Special needs families require special financial planning
You can never predict where life’s paths will lead. This fact was clear 14 years ago when my son Zachary was born with cerebral palsy. At his birth, my wife Katy and I were told to prepare for the worst. Needing to grab hold of anything positive, we simply declared, “We are working on a miracle.”
As Katy and I grew to accept the realities of raising a special needs child, we began to understand the complexities that families with special needs children face. As the day-to-day journey evolved into an enjoyable routine, there was always the unanswered question, “When we’re no longer here, who will care for our child?”
As I pondered this question, my years of experience in the financial services industry provided insight. It also led me to realize that a family who lacked knowledge in finances, estate planning, and tax law would have even greater difficulty planning for the future of their special needs child.
Special needs families must make long-term considerations about how much money is needed for medical care, food, clothing, and shelter for the rest of the child’s life. Providing 20-plus years of quality care for a child with special needs could easily cost a million dollars or more. According to the Health Care Financing Administration and the National Association of Home Care:
- The average cost for a residential facility is more than $50,000 per year and rising.
- The average cost for home healthcare ranges from $18,000 to more than $30,000 per year.
- Healthcare costs are rising faster than inflation.
- The future of government benefits is uncertain at best.
- Financial planning must integrate strategies to protect and provide for the special needs child while addressing the needs of the entire family. Fortunately, there are a number of tools available.
Estate planning
A properly executed will and trust is the foundation of strategic planning. Without them, the child’s future and the distribution of the parents’ assets is in the hands of the government.
Special needs trust
This is often the primary tool used to preserve the government benefits to which the child is entitled and provide funds to supplement those benefits. This is accomplished by segregating funds from gifts or settlement proceeds into a separate trust. The trust is managed by a third party (often the parent), who has responsibility for managing and distributing the assets in the trust for the benefit of the child with special needs. These funds then may be legally excluded from asset and income reporting for qualification of future benefits.
Some sources of contribution to a special needs trust include existing assets from immediate family and grandparents; life insurance; and legal settlements. Parents can also establish a charitable remainder trust, in which the family places assets in a trust for the benefit of a nonprofit organization that may assume responsibility for the child’s care when the parents can no longer provide.
Letter of intent
One of the most important pieces of the family plan is a letter of intent-a nonlegal document addressing the child’s eating and personal habits, favorite books, food and games, and special “quirks.” Developing such a document will provide a map for future caregivers.
Guardianships and lifetime care
A guardianship is a legal arrangement that grants an adult the legal power to make decisions for another person. Each situation is different, and a child’s needs may or may not include guardianship or conservatorship.
Even with these tools, determining how to best provide for a special needs child is never easy. A qualified professional with special needs financial planning experience can help families understand the options and set up a plan that works for them. I also encourage families to become actively involved in the special needs community, which can provide an invaluable support network for dealing with all of the challenges parents face.
Today, I’m proud of the path life has chosen for me and my family. The joy and strength Zach has brought to our lives is immeasurable. His positive attitude, persistence, and appreciation for the smallest things serve as constant reminders of what’s really important in life.
Scott Thuleen is a financial consultant with Anchor Investment Management, a division of Anchor Bank West St. Paul.
