Brian and Jessica Waldron are raising five children, including their 3-year-old son, Wesley. Wesley was born with Down syndrome, which came as a surprise to his parents. "We didn't know Wesley had Down syndrome until about 10 minutes after he was born," says Brian, an operations manager for PayPal in Omaha.
Once they dealt with the initial shock, the Waldrons worried about Wesley's health. Wesley had pulmonary hypertension, which created abnormally high blood pressure in the arteries of his lungs, and required him to be on oxygen for the first six months of his life. Once the hypertension was under control, financial concerns set in. "It can be overwhelming," Brian says, "realizing you have to plan for someone's financial security for their entire future."
More than 20 million U.S. families have at least one member with special needs. On top of concerns about their child's health, parents of children with special needs, like the Waldrons, are tasked with planning how to financially support their child throughout their lifetime, as many of the children will outlive their parents but might not be able to support themselves and live independently.
While government-assistance programs cover basic medical care, if the child holds more than $2,000 in assets, he or she can become ineligible to receive benefits through Social Security's Supplemental Security Income (SSI). Children with special needs may also be eligible to receive benefits through Medicaid, where eligibility varies by state, and Social Security Disability Insurance (SSDI), where eligibility is based on the parents' income. Typically, children of parents with moderate-to-high income don't qualify for Medicaid and SSDI.
The recession and sluggish job market have also made it more difficult for many families to care for their children with special needs, says Kevin Clasen, a financial planner and special-needs consultant with MassMutual's WestPoint Financial Group in Indianapolis. "Most of these families are one-income families anyway, as one parent will often be a care provider to the child, so the loss of a job to these families is huge," Clasen says. That makes it especially important for parents to take financial precautions through trusts, estate planning, and wills to ensure their child's financial security.
Here's how to make the right financial preparations for raising a child with special needs:
Assemble a team. Consulting the right experts will enable parents to effectively plan for their child's financial future. After attending a seminar about financial planning sponsored by the Down Syndrome Alliance of the Midlands, the Waldrons met with Dan Kline, a financial planner and special needs-consultant with MassMutual's Continuum Financial in Omaha. The Waldrons felt Kline was helpful in advising them on how to establish a financial plan, and thought he was able to relate to their situation, as Kline is the father of an adult son with Down syndrome. "Knowing he had been through this himself was comforting," Brian says.
In addition to a financial planner, parents should talk to an attorney, who can help them establish a special-needs trust and make appropriate financial preparations in their will.
Create a letter of intent. Future guardians or caretakers will need special instructions on how to care for the child. "It's not a legal document, but it's just as important as the estate plan," says Kline. The letter should describe the child's medical history, doctors, and personal information like preferences and habits.
Establish legal guardianship. Once the child reaches 18, he is considered an adult. However, many special-needs children will still require a legal guardian as they'll need assistance well into their adult lives. Establishing legal guardianship will enable the parent to make financial decisions for the child that they can't make on their own. Consult with an attorney, who will help draw up the legal documents.
Moreover, experts recommend that parents decide in their will who would assume legal guardianship if they were to die.
Develop a special-needs trust. To ensure the child is eligible to receive SSI, which is contingent on the child not having more than $2,000 in assets, parents should set up a special-needs trust. A financial adviser can help establish the trust, as well as advise the family on how much money should be allocated to the trust and develop a plan for how they're going to fund that money. Money funneled through the trust doesn't count against the $2,000 limit.
Kline advises clients to work with a lawyer to include the trust in the parents' will, so that money left to the child upon their death doesn't count as part of the child's assets. Grandparents may also want to look over their wills, since gifts willed directly to a grandchild with special needs could affect their eligibility for government benefits.
Crafting a special-needs trust can be rather complicated, says David MacLaren, the father of four adopted children, two of which have autism and one who is legally blind. MacLaren, a scientific manager in Fortville, Ind., says he and his wife, Ann, were glad they met with an attorney who specialized in special-needs trusts. "Our lawyer came up with a customized plan for the special-needs trust, which I don't think we would have been able to do on our own," he says.
Additionally, parents should craft their life insurance policies so that funds paid out to the child upon their death are funneled through the special-needs trust, rather than being left directly to the child.