Raising a child with special needs is expensive, yet many families don’t know how to start when it comes to solid financial planning.
Raising a child with special needs is expensive.
Recently I attended the first birthday of my cousin’s son, Trevor. Trevor is a sweet little guy that was born with Down Syndrome. He lights up his parents’ lives and our whole family adores him.
Over the past few weeks I’ve also been helping a family with an autistic child put together a financial plan. I’ve found that many times families raising children with special needs don’t know how to start when it comes to solid financial planning.
Financial experts now predict that raising a child to age 18 costs upwards of $250,000. Parents of children with disabilities and special needs incur costs as much as 10 times greater. A severely autistic child can have annual medical bills of $60,000 a year or more, with a lifetime expense of over $3 million.
There are children with all sorts of special needs from Down syndrome to cerebral palsy to spina bifida and many others. As the world prepares to celebrate Autism Awareness day on April 2, I’d like to offer these key areas to focus on to protect and grow your money.
Make a plan
Most times parents aren’t aware of the needs of their child until after they are born or late in the pregnancy.
Planning can be difficult in the chaos of making sure your child is safe and healthy. A study by The Hartford Financial Services Group found that some 62% have no long-term care plan for their special needs child. Around 58% planned to leave their money, home and assets to their child directly. Here are some tips for step by step for planning.
- Create a team of experts. That includes an attorney, doctor, accountant and government benefits specialist to help understand the ins and outs of Social Security, Medicaid and other programs.
- Create a letter of intent. A letter of intent is a written bio of the child’s history, medical needs, doctors, allergies, likes and dislikes. It also serves as a way to guide and direct the future trustee and guardian of your child.
- Create a will. A will gives direction to your child’s guardian and to courts on how assets should be moved and allocated.
- Create a Special Needs Trust (SNT). An SNT helps serve as a separate entity to the child to hold money that won’t disqualify a child from third party assistance programs.
- Create a plan for building assets.
Special Needs Trust
For an experienced special needs attorney, setting up a special needs trust is a fairly straightforward process, but it does involve having a lot of information related to the assets involved, the specific needs of the child, and the laws surrounding special needs trusts.
For the best advice I’ve turned to an experienced Special Needs Trust attorney: Nicole C. Wipp, founder of Family & Aging Law Center PLLC, who gives a word of caution.
“The laws surrounding special needs trusts are extremely complex, and shouldn’t be tried by a layperson or an inexperienced attorney,” Wipp says.
“The risk of loss is high. Having the trust in place ensures that there is a financial mechanism to continue to provide the child with the highest quality of life possible. Otherwise, the money can get drained away very quickly and benefits can be lost.
“Parents are often overwhelmed with the idea of creating a special needs trust, because the stakes are so high in their minds. Caregiving is a very demanding thing, and parents are well aware of it. However, in my experience, getting this completed is a big weight off of their chests. One of the problems that happens is people wait too late, or leave money directly to the child. When this happens, the legal and financial issues become much more complex.”
Wipp adds: “As with all trusts, picking the future trustee is a matter of determining who will be the right person for the job. Very often the caregiver is not really the right person for this role. With special needs trusts, professional trustees or pooled trusts, which are administered and managed by non-profit organizations, may also be used. This is a very personal question that needs to be considered by each family, with proper counseling.”
Autism Awareness Day is April 2.
Growth and funding options
Many parents are good at providing for their children with government assistance and disciplined saving efforts. Here are a few suggestions for protecting and growing funds for the Special Needs Trust.
Life Insurance. Nothing creates a nest egg or estate faster and more cost effectively than life insurance.
The beneficiary should be the trust and never the child. It’s hard to know how long a child will live but in most cases you should plan on an adult child you will outlive.
With this in mind, permanent life insurance is the best fit because you don’t run the risk of a policy becoming too expensive or lapsing. In most cases, parents can get a second to die policy that saves money.
Income producing assets. With a child’s future needs on the line, there should be no gambling with your funds. Funds should have liquidity while growing.
Real estate is a great way to produce monthly income.
Dividend paying stocks.
Peer-to-peer lending or bridge loans and annuities. The interest earned on these options can range from 2% up to 20% depending on the strategy and asset.
Professional advice and mentoring is available on each of these and is highly recommended to do it right and do it ongoing.
401(k) and IRA holdings should have the SNT listed as the beneficiary. These programs can be grown with an employer or on your own in a self-directed program.
Special needs require unique planning. Work with your team and your family to establish a village that can help you raise and provide for your child. Once your plan is created it will give you peace of mind to protect and provide for your family and child.
Stephen Gardner is the best-selling author of “A Bridge Over Troubled Wall Street” and two other books. He is also a speaker and trainer in the financial industry. He consults clients all over the country.
[The content provided through this article and www.nydailynews.com should be used for informational purposes only and is not intended to be a substitute for professional advice. Always seek the advice of a relevant professional with any questions about any financial decision you are seeking to make.]
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