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Financial Security for Special Needs Children

It's amazing how some people put off planning. What will happen if I die, and there is no one to take care of my adult child? - A concerned parent of a special needs young adult.

"What will happen to my child when I am gone or simply no longer able to provide care?" This question is asked by many parents of children with disabilities. While there is no single cookie-cutter answer, there are steps you can take to help assure the long-term financial security of a loved one with special needs.

Unfortunately, with no planning, the result could be a financial, medical and emotional hardship for your child. Any of the following could occur:

  • Your child could become a ward of the state. Assets he or she receives would then be administered by a court-appointed guardian.
  • Your child could lose Medicaid benefits. He or she could be reduced to poverty through Medicaid reclamation. The state could go back years and demand repayment for past benefits, taking all or a portion of your child's inheritance.
  • Your child could lose future Social Security benefits.
  • Your child could struggle to manage an inheritance he or she was not prepared to manage, possibly being targeted by unscrupulous "advisors."

Ten steps you can take to protect your child's financial security:

  1. Start now. Whether your loved one is four or forty, Stevens told newyorklife.com, you never know how long you will be here. Stevens added that of the more than 10 million persons with developmental disabilities in the U.S., fewer than 20% of their families have done any planning.
  2. Review your resources and situation. Who is available to help? Don't assume that a sibling will step in and assume what could be an overwhelming responsibility. Sometimes family members run from the situation, which could become a lifetime commitment. It is very important to figure out who your players are. Start by holding family meetings to discuss the situation.
  3. Don't put assets in the child's name. In many states, money in your child's name can disqualify him or her from future financial aid. It may also trigger a reclaiming of past benefits, especially by Medicaid. Imagine leaving your child $100,000, only to have it taken by the government! So, you should check with your advisor before making outright gifts, or naming your child a direct beneficiary in your will and life insurance. (Just as important, discourage helpful friends and family members from giving direct gifts, as well. While family members want to help a grandchild, nephew or niece, let them know that direct gifts - given with the best intentions - could do more harm than good.)
  4. Consider establishing an "Irrevocable Special Needs Trust." SNTs have become the planning tool of choice for many families of dependents with special needs. The SNT trust can accomplish several goals, says Stevens: "It keeps assets out of the child's name. It can provide for professional money management of assets. Finally, it provides funds for the care of the individual with special needs, without disqualifying him or her for government benefits."
  5. Select guardianship with care. If your loved one is capable of making many decisions, guardianship may unnecessarily restrict his or her freedom. Many people prefer using a power of attorney to manage financial affairs when feasible. Also, note that there are levels of guardianship in many states. Not only should the guardian be selected for a number of qualities - financial discretion, knowledge of your loved one's special needs, likes and dislikes, as well as a genuine interest in this person's future - but the type of guardianship should not be unnecessarily restrictive.
  6. Arrange funding. A Special Needs Trust by itself is of no value without money. Since assets cannot be removed from the trust except for the specific benefit of the beneficiary, it is a common practice to do minimum funding during the parent's lifetime. Life insurance can be purchased on the parent, with the trust named as beneficiary. The trust is also made the beneficiary of bequests in a will, annuities, and qualified plans. Finally, other family members and friends who want to help can put money into the trust.
  7. Draft detailed written instructions in a "Letter of Intent." Although this may be difficult to writer, it's important to make sure your child gets what he or she needs and desires. It should include general information and background about your loved one; instructions about his or her likes and dislikes regarding foods, TV shows, etc.; medical history; present and future housing arrangements; daily living skills; favorite leisure activities; rights and values you want to preserve; legal papers and their location; circle of friends and professionals, including dentist, barber, doctor, etc.; final arrangements; and whatever else will help caregivers and others enable your loved one.
  8. Don't forget other family members. One concerned parent with two children has a 24-year-old son with on the autism spectrum and a 26 year old adult son. Early on, he set up a savings program for both children. His older son used the funds for college and graduate school.. The disabled son's had gone into his trust. Just as important, you may want to prepare a will, to provide for your spouse and other children. This can be vital, especially since assets put into a Special Needs Trust cannot be removed, except for the specific benefit of the beneficiary individual.
  9. Be aware of differences in state laws. Medicaid, for instance, is a joint federal-state program. Guardianship laws and asset ownership rules to qualify for benefits in one state may be quite different across the border. (This is also why you need to do research before you set up a plan that would move your loved one from your home in New York to your son's in Florida.)
  10. Get professional advice. Many people will want to help, but few are actually qualified and experienced in this specialized field. Do your own homework, and find specialists with a record of working with families with special needs. According to parents interviewed for this article, "You can't afford to make a mistake. There is no such thing as cookie-cutter special needs planning. Each case is different, so find a specialist who knows his or her stuff." One parent said she turned to her NYL insurance agent to help her create a team of experts including lawyers and accountants to deal with the myriad of questions as well as the social and civic organizations that offer some assistance.

The bottom line: The planning process for a loved one with special needs can be demanding, time-consuming and frustrating. Still, the plans you make now can provide peace of mind for you, as well as your other family members. Most of all, they can help assure that your loved one with special needs will be financially taken care of when you are no longer able to do so.

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This material is being provided for informational purposes only. Neither New York Life nor its agents provide legal, tax or accounting advice. Please contact your own advisers for legal, tax and accounting advice.

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Financial Security for Special Needs Children

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