Financial Planning for Your Special Needs Child

Posted on Thursday, August 6th, 2009 at 8:00 pm in Financial Planning

For most of us, financial planning for the future means putting away money for retirement, our children’s education and perhaps a life insurance policy so that our families are taken care of in case we die. If you have a child with special needs, financial planning takes on a whole new dimension, however.

You need to plan very carefully for your disabled child’s financial future, both in case of your own death and for their everyday needs while you’re still around. The way you go about setting up financial provisions for a special needs child has a direct impact on their ability to receive government benefits and services, so make sure you read these points and then seek expert help:

Get the right advice: Not all financial planners and advisors or attorneys have experience with special needs children and the regulations that govern their financial circumstances. Make sure you’re dealing with someone who has handled plenty of situations like yours, since the wrong advice can prove expensive.

Draw up a will: If you die without making a will, your estate will be divided up among your beneficiaries, which can include your disabled child. With as little as $2,000 in assets of their own, children and adults with special needs risk becoming ineligible for Medicaid, Supplemental Security Income and other government benefits and services. It’s therefore best to leave the money to a special-needs trust that administers the child’s assets.

Set up a special-needs trust: The trust will manage the child’s assets, even after they grow into adulthood. This way, you can leave money in your will to the trust – and fund it in other ways too – without jeopardizing your special-needs child’s government benefits or having to worry about taxes. You need an experienced attorney who specializes in this field to establish the trust, as it can get quite complicated. The Academy of Special Needs Planners can help you find qualified professionals in your area.

Choose a guardian and/or trustee: A trustee needs to be someone who is good with finances and can handle tax returns and investments, or delegate these matters to an expert. It may or may not be appropriate to pick a relative as a trustee – this can also be an attorney or other competent professional, although you will have to pay for the service.

A guardian, who will look after the child’s personal interests if you’re unable to, should be a person who knows the child and has a good relationship with them. In many cases, a family member or close friend is the most suitable for this task.

Decide how the trust will be funded: It is common for the proceeds of a life insurance policy to form the basic funding for a special-needs trust. As mentioned above, you can also leave money in your will to the trust rather than directly to the child. The funds in the trust should be invested quite conservatively to avoid any loss of principal while ensuring growth at least in line with inflation.

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