"The concern is, what will happen to your child when you are gone?" shares Michael, the father of a 23-year-old son with CHARGE syndrome. "You begin to think about how your child with special needs will likely need more money for their care and well-being long term than your other children, as they won't have the earnings potential of your other kids."
In addition, "you want to ensure they are taken care of so that they can lead full and happy lives when you're gone, and so that their long-term care is not a financial burden on their siblings that will eventually care for them," he adds.
"The concern is not only who will care for your child, but will they be able to handle the financial and personal responsibility of an adult who will not be able to live independently? This can lead to some tough discussions with siblings."
Expert advice, dos and don'ts
Aaron Terry is a trust and fiduciary specialist and vice president with Wells Fargo Private Bank. He shares some basics of financial planning for a child with special needs.
- Don’t just leave your child a large inheritance. A special needs trust ensures your child will remain eligible for government benefits. Because of laws in place today, individuals with special needs may become ineligible for those benefits if their income or financial resources exceed a certain amount.
- Do see a specialist. Terry says people often assume their estate planning attorney can manage a special needs trust. While some are well versed, the reality is that while anyone can create one, specialists dedicate their careers to monitoring constantly changing regulations.
- Do have your estate planning attorney work with your special needs trust specialist to ensure all assets — such as life insurance or retirement benefits — are coordinated. Terry says it’s critical to craft life insurance policies that will serve your family’s needs in case something happens to both spouses. A "second to die" life insurance policy only kicks in upon the second spouse’s death. Terry says it’s become more common for families who have a child with special needs to leverage this policy.
- Do put things down in writing, in case something happens to both parents. "If something were to happen to both of you… and a guardian or trustee were to step in, write down all the things you think are important for that guardian or trustee to know" about your child with special needs, Terry says. For example, if your child has a fear of heights, you would want to advise the guardian to make sure future living arrangements are on the first floor. “I always recommend that [parents] do that in addition to their estate planning,” Terry says. “It’s not something you really want to talk about, but it’s important.”
Most common mistakes?
Terry says the most common mistake he sees is when a couple hasn’t developed a comprehensive plan. "Not getting the right documents in place and not having the trust set up properly to pay attention to other assets, like life insurance and retirement benefits," he shares. "Anyone can draft a special needs trust, but if you don’t understand the different laws, you can really mess it up."
According to Bill Frazier, senior vice president of the Special Needs Trust Group for SunTrust Bank, there are two common mistakes that parents make when planning for the financial future of their child with special needs. Frazier says, "Families often don't research and understand the full array of techniques available when planning for loved ones with disabilities, which can result in poor planning." He also says that parents typically don't realize the number of people who should be involved in the planning process.
According to Frazier, "Parents should seek out and discuss their circumstances with several professionals so that they can work together to form a plan with the best likelihood of achieving their goals."
He suggests that these professionals include:
- A financial planner to address the needs of the entire family — including retirement planning for the parents — and how to reach the target amount necessary to care for the child in the future
- A “Life Care Planner” who can help the family understand how much that target amount needs to be
- An insurance specialist to provide options on meeting the shortfall between that amount and the savings capability of the parents
- An attorney with expertise in elder care and special needs planning
- And if the family is utilizing a special needs trust, a trustee that is well-versed in administering this type of trust
Not wealthy? Not a problem
Don’t think you have to be wealthy to establish an effective trust. In fact, if something happens to a parent, often life insurance will go into effect and fund a trust.
"Whether it’s a trust for $1 million or $250,000, it’s worth having the documents done," Terry says, "to make sure the individual who has the special needs trust is protected from predators and their government benefits are protected."
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