Planning for a child with special needs carries a range of complexities. Providing for their financial needs is no different. It requires the resources to fund necessary education, healthcare and housing needs and careful coordination with social assistance programs. And many are likely to continue needing support for life – after you, the primary caregiver, pass away.
So how can you make sure your child is provided for both while you’re here and after you’ve passed? And how can you make sure that your wealth and support doesn’t interfere with any available social programs?
We collaborated with Josh Brothers, an attorney at Brothers & Henderson and an expert in special needs planning, to bring you these tips. There is no single best strategy – your situation needs a customized approach, but these strategies should help make an informed decision for your child and family.
Provide for them now
You might feel that you’re unlikely to qualify for public social programs due to your income or wealth level. However, that’s not necessarily the case – let’s unpack this:
Government assistance programs may be available to your child.
- Supplemental Security Income (SSI) pays a monthly benefit of $794 for a child with qualifying disabilities. SSI also leads to automatic Medicaid eligibility in Washington State.
- Medicaid may provide additional support if your child qualifies financially. Your child may have a vehicle, a home they live in (with equity of less than $500,000), and less than $2,000 in cash or cash equivalents. An adult child’s income must also be limited. Your income and assets will be “deemed” to your child while they are a minor for many of these programs.
ABLE 529 Plans are tax advantaged investment plans for eligible people with disabilities.
- You may contribute up to the gift tax limit each year – $18,000 for 2024.
- Invested funds grow tax free and may be withdrawn tax free for qualified disability expenses including, but not limited to, education, housing, transportation, employment, training and support, assistive technologies and related services, personal support services, or health and basic living expenses.
- ABLE accounts up to $100,000 do not impact their SSI eligibility.
- Attention Grandparents! Consider funding and ABLE account for qualifying grandchildren rather than giving directly to them.
Developmental Disabilities Administration (DDA) may give assistance if your child has a qualifying developmental disability. DDA provides Washington residents with benefits like respite care and other programs to allow a person to remain with their family or in the community. Some of these programs have financial eligibility criteria, while others do not.
Housing Choice (Section 8) Vouchers and subsidized housing can provide rental and housing assistance for your child as they move into adulthood. These programs subsidize rent with qualifying landlords, prioritize individuals with disabilities, and are based on income.
Providing for them when you pass
No one will advocate for your child’s wellbeing better than you, but what about when you are gone? Many children have special needs that require some level care throughout their lifetime making it crucial to have proper planning in place.
Start with a will that lines up guardians you trust as your child’s advocates to help direct care and financial decisions after you pass.
Set up a Special Needs Trust (SNT). This trust is funded for the benefit of your child when you pass away.
- Funds held inside these trusts do not affect eligibility for SSI and Medicaid.
- Eligibility can be affected by usage of these funds, so trustees will need to know these rules.
- Contributions can come from parents and grandparents.
- Funds can be invested inside the trust to grow over time to prepare for supporting your child’s needs down the road.
Fund your Special Needs Trust with life insurance. A trust-owned life insurance policy on one or both parents can create a predictable sum of money when you pass.
- Life insurance proceeds are generally income tax free.
- Rates of return on benefits can be very attractive when structured properly.
Reduce your taxable estate simultaneously. When coordinating with your overall financial plan, you might accomplish two goals at once by setting up your Special Needs Trust as an irrevocable living trust.
- Funds inside the trust grow outside your estate because it is irrevocable.
- Funds are still reserved for your child because it is a SNT.
- Learn more on estate tax strategy here.
Navigating the finances for a child with special needs can be overwhelming, especially when dealing with programs and strategies mentioned here. Seek the counsel of qualified special needs attorneys and advisors. When working collaboratively, your financial and legal team can help match the right strategies to your needs, providing the peace of mind that comes from knowing your child will be cared for both now and in the future.
Grant Monson
CFP®, CLU®, ChFC®
Partner, Financial Advisor
Grant grew up on a working wheat farm in eastern Washington. Today, he credits his family – who still manage the farm – for preparing him to build a business serving others. His vision to lead Alterra is built on relentless dedication to the success of his clients and the team – his extended family.
Grant’s dad says that he hasn’t worked a day in his life because “it isn’t work when you love what you are doing.” When combined with his mom’s view that “helping others should be part of every day”, Grant’s view of financial planning comes into focus. Alterra Advisors is very much a reflection of Monson family values.
Grant earned a bachelor’s degree in business and a master’s in economics at Washington State University. He launched his own financial advising practice over a decade ago, an entrepreneurial quest has become one of the most impactful things in Grant’s life. He loves coordinating the complex financial lives of business owners, bringing a depth of understanding that is rooted in his family’s own experience.
Joshua L. Brothers
Attorney
Joshua L. Brothers is a partner at Brothers & Henderson, P.S. His practice focuses on litigation and settlement planning; the development, implementation and administration of special needs trusts and other types of trusts; estate planning; guardianship; benefits advocacy; benefits litigation; and probate.
When he’s not practicing law, Brothers enjoys spending time with his wife, two daughters, and three dogs. He is an avid surfer and skier. Prior to law school, Brothers was one of 60 cyclists in the 1999 Journey of Hope bicycle ride from San Francisco to Washington, D.C., raising money and awareness for people with disabilities.
The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.