Special needs financial planning: 3 things to think about
Part of our tough money questions series
It’s a common concern. Parents of children with special needs say the thing that keeps them awake at night is worrying, “What happens when I’m gone?”
You'll feel better knowing you have a long-term financial plan in place for your child.
As you start the planning process, here are 3 things to keep in mind.
Understand the law.
This is a big one. Understand the law and how it can affect your child’s ability to keep critical government benefits, such as Supplemental Security Income and Medicaid. Those benefits can be phased out if your son reaches a certain level of assets or income in his name.
There have been some recent changes though. A new law in 2014 gave families with special needs a way to save money in a tax-advantaged account called an ABLE account.
"The money grows tax-free. Withdrawals are tax-free, too, and can be used for certain kinds of expenses," says Isidro Huerta, a financial representative in Coral Gables, Florida. "There are other rules, and those can vary by state, but it’s been a big step forward for families planning for the long-term."
Set up a trust.
One reason parents get help from a financial advisor who has expertise in special needs planning is to better understand the advantages of setting up a trust.
Your advisor, and an attorney, can walk you through the steps and explain how to choose a trustee and a guardian. If you don’t have a lot of assets, your financial advisor can also help you explore life insurance to help fund the trust.
Find the right housing.
At some point in time, your child will live outside of your home. You may want to explore those options before your health declines. That way, you can make sure the arrangement is working well for your child and make any needed changes.
Caring for a family member with special needs is a huge responsibility, both emotionally and financially. Ideally, other family members will share in this planning process along with you, so they can step in to help when needed.
Because all of you want the same thing—to have a long-term financial plan in place for your whole family.
Insurance products issued by Principal National Life Insurance Co. (except in NY) and Principal Life Insurance Co. Securities and advisory products offered through Principal Securities, Inc., 800-247-1737, Member SIPC. Principal National, Principal Life and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392.