Financial Planning Considerations for Children with Disabilities
Having an exceptional child with disabilities can be a rich and fulfilling experience. Plenty of programs and opportunities exist today that can help provide the resources so individuals with disabilities may live a more enriching life.
Even so, the extra care and additional financial assistance that children with disabilities require are costly and will most likely increase over time. For those families with the means to contribute to the care of their loved one, it’s important to recognize that planning financially for them takes a greater deal of consideration. Many times, families are unaware that with proper planning, they can combine the use of public benefits with the family’s resources.
6 disability planning mistakes to avoid
Understanding these common financial planning mistakes can help you prevent unintentional missteps that could affect the long-term welfare of your child.
1. Failing to plan as early as possible
Financial planning helps you and your family become empowered to take full control of the decisions you make now and in the future on behalf of, and for the benefit of, your loved one. As the parent, you provide an unmatchable standard of care. What would that care look like if you were no longer here or became incapacitated? Would you be okay leaving the decisions to the court system if no one else could take care of them? How about the planning implications that come with your child reaching milestones ages in their life? Are you aware of what those milestones could mean both financially and legally?
Here are some additional important documents that you should be mindful of:
Letter of intent: Although this is not a legally binding document, this document provides invaluable information about your loved one to his or her future caregivers. This can be as detailed as you would like it to be. It can include things like general family information, important relationships to your loved one, medical history and care, living arrangements in terms of past experiences and future intent, leisure and recreational activities that your loved one enjoys and does not enjoy, education and employment objectives, and anything else you consider important to know.
Power of attorney vs. guardianship: If your child has sufficient capacity to enter into a power of attorney, this document can still allow you to continue making financial and health decisions on behalf of your child once they reach adulthood.
Guardianship, on the other hand, is a legal process whereby a parent or a family member can petition the court to grant them legal authority to continue making decisions on behalf of their adult child if they are unable of doing so themselves.
Supplemental Special Needs Trust: This is a specialized type of trust structure that will allow for additional financial resources to assist individuals with disabilities who receive, or might receive, public benefits.
2. Overlooking the effect of various sources of income
Different types of income and resources can affect the eligibility of disability benefits for your loved one. Income sources can include earned income, structured settlements, child support, gifts and many others. Note that these mainly affect resource-dependent public benefits — such as Supplemental Security Income (SSI), Medicaid and waiver programs — and not non-resource dependent benefits, which include Social Security Disability Insurance (SSDI) and Medicare. Understanding the limits and determining what possibilities your loved one has to qualify for both types of benefits could make a significant difference financially for them and your family as a whole.
3. Not understanding the impact of creating accounts directly for the benefit of the child
Custodial accounts in your child’s name such UGMAs/UTMAs, educational accounts such as 529 plans, and any other type of account that could signify your child taking ownership at some point can impact your child’s eligibility for disability benefits as an adult. Proper planning addresses the types of accounts and estate planning strategies that can better provide additional resources to your loved ones.
4. Being unaware of the significance of your child becoming an adult
All parents can agree that certain ages in their children’s lives mark major milestones. For parents of exceptional children, these milestones are even more meaningful when it comes to the planning needs that come with them. These can include lifestyle adjustments, legal matters and financial changes. Reaching the age of majority is one of these major milestones.
The age of majority in many states is 18. Typically, when a person reaches this age, the law deems that person to be competent regardless of his or her intellectual capacity and ability to make decisions. Parents will need legal permission to continue making decisions on their children’s behalf, as needed. We recommend that parents seek legal counsel to determine what option would be in the best interest of their child given their type of disability.
5. Assuming that if your loved one was ineligible for disability benefits as a child, they will continue to be ineligible as an adult
A common planning assumption families make is that if their child is deemed ineligible for benefits in their youth, they will continue to be ineligible for benefits as an adult. Many times, this is not the case. Once the child reaches age of majority, different rules apply. Resource-dependent public benefits take into account the parents’ assets and income when their child is still a minor. Upon adulthood, it is the child’s resources, income and living arrangements that will ultimately determine their eligibility.
6. Disrupting your loved one’s public benefit program eligibility
Understanding how public benefit programs work in conjunction with financial support from the family is very important. Circumstances often vary based on the nature of a person’s specific circumstances and the state or county in which they reside. A well-structured financial and estate plan will help ensure a desired standard of living for your loved one without having to disrupt any benefits they are entitled to receive.
As you contemplate your child’s disability needs today and tomorrow, know that financial planning options exist. Working with professionals experienced with disabilities can mean the difference between jeopardizing and optimizing benefits for your loved one. Look for advisors with designations such as the Chartered Special Needs Consultant® (ChSNC®) who have specialized training in this area.
Although starting the process may seem overwhelming, partnering with a qualified financial advisor will help you feel better by knowing that your loved one will maintain the quality lifestyle and care that you have worked so hard to provide throughout their lifetime.