One in 150 8-year-old children in the United States has been diagnosed with autism, according to the U.S. Center for Disease Control. Furthermore, the National Down Syndrome Society reports that one child in every 733 is born with Down Syndrome.
These kids are among the 2.3 million children, and among the total 17 million people in the U.S., with a mental or debilitating physical disability, according to the U.S. Census Bureau. That means millions of families–perhaps some of whom are your clients–face unique circumstances requiring special financial planning.
The biggest challenge from a planning perspective is that many children who have mental or severe physical disabilities require special care throughout their lives, long after parents and guardians have either passed away or are unable to provide the care themselves. But many families simply do not know where to turn for help.
As a financial professional, you are well positioned to help these families by educating them about their financial options and how they can help ensure their special needs children receive the care they deserve for the rest of their lives. It is a noble calling, one that you can prepare for with education and effort.
Securing government benefits
To start, one of the biggest concerns that parents and others who care for children and others with special needs may have is ensuring that the individual is eligible and remains eligible for government benefits, such as Social Security and Medicaid. These benefits often form the core of support for individuals with special needs, providing basic necessities such as food and shelter, medical care and other necessities.
The special needs child or individual who enjoys those benefits should not receive direct gifts or bequests. Such gifts, often made by well-meaning parents, grandparents and others, can disqualify the recipient from government benefits that have asset limits for eligibility.
The government programs that typically provide support for people with special needs are Social Security's Supplemental Security Income (SSI) and Medicaid Title XIX for both outpatient and inpatient health care. To qualify for these programs, a disabled person typically must have no more than $2,000 in assets, and have little or no income. Asset and income levels vary for state sponsored programs.
Needless to say, the receipt of a significant gift can actually leave the child worse off financially than he or she was before receiving the gift. A common occurrence is a parent naming the child as beneficiary of a retirement plan, annuity or life insurance policy. Clients should refrain from doing so as that can have the same effect as passing on personal assets through a will.
Some families have tried to work around this problem by directing an inheritance for a special needs child to another family member or sibling. The idea is that the other family member will administer the assets for the benefit of the special needs child. However, this approach often has problems of its own. For instance, what happens if the family member charged with managing assets for a special needs child predeceases the child? Moreover, any bankruptcy filing or litigation could subject those assets to creditor's claims.
The special needs trust
One of the most effective and popular solutions to special needs planning issues is the establishment of a special needs trust. Special needs trusts are separate legal entities that hold and distribute assets for beneficiaries who have special needs in a manner that protects the disabled child's eligibility for government-provided food, clothing and shelter benefits. The special needs trust should not duplicate these benefits or be drafted as the primary source of support for the disabled. Rather, it should provide for supplemental assistance for needs not already covered by government programs.
