Financial Planning for Kids With Disabilities

All parents worry about their children’s future, but when your child has disabilities or special health care needs, it’s normal to have additional concerns. Things like:

• What kind of life will my child want to live, and where?
• If my child can’t work, how can I make sure expenses (like rent and transportation) are covered?
• How do I set aside money for my child’s future without affecting government benefits?

Questions like these might keep you up at night. But financial planners say that creating a plan can ease anxiety. Here are 10 steps to planning your child's financial future. Some are simple, some are challenging; some cost nothing and some require paying legal fees. Get started on some of these now, so you'll have peace of mind down the road.

1. Create a Special Needs Trust

A special needs trust is an important part of your child's long-term financial plan. This is where you can put money that you save, that others give to your child as gifts, and that you receive from any insurance settlements. This trust is secure and won’t interfere with your child's eligibility for federal benefits like Medicaid and Supplemental Security Income (SSI).

Even if you're unable to pay into a trust right now, you can set one up anyway. This way, you can make the trust the beneficiary of your life insurance policy and your estate, ensuring that those assets don't get passed to your child when you die. Why wouldn't you want your child to be the beneficiary of your estate? Because showing more than $2,000 in assets could make your child ineligible for federal benefits such as SSI.

Another option for planning for your child’s financial future is to establish an ABLE account. The Achieving a Better Life Experience (ABLE) Act of 2014 allows states to create a tax-advantaged savings program for people with disabilities to pay for qualified disability expenses tax-free. With an ABLE account, you can save up to $15,000 a year for your child, and the money grows in the account tax-free.

2. Write a Will

A will specifies what will be done with your assets after your death. By writing a will, you make sure that your assets are left to the special needs trust and not to your child. Without a will, a probate court judge could name your child as a beneficiary, which could make your child ineligible for federal benefits (see above). The will is also where you can specify a guardian who will take care of your child.

When you have a child with a disability, a will should not be a do-it-yourself endeavor. Hire a lawyer who works specifically for people with disabilities and is aware of your state's disability laws. Once the documents are drafted, have your lawyer keep one and then give copies to any executors or guardians named in the will. Contact the Academy of Special Needs Planners or the Special Needs Alliance for a referral to an attorney in your state.

3. Name a Guardian

A guardian is the person who will care for your child if you die before your child reaches adulthood. In choosing this person, consider how much time you now spend tending to your child's needs. Who can handle that type of commitment? Who has bonded with your child? Who has the patience, understanding, and other personality traits necessary to deal with the day-to-day responsibilities of raising your child?

Once you pick someone, ask if the person will accept that responsibility (even though you hope it will never be necessary). And talk about how this commitment will likely stretch beyond when your child turns 18.

4. Name a Trustee

A trustee is the person who will be responsible for managing the special needs trust after your death. It can be a family member, a friend, an independent professional trustee, or even a bank or lawyer. The trustee ensures that the money in the trust is spent only on your child with a disability and only on services that you've specified or that are appropriate to your child's needs. The trustee also supervises how the money in the trust is invested. The person who is caring for your son or daughter (the guardian) cannot spend any money in the trust without the trustee's approval.

And a word on trustees and guardians: They often are not the same person, and some financial advisors recommend that they never be the same person. By separating these roles, you ensure a "checks and balances" system for your child's future needs.

5. Build Your Savings

Parents of children with disabilities quickly learn that just because a child needs a certain treatment or therapy doesn't mean that your school system will offer it or insurance will cover it. This is where personal savings become so important. Start putting aside whatever you can each month — no amount is too small — to cover these extra expenses. Just make sure you never put this money in your child's name.

Savings also can help pay for things like a special needs advocate. This is an expert in special education who can help you navigate the paperwork, programs, and laws that affect what services your child qualifies for. As a first step, it is best to contact your state’s special education advocacy organization, such as your local Family Voices chapter. If you need help outside of what can be offered by these organizations, consider hiring a special needs advocate. Special needs advocates save parents money in the long run by helping ensure that kids get all the services they're entitled to from their local school district.

To find an advocate in your area, ask for a referral from other parents of kids with special health care needs or call your local school district. You can also reach out to organizations that focus on your child's disability or local colleges with disability programs.

6. Write a Letter of Intent

Preparing for your child's financial future is important. But so is making sure that your child's everyday needs will be met should anything happen to you. That's where a Letter of Intent comes in. Is your child's daily routine very important? Write it down and be as detailed as possible. The same goes for your child's daily, weekly, and monthly schedules. Also include things that your child likes and dislikes, and helpful resources in the community.

Create a list of contact information for your child's physicians, therapists, and other medical support people as well as current medicines and their dosages and schedules. Are there people you don't want around your child or activities to be avoided? Write that down too.

And then once a year, update the letter. This is not a formal legal document, so you can draft it yourself. Keep a copy wherever you have copies of your will. And make sure that your child's appointed guardian has a copy too.

7. Plan for Your Child's Independence

When your child is about 14, start thinking about where they will live as an adult. For your child to qualify for a group home placement as an adult, registration is needed with your state’s developmental disabilities agency. And because the wait for group home placement can be up to 10 years, the sooner you register, the better.

In most states, people with disabilities are 21 or 22 years old when they become ineligible for education services through the local public school system. After high school, kids may attend college or vocational school, get a job, or do volunteer work. Many communities have young-adult education programs that teach life skills, such as such as cooking, cleaning, job training, and financial literacy. To learn what programs are available in your area, talk to your school guidance counselor or local Office of Vocational Rehabilitation.

8. Apply for Guardianship or Power of Attorney

When children turn 18, they're legal adults. This gives your child the right to make medical and financial decisions. If your child is not able to, consider assuming legal guardianship. This lets you maintain the same supervision and decision-making abilities you had when your child was younger.

If your child can make some decisions but still needs your guidance, consider power of attorney and health care proxy for financial, legal, and health care affairs.

It’s best to hire an attorney to help with this process. This will ensure that you have all the powers you would need to assume control of your adult child's health care in the event of an emergency. If your child cannot or won't consent to you assuming power of attorney, the matter will likely be decided before a probate court judge.

9. Educate Family Members

Grandparents, aunts, uncles, and other loved ones might want to help out with expenses. But explain to them the importance of not putting anything in your child's name. Have a family meeting and explain why grandpa can't leave anything to your child in his will or name your child beneficiary on his life insurance policy. The same goes for gifts of savings bonds, stocks, or cash: nothing should ever be in your child's name.

If loved ones want to leave something to your child, they can. But tell them to name the special needs trust as the beneficiary to ensure that your child holds no assets of their own, or encourage your family member to give to the child’s ABLE account.

And if your son or daughter will not attend college, there is no need for a 529 savings plan. Those funds can only be used for post-secondary education, not private schools, tutoring, or therapies needed before age 18.

10. Need Help? Find an Advisor

If all of this is too overwhelming, a certified financial planner or special needs financial planner can help. Ask your human resources department if your company offers this service as part of your benefits package. Or check with the Academy of Special Needs Planners or Special Needs Alliance for a referral to a professional in your area.