If you have a child or dependent with a disability or special needs, you’ve likely spent years advocating for them, providing support, and making decisions with their long-term well-being in mind. One of the most important aspects of that care is financial planning.
Special needs planning is more than just finances, it’s about guaranteeing that your loved one will continue to be cared for, supported, and protected even if you’re no longer able to do so yourself. Fortunately, there are financial tools and strategies that can help you create a strong foundation for that future.
Why Special Needs Planning Requires a Unique Approach
Traditional financial planning strategies don’t always apply when caring for someone with a disability. Government benefits like Supplemental Security Income (SSI) and Medicaid are essential for many families, but they come with strict income and asset limits. Even a modest inheritance or financial gift could disqualify your loved one from receiving those benefits unless it’s structured correctly.
Special needs planning takes those factors into account while also addressing long-term care, daily living expenses, and the desire for independence and quality of life.
Special Needs Trusts
A Special Needs Trust (SNT) is one of the most widely used tools in planning for the financial well-being of a person with special needs. It allows assets to be set aside to enhance the beneficiary’s quality of life – without impacting their eligibility for needs-based government programs.
There are two main types:
- First-Party SNT: Also known as a “self-settled trust,” is funded with the individual’s own assets, for example, from a legal settlement or inheritance.
- Third-Party SNT: Funded by family members or loved ones, typically as part of estate planning.
Funds held in an SNT can be used for a variety of supplemental expenses, such as therapy, education, personal care services, recreational activities, and transportation. Anything that isn’t traditionally covered by government benefits.
These trusts must be carefully drafted and administered, so working with an experienced professional can be essential.
ABLE Accounts
An Achieving a Better Life Experience (ABLE) account is another helpful tool designed to provide financial flexibility for individuals with disabilities. If your loved one was diagnosed with a qualifying disability before age 26, they may be eligible to open and maintain an ABLE account.
- Tax Advantages: Contributions grow tax-deferred, and qualified withdrawals are tax-free.
- Preservation of Benefits: Funds in an ABLE account (up to a certain limit) do not count against SSI or Medicaid resource thresholds.
- Versatility: ABLE account funds can be used for housing, education, healthcare, assistive technology, transportation, and other qualified disability-related expenses.
While there are annual contribution limits and some state-specific rules, ABLE accounts offer a valuable way to promote financial independence and supplement other planning tools like a Special Needs Trust.
Second-to-Die Life Insurance
Life insurance is a critical piece of any long-term plan, especially when considering how to provide for a loved one’s future care. A Second-to-Die Life Insurance Policy (also known as a survivorship policy) insures two lives, typically both parents, and pays a death benefit only after the second person passes away.
This type of policy is often used to fund a Special Needs Trust. It can offer a more cost-effective solution than two individual policies and ensures that a lump sum will be available to support your loved one when both caregivers are gone.
Additional Planning Considerations
Beyond trusts and financial accounts, there are other important steps to consider when planning for a loved one with special needs:
- Letter of Intent: A personal document that outlines your child’s daily routines, medical needs, preferences, and your vision for their future. It provides invaluable guidance for future caregivers.
- Guardianship & Legal Designations: It’s important to name guardians or conservators who will take over legal and care responsibilities if you’re no longer able. Legal documents such as powers of attorney and healthcare directives can also play a role.
- Ongoing Reviews: A special needs plan should evolve as your family’s needs change. Periodic reviews allow for everything to remain up to date and in alignment with current laws and benefit programs.
Creating a financial plan for a loved one with special needs may feel overwhelming at times, but you don’t have to figure it all out on your own. By taking a thoughtful, informed approach, you can build a plan that provides security, care, and peace of mind – for both you and your loved one.
