When children enter the picture, you need a far-reaching financial plan. But when your child has special needs, you need a financial plan that extends even further.
Depending on your child’s disability, your future may be different from sending your child to college and watching her mature into an adult capable of living on her own.
In many instances, a disabled child will need support her entire life, long after you’ve passed away. This kind of financial plan may seem impossible.
It’s not. But it will probably require that you set up a supplemental needs trust (sometimes called a special needs trust). Here are four things you should keep in mind when setting one up:
- Finance a supplemental needs trust.
A supplemental needs trust is a specialized legal document designed to benefit an individual who has a disability. This document can be separate from the will, or it can be included in the will.
It is usually financed by your life insurance. It can also be financed through savings, investments, governmental benefits, inheritances and property.
- Don’t miss any government benefits
Usually, you don’t want to leave the money in a special needs child’s name. If you do, you could disqualify your child from receiving government benefits because of the amount of assets she has.
For example, your child loses out on Supplemental Security Income, which is available for anybody who has less than $2,000 in assets and is incapable of earning more than $500 a month.
Your child may qualify for Medicaid benefits, even if she isn’t 65. It depends on the disability.
This allows your child to receive the benefits of Supplemental Security Income and continues to provide items for your child that aren’t covered by Supplemental Security Income, like food, housing, clothing and personal items.
- Appoint the right trustee.
When you set up a supplemental needs trust, you appoint a trustee who has strict rules for how the money can be distributed to the child.
Choosing a trustee can be tough, because the trustee is responsible for administering the trust. In most cases, it’s better to choose an objective third party, somebody who will distribute the money with no attachments. This could be an attorney, a trust company, a financial institution, or a non-profit organization.
- Don’t neglect your retirement.
When planning for the future of a special needs child, you have to take more into consideration than a 529 College Savings Plan. Normally, if you have to choose between a 529 College Savings Plan and your retirement, you know that your child can always take out loans for college.
That’s not necessarily the case with a special needs child, but that doesn’t mean you should ignore your retirement. Make sure you don’t neglect your 401k or individual retirement account (IRA) in order to fund a supplemental needs trust.
Working out a financial plan with a special needs child requires a long forecast into the future. You will have to effectively plan for two generations. By setting up a supplemental needs trust, you can make sure your child will be taken care of after you are gone.
Contact a McLean advisor today to discuss developing your financial plan.
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