Financial Planning for Families with Special Needs
The reality of supporting a child with special needs is that care, support, and education over the course of the child’s lifetime are expensive. While the government will assist families with the basic level of service to the child, parents who want a higher level of care often have to pay out of pocket for related expenses. For this reason, parents of special needs children should consider developing a financial plan to support their child throughout their lives.
While many are familiar with financial planning for retirement or college expenses, financial planning for special needs care is far more complicated. The expense of care over a lifetime can be hard to estimate and even once a financial plan is created, it should be revisited regularly to take into consideration unforeseen expenses or changes in regulations affecting benefits for people with special needs. A properly managed financial plan is necessary for parents to support their child all the way through to adulthood. Parents can use a variety of strategies as part of their special needs care plan including Special Needs Trusts and high coverage life insurance policies.
Equally important to the financial vehicles used for saving are managing the costs of education and care for individuals with special needs. High quality, private schools specializing in the education of children and adults with special needs often come with high annual tuitions. Some can exceed $100,000 per year based on the level of care required. Even for care and education well below those levels, expenses add up quickly and can be overwhelming for families that do not spend time regularly evaluating their financial plan. With so many unknowns surrounding the care of a child with special needs, a robust financial plan will alleviate much of the stress on families as they plan for their future.
Planning for Your Future: ABLE Accounts and Special Needs Trusts
One of the biggest stressors for aging parents of adult children with special needs is planning for the future. Parents have to consider the best way to support their child during and beyond their lifetime. Situations like this are complex and require parents to juggle many unknowns such as the level of government assistance they can depend on, their own level of retirement savings, and the best financial products to support their adult child with special needs.
For families that reach this stage in their life, it helps to start creating a plan as early as possible. Families should develop a trusted relationship with a knowledgeable financial professional to assist them in planning for the future. A good financial planner will be able to structure various financial products so that savings can be moved between accounts without risking the loss of government assistance or finding themselves with a significant tax burden. For example, families can establish both an ABLE account and a Special Needs Trust (SNT) to be used in conjunction to pay for living costs, healthcare services, transportations, etc for a person with special needs. An ABLE account allows individuals with special needs to save up to $100,000 without risking disqualification of government assistance programs. Parents can fund ABLE accounts using contributions from a SNT, which is not restricted by a cap on holdings.
Parents with significant holdings in retirement accounts, like a Roth IRA, may also use their savings to fund a SNT that will offer better legal protection of their assets after they have passed. For parents that have Roth IRAs, at the age of fifty nine and a half, they can withdraw from their accounts tax free and use these funds to pay for expenses associated with the care of their adult child with special needs. With all the options available to parents of adult children with special needs, it is highly recommended they reach out to a financial professional that can help navigate their choices and create a robust plan for the future.
Hope Trust serves clients throughout the United States.