through inheritance, settlement, or other unexpected means. Like third-party SNTs, first-party SNTs safeguard an individual’s eligibility for government benefits if they have assets in excess of the eligibility limit.

Pro Tip: There are limitations to first-party SNTs including age limitations, Medicaid reimbursement after death, and in some states, court-mandated monitoring leading to additional expenses and requirements.

Pooled Special Needs Trust

A less common type of special needs trust is a pooled SNT. A pooled SNT is a trust a non-profit organization manages on behalf of a disabled individual. Individual beneficiaries create sub-accounts within a larger pooled trust. Benefits of pooled SNTs include professional management, lower costs, and less stringent eligibility requirements, including availability to individuals over age 65.

By utilizing ABLE accounts and Special Needs Trusts, you can provide for your child's needs while safeguarding their access to critical government benefits. Consulting with a financial advisor in Pittsburgh, experienced in special needs planning can help you navigate these options effectively.

How do I make sure my child is taken care of if something happens to me?

Estate Planning

An estate plan provides essential instructions about what should happen to the most important things – and people – to you in the event of your death. If you do not have an estate plan in place, consider working with an estate attorney specializing in special needs planning. Below are a few considerations to help you get started:

• Create a Will
• Name a Guardian for your Dependents
• Consider a Special Needs Trust
• Name a Trustee
• Write a Letter of Intent
• Communicate your estate plan to family members

It's important to review and adjust your estate plan periodically. This proactive approach ensures that your plan remains relevant and effective, reflecting any changes in your life or the lives of your loved ones.

Protection Planning

Life insurance isn’t for everyone, but for families with young children, especially those with a disabled child, it can be an essential piece of their financial picture. There are two main types of life insurance: term and permanent. To explore what insurance policy makes the most sense for you, take a look at our recent blog post on the importance of life insurance.

Conclusion

For families with loved ones who have special needs, creating a financial plan that addresses life-long support needs and ensures financial security can feel overwhelming. The best way to navigate the complexities of special needs planning is to meet with a CERTIFIED FINANCIAL PLANNER^TM practitioner. A CERTIFIED FINANCIAL PLANNER^TM practitioner can help craft strategies tailored to your unique situation that balance your own financial goals with those of your loved one, ensuring that both present and future needs are effectively met.

Sources

Spotlight On Achieving A Better Life Experience (ABLE) Accounts | Supplemental Security Income (SSI) | SSA

Create a Special Needs Plan That Goes the Distance | Kiplinger

Financial Help & Benefits for Parents with Special Needs Child (incharge.org)

Savings to Set Up for a Child or Grandchild (alleghenyfinancial.com)

Brookings_Cost-to-raise-a-child_inflation-adjusted-2.pdf

Costs of Autism Spectrum Disorders in the United Kingdom and the United States | Autism Spectrum Disorders | JAMA Pediatrics | JAMA Network

Supplemental Security Income (SSI) | SSA

The Importance of Life Insurance: It’s Not About You, It’s About Them. (alleghenyfinancial.com)

Author: Alexis Smathers | Allegheny Financial Group | October 2024

The information included herein was obtained from sources which we believe reliable.

Allegheny Financial Group is a Registered Investment Advisor. Securities are offered through Allegheny Investments, LTD, a registered Broker/Dealer. Member FINRA/SIPC.