It’s natural to worry about your children’s future, but when you have a special needs child, those worries can be so much bigger. Questions like, “how will I provide for my child if they cannot work?” have a host of financial issues associated with them. While the financial challenges may seem overwhelming, they can be overcome with careful advance planning. Here are some important planning steps you can take so you’ll have peace of mind down the road.
Qualifying for government benefits
Depending on the state you live in, there are a variety of benefit programs designed to help children with disabilities. Many families depend on federal Supplemental Security Income (SSI) benefits. SSI provides a basic income to children with medical conditions that meet Social Security’s definition of disability. However, the child’s income and resources must fall within the eligibility limits. For families depending on SSI income, putting aside money to provide for the child’s future needs is challenging because it can disqualify them from SSI’s resource limits.
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To avoid this, you can save money in an ABLE account. ABLE (Achieving a Better Life Experience), is a tax-advantaged savings account for individuals with disabilities. Contributions to an ABLE account are shielded from the countable resources limit. What’s more, after-tax contributions to these accounts can grow tax-deferred, and if withdrawals are used for qualified disability expenses (such as rent, food, transportation, education, health care, and personal support services), any earnings on those distributions will be federal income tax-free.
Planning for the long term
A question to think about is, “What happens when my child’s primary caregivers are no longer able to provide care? Looking that far down the road can be difficult when you’re just trying to make it through each day. However, setting up for the future can prevent mistakes later that could negatively impact benefits and cause problems for your child.
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It’s important to have a legal plan in place for when you or the other primary caregivers dies. The basic elements of the plan are a will that names a guardian for your child and a living trust to govern the distribution of your assets. An additional element of this plan is to establish a special needs trust. Special needs trusts are designed to leave money for a dependent with special needs without that money disqualifying them from government benefits. The trust appoints a trustee who can use the money to pay for certain items and services not covered by the dependent’s monthly SSI income benefit. If your child has reached adulthood, it’s also important to have a healthcare directive and power of attorney naming you as their agent for medical and financial decisions. This allows you to step in and act for them when it’s needed.
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Getting personalized advice
Building a successful financial plan can be especially challenging if you have a child with special needs. In addition to achieving financial independence for yourself, you have the extra factor of providing for your special needs child over the long term. A professional financial planner can really help here, by assessing your situation and collaborating with you to implement a detailed strategy.
As fiduciary financial advisors in Southern California, we’re here to help you design the right strategies, implement your plan, and stay on track. With a smart plan and a diligent approach, you can be prepared for life’s twists and turns.
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