The responsibilities and choices that come with parenting a child with a severe disability or developmental delay are intense, immediate, and pressing.
Saving for your young child’s future may seem like one thing you can put off for now.
Unfortunately, it isn’t something you should ignore: Someday your child with special needs is going to be an adult with financial needs.
And while it’s true that adults with disabilities (that prevent them from holding a job or living independently) will likely qualify for government benefits, it’s also true that in order to qualify for those benefits, the recipient has to demonstrate extremely limited wealth.
If he or she inherits money — or property, a business or anything with monetary value — he or she can get kicked off those benefits.
If you have a child who you expect to go to college, you can easily start saving for that expense with a 529 account.
But how do you plan financially for a child who probably won’t be able to live independently?
Protecting your gift
A good answer for many is a special-needs trust — known in Minnesota as a supplemental-needs trust. This is essentially a vehicle for leaving money to a loved one in a trust instead of directly in his or her possession.
Money in a trust is controlled by a designated trustee, such as a family member, who is responsible for distributing payments to the recipient.
Since the recipient never actually takes possession of the money, Social Security and Medicaid administrators will ignore it when determining eligibility for programs.
As Matt Shea, an estate-planning attorney with Minneapolis-based Gray Plant Mooty, put it: “A special-needs trust allows somebody who is disabled or is entitled to government benefits to have assets and still be eligible for the government programs that they’re on.”
Beyond housing, food
Simple enough. But there are rules. The big one, according to Shea, is that funds from the trust usually need to be spent on supplemental needs, not core needs such as housing and food.
Government benefits are meant to cover the latter.
A special-needs trust can pay for things like entertainment and lifestyle improvements. For example, many people with disabilities are very sensitive to particular textiles.
A special-needs trust can pay for particular clothing that the recipient is comfortable with.
Here’s another example: Imagine a disabled adult who is living in a group home. Government benefits might provide him a double room with a roommate.
A supplemental needs trust can pay for an upgrade to a single unit.
Is a trust right for your child?
If your child is disabled to the extent that she won’t be able to live on her own or earn her own income, then it’s a very good idea. According to certified financial planner James Knapp, president of Heritage Wealth Architects of St. Paul, you still may want to start one even if your child is mildly disabled.
“You might not want them to have access to all the money right away if they’re not very good with money,” he said.
Parents aren’t the only ones who can provide for a loved one through special-needs trusts.
Many times, they’re started for children (and even adults) by grandparents, other relatives and friends.
We all need to save for retirement and pay off debts. If we have multiple children, we may be saving for college, too. So how does a parent prioritize?
Knapp and Shea agree retirement has to come first. After that, save for college and pay off debts. The special-needs trust should be last.
But the planning starts as soon as possible. In fact, for most people it amounts to little more than a few sentences in their will that direct an inheritance to be put into a special-needs trust.
Eric Braun is a Minneapolis-based writer, editor and dad of two boys. He’s currently working on a financial literacy book for young readers.