Financially Preparing for Kids With Special Needs
The following US News & World Report Article was brought to my attention by fellow attorney Steve Worrell, who posted it on his Georgia Wills Law Blog. Regardless of what state you live in, it is important to work with an attorney who can help you put a plan in place for your family which will protect all your children, including those with special needs.
Sarah Palin's son Trig helps spark a national conversation
Sarah Palin's 5-month-old son, Trig, who has Downsyndrome, has sparked a national conversation about kids with specialneeds: the extra care they require, available government benefits and the pros and cons of prenatal testing.
One topic that has gotten less attention is the financial stressthat parents often face. Many kids with special needs require financialsupport throughout their lives, and while government assistance oftencovers basic medical care, holding assets over $2,000 can make themineligible. That means advance financial planning, through wills,estate planning, and trusts, can be essential to ensuring kids withspecial needs have the support they require once they grow up.
"If [parents] fail to deal with these issues now, it will jeopardizetheir child's quality of life down the road," says Tanya Harvey, anattorney who focuses on special-needs planning in the Washington, D.C.,law office of Bryan Cave.
Here are tips from leading experts in the field of financial planning for kids with special needs on how to get started:
1) Establish legal guardianship.After a child reaches the age of 18, he is considered an adult. Butsome kids may still need a guardian, says Harvey. One of her testsincludes asking whether a child would impulsively buy a pretty diamondin a store window. If the child shouldn't be held responsible for sucha purchase, then he needs to have a legal guardian, or else thecontract would be binding.
Karen Greenberg, director of Prosperity Life Planning, a nonprofitthat teaches financial planning to families of children with specialneeds, along with her husband and associate director, Jaret Vogel, areurging Congress to adopt a special-needs tax credit thatwould help parents pay for the cost of establishing such aguardianship. Their proposal would provide up to $5,000 in tax creditsto offset the cost of legal fees.
Families often can't afford to set up a guardianship, which involvescourt expenses and doctors' fees, so they don't do it, say Greenbergand Vogel.
2) Describe your child in writing. Greenberg recommends writing down a "minibiography" ofchildren that could be given to any future guardians or caretakers. Itshould include medical information like allergies but also personalpreferences, goals, and details about friends.
3) Protect your child's eligibility for public benefits.Medical care can be so expensive that even relatively wealthy familiesmay need to rely on Medicaid and Social Security income. Because havingmore than $2,000 in assets threatens that eligibility, "you want tomake sure that if your child is going to receive any money, that it'sin a special-needs trust so it doesn't disqualify them," says Harvey. Alawyer or financial professional can help establish a special-needstrust, which doesn't count against the $2,000 limit. Money left to thechild through a will should be directed into this trust.
Parents often choose to set up a trust that goes into effect whenthey die, says Harvey, to allow them flexibility to spend that money indifferent ways in the meantime. But families may be better off settingup the trust immediately if a grandparent wants to leave money to thechild, for example.
Greenberg adds that another benefit to establishing a trust is thatthe money is then considered separate from the parents' assets, whichprotects it from creditors and divorce settlements.
4) Consider insurance policies.Life insurance that pays out upon the death of the second parent—oftencalled "last to die" policies—can help parents ensure their child hasenough money after they both die without straining their budgets toomuch beforehand.
When Greenberg, who has an autistic son, examined her budget severalyears ago, she decided to purchase such a policy. It pays out $650,000on the death of Greenberg or her former husband, whichever comessecond, for about $2,000 a year. In addition, for years, she tuckedaway about $400 a month into a special-needs trust, which now holdsaround $55,000. That means that if both she and her former husband wereto die, their son would have the $650,000 life insurance payout and the$55,000 trust. Together, she calculates, that will generate an incomeof around $35,000 a year—enough to pay the bulk of his expenses.
5) Avoid common family-related mistakes."A lot of parents say, 'How about if I give money to a relative?'" saysHarvey. But doing so is a mistake, she says, because not only is therelative not legally bound to spend that money on your child but acreditor or divorce settlement could take it.
Greenberg recalls looking into her options for her son in the 1980s,when the common wisdom held that parents should leave money to theirother children, who would then be expected to care for their siblingwith special needs. But Greenberg doesn't like the idea of burdeningsiblings, who have often already experienced so much stress.
Family members and friends planning to leave money to a child withspecial needs should also be encouraged to do so through aspecial-needs trust instead of leaving money directly to the child,which could interfere with benefits eligibility. Grandparents may evenwant to have their wills looked over by an attorney to make sure anygifts don't threaten that eligibility.
Source: US News & World Report.