With thoughtful planning, you can help ensure the future care of a loved one with a disability.
To live a full, secure and happy life – it’s what all parents want for their kids, including those with children who have disabilities. The difference is that families caring for a child with special needs often require additional planning to color in the details and make that dream a reality.
If you're the parent or relative of someone with special needs, you've probably wondered what you can do to make sure your loved one is taken care of no matter what.
Here are a few financial strategies and planning steps to consider.
The Achieving a Better Life Experience (ABLE) Act of 2014 created the federal framework that allows parents to fund long-term care for a disabled child in a tax-free savings account, similar to a 529 education account, for the life of the child.
The funds are held in a way that preserves eligibility for Supplemental Security Income (SSI), in which recipients must have less than $2,000 in assets, as well as for potential Medicaid assistance. You may already be aware, but these types of means-tested benefits come with tricky rules for eligibility. That's why it's important to consult a financial professional before gifting assets to a person who relies on government benefits.
While the ABLE Act was passed at the federal level, it is up to individual states to pass their own ABLE bills. If a state does not offer its own program, it may choose to contract with another state to offer its eligible residents the opportunity to open ABLE accounts. Consumers may select a plan sponsored by any state, making it possible for people to select a plan that is best suited to their needs.
Check the ABLE National Resource Center to review which states have passed ABLE legislation and have products available.
Special needs trusts are a commonly used estate planning tool, and they’re structured so the beneficiary doesn't own the assets directly, allowing continued eligibility for need-based government benefits like Medicaid and SSI. The trust can be funded with just about any type of asset, including securities, real estate and cash. Some parents leave the trust empty until funded by the proceeds of their life insurance policy, while others use it right away to set aside money for their child.
Most parents use these trusts because they feel government benefits aren't enough to give their child an adequate standard of living – in 2021, the basic monthly SSI benefit is $794 for an individual, meant to cover food and shelter. But they realize these same benefits allow their child access to valuable educational classes and outreach services that require Medicaid eligibility.
Another reason for a trust: There's no guarantee that government benefits will continue or be able to provide their loved one with a safe, comfortable lifestyle. With a trust and benefits, there are at least two sources of income and more security for a person who may not have a way to earn a living.
Trust funds are designed to supplement, not replace, government benefits. If funds from the special needs trust are used to pay for the beneficiary's food or shelter or if a beneficiary receives cash outright, that could trigger a reduction or loss of benefits. That’s why funds are best used to pay for goods and services that Medicaid doesn't cover (e.g., an accessible van, dental treatment or special therapies), for travel and cultural experiences, or anything else that would add to your child's quality of life. Any remaining funds can be used as an inheritance for another family member.
Administering special needs trusts can be complex, so choosing the right trustee is crucial. This person will be given absolute control over the distribution of trust assets, so they must be mindful of the beneficiary's disabilities, be assertive about claiming entitlements and invest the trust funds wisely. On top of all this, the trustee also must keep up with any laws regarding trusts and public benefits.
It's a lot to ask of a family member, and with so much at stake, many families choose to appoint a professional as sole trustee or co-trustee. Another option is to have a financial professional work with family members in a trust advisory committee that has the power to recommend distributions to the trustee or replace the trustee if needed. Keep in mind that trustees commonly receive a fee for serving, as allowed by state law.
Choosing a successor guardian is a crucial but often difficult task for parents. If full guardianship is needed, you’re essentially asking someone to fill your shoes, taking care of all social, emotional, physical, educational and medical needs for your loved one when you no longer can. Be sure to choose a trustworthy adult who has only your child's best interests at heart.
Once you've chosen a guardian, detail your preferences and instructions through an official will, though a court must still confirm the appointment. Parents should also name a backup guardian, just in case.
You'll then want to determine living arrangements. Do you want your child to remain in the home and have the guardian move in? Or would your child move into the guardian's home? There are also group homes, apartments, planned residential communities and healthcare facilities for those who need more involved care. You'll want to explore these options well before they're needed.
Keep in mind that changes in tax laws or regulations may occur at any time and could substantially impact your plans. That's why it's best to discuss any tax or legal matters with the appropriate professional.
For most parents of a disabled child, ensuring total care of their loved one is their life's work, perhaps becoming even more important when they're no longer able to provide the care themselves. Working with a financial advisor and other professionals on the bigger financial picture can provide a sense of ease, knowing you've done all you can to protect and provide for someone you love. It just takes some extra planning to bring a colorful vision of a special needs future to life.
Raymond James & Associates, Inc., and Raymond James Financial Services, Inc., are affiliated with Raymond James Trust, N.A. Audio recorded 3/25/21.