Financial Planning for Special-Needs Children Needs to Start Early

According to a study released in December by the U.S. Centers for Disease Control, an average of one in 110 children have autism spectrum disorder -- a range of conditions that could lead to problems with socialization, communication and behavior. For parents affected by these conditions or other physical, emotional or developmental disabilities in their children, financial planning should be part of the response.



Why? Because like other financial goals, planning properly for the future of a special needs child requires money, skill, time and foresight. In addition to the medical, educational or therapeutic expertise necessary to help the child lead as normal a life as possible, parents need help planning their finances to assure there are resources to support the child as long as such resources will be necessary. In some cases, that will be long after the parents are gone.


Because parents of special needs children have so many other issues to consider, it’s good to bring in trained expertise, including financial, legal, tax and estate help. A financial planner is a good first step.


Many parents have trouble grasping the necessity of a plan. According to a 2005 MetLife study, 60 percent of parents don't expect their child with special needs to be financially independent. Yet 68 percent said they hadn’t written a will, and 29 percent had done nothing to plan for the child's financial future. The report says that most parents are aware of the need to make plans, but they don’t know where to turn. As a first step, the study showed that 85 percent turned to their doctor for financial advice.


There are planners who specialize in special needs issues for family members of all ages. PlannerSearch, a service provided by the Financial Planning Association®, can help sort planners by expertise and location. Here are some common financial planning activities that parents of special needs kids should explore:


Revise – or make – an estate plan: Most individuals think of an estate plan as a safety net for when they die at a very old age. In fact, everyone should make an estate plan as if they expected to die tomorrow. This is particularly important for parents of special needs children. With special needs cases, an estate plan needs to be specifically tailored to make sure that assets are properly disbursed for the specialized care of their kids after they die. The first step of the process is making a will with specific directives for the child as well as yourself if you are incapacitated and can’t make decisions for the child.


Start thinking about the child’s assets: A child can have no more than $2,000 in total assets to qualify for federal benefits, so special planning is necessary. It’s particularly important to make sure that the child not be named a direct beneficiary of any assets that would put him or her over the $2,000 figure at any point in time, so it’s important that proceeds from life insurance, IRAs, annuities, 401(k)s, 403(b)s and any other inherited assets be placed in something called a Special Needs Trust. These trusts can be set up to accumulate, manage and disburse monies for any child with a disability. (There are also Community Trusts that are set up by various nonprofit institutions that perform the same function.) The trust itself can be made the beneficiary of any inherited assets and with very few limitations won’t affect the child’s eligibility for government benefits. Parents also need to consider whether or not to go through the guardianship/conservatorship process to take legal/financial control of their children’s lives. In the case of a minor child, generally guardianship or conservatorship will terminate when the child turns 18 or, in some states, upon marriage if the child marries before age 18. Then, obviously, parents need to decide whether a disabled child needs a trustee other protections to carry him through adulthood and their death.


Establishing a financial and retirement plan: Even though one or both parents undergo a massive lifestyle change to support their disabled child – a responsibility not unlike a second career – they can’t forget planning for retirement and healthcare needs in their old age. As difficult as it sounds to make parents’ lifestyle needs a priority, it’s essential.


June 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

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