A family close to my heart recently experienced the loss of their second parent. The family includes an adult child with special needs. A family with a special needs child, even an adult child, faces unique challenges, so they need strategies that can help meet their family needs. I hope to share some useful information in this week’s column for such familes.
Planning for the future can be overwhelming, but creating a care plan is one place to start for a family dealing with a member who has a special need or disability. Your loved one might qualify for local or federal benefits and you might be able to save for their needs in a tax-advantaged ABLE account.
When you have a family member with special needs, you think about so many things all at once that future planning often gets shunted aside in favor of getting through today. But most of the challenges you face are not temporary. So when you are ready, you might consider thinking through the whole life cycle of help that is ahead of you.
A good test for when you need to do advanced financial planning for an individual with special needs is if you anticipate them needing assistance caring for themselves through adulthood. When you determine the severity of the need, you can then figure out what level of local and federal benefits are involved. For long-term planning, many familes consider a trust for an individual with special needs or a disability.
It can be hard for families to look far down the road and think about what happens when primary caregivers are no longer able to care for their loved one, but setting up for the future can prevent mistakes later on that could negatively impact benefits and cause conflict.
For instance, it may not be a good idea to list a person with special needs as the beneficiary on a parent’s financial and retirement accounts. If the assets go to the child, that could interfere with their ability to receive Social Security income for disability benefits.
There are several types of trusts that many families establish for the benefit of individuals with special needs. One of the most common is a third-party special needs trust, which is created by someone who wants to leave money for a dependent with special needs but doesn’t want that person to lose out on government benefits. The trust can be established by a Will or created during the benefactor’s lifetime. The creators of the trust appoint a trustee who has discretion over when and how funds are distributed. The trustee cannot distribute money directly to the dependent, but they can pay for certain items and services not covered by the dependent’s monthly Supplemental Security Income (SSI) for disability. Upon the death of the dependent, whatever assets are left in the trust can be distributed according to the creator’s wishes as specified in the terms of the trust.
All estate plans need to evolve over time to keep pace with changes in people’s lives and financial situations. Each of these types of trusts come with their own benefits and limitations. Whether a special needs trust is an appropriate solution and, if so, which type is best suited for your particular situation and that of your loved one, is best discussed with an experienced attorney. And no matter which type you choose, try to build some flexibility into your plan. To make sure your plan stays current, review it every 3 to 5 years, or whenever your life or your family changes in a major way. That way you can be confident that your loved ones will be cared for when you’re no longer here to look after them financially.