Financial Planning Strategies for Children With Special Needs

Financial Planning Strategies for Families Raising Children With Special Needs

How to plan, save and protect assets for what matters most

By Susan Zurek and Monica Padineant

Families raising children with disabilities not only need to provide for their children’s needs — medical, developmental and educational among them — they also need to plan for how these needs will be paid for, now and in the future. While there are many things to consider, from the standpoint of financial planning, there are two strategies that need to be part of the planning. 529 ABLE plans Many parents are familiar with 529 college savings plans, but in our experience, not as many know about 529 ABLE accounts, which are tax‐-advantaged savings accounts for individuals with disabilities. These accounts provide funding for disability-related expenses by supplementing private insurance, Medicaid, Supplemental Security Income (SSI) or other financial resources. Funds from a 529 ABLE account can be used to pay for qualified disability expenses, including but not limited to: education costs, housing, transportation, employment training, assistive technology, personal support services, health-care expenses, financial management and other expenses that help improve health, independence or quality of life.

As with the 529 plan, anyone can contribute to the account (though there are contribution limits). The other good news is that assets in a 529 ABLE plan are not counted for eligibility purposes for federal means-tested programs.

Special needs trusts Special needs trusts are another option that can alleviate some of the uncertainty by providing ongoing financial support for a loved one, as needed over time.

A special needs trust is typically created for a family member with a disability who may now or in the future qualify for government assistance, such as SSI or Medicaid. These trusts are important because the rules for qualifying for government programs are very specific.

There are three basic types of special needs trusts that can be created, depending on the beneficiary’s current financial situation.

If the beneficiary previously owned the assets going into the trust (by way of inheritance, lawsuit proceeds or beneficiary designation), those funds must go into what’s known as a first-party special needs trust. If the beneficiary then uses government benefits such as Medicaid, payback rules apply, and a lien could be placed on the trust at the beneficiary’s death equal to the total amount of government assistance provided. This applies to government assistance received over the beneficiary’s lifetime, not just the lifetime of the trust. First-party special needs trusts are a common type of trust used when a disability occurs or emerges later in life and after assets have been acquired.

The most common type of special needs trust is known as a third-party special needs trust. These trusts are usually set up by parents or grandparents for a family member with special needs who may be eligible for public benefits now or later in their lifetime. These funds are managed and distributed by a trustee, can never be placed outright into the hands of a beneficiary and, in contrast to a first-party special needs trust, are not subject to the Medicaid payback requirement.

Finally, pooled special needs trusts are offered and managed by a variety of nonprofit organizations to benefit many different beneficiaries with disabilities. Like a mutual fund, incoming assets are commingled, invested and then distributed in proportion to each beneficiary’s share of the total amount.

Choosing a trustee for a special needs trust is critically important. That trustee must be highly knowledgeable about trust laws and regulations, as how the trust is set up and the assets are distributed can have significant tax and other financial implications.

Learn more at parentmap.com/plan. ■ Susan Zurek and Monica Padineant are certified financial planners and directors at Laird Norton Wealth Management.

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