For parents of children with disabilities, the challenges of preparing for retirement and for their child’s future are far greater than for families with healthy, high-functioning adults. The question of how do you provide financial help for a special needs child and retirement too is an important one! Planning for your own retirement, while needing to secure the stability and basic needs of a child who will be a dependent forever often feels impossible, according to the recent article “Planning for Your Retirement, and for a Child’s Special Needs, All at Once” from The New York Times.
Even under the best of circumstances, where there’s plenty of money available and many hands to help, caring for an adult child with special needs is emotionally and physically challenging. As parents age, they have to address their own needs plus the needs of their adult dependent. Who will care for them, provide safe and comfortable housing and care for them when their parents no longer can?
Understanding the entire picture can be difficult, even for parents with the best of intentions. First, they need to understand how their retirement planning must be different than other families. Their investments need to be multi-generational to last not just for their lifetimes, but for their child’s lifetime. They can’t be too conservative because they need long-term growth. Thus, they must work with a trusted financial advisor who can see the big picture!
In addition, special needs parents need to keep a certain amount of funds liquid and easily accessible, for times when their child might need a new piece of expensive equipment immediately.
One of the parents will often leave the workforce to provide care or take a lower-paying position to be more available for care. This creates a double hit; the household budget is reduced at the same time its strained by costs not covered by benefits or insurance. Paying for gas to drive to therapy appointments and day programs, buying supplies not covered by insurance, like adult diapers, waterproof bedding, compression garments to promote circulation, specialized diets, etc. adds up quickly.
Even with public health assistance, finding affordable housing is not easy. One adult may need supervised care in a group home, while others may need in-home care. However, the family home may need to be modified to accommodate their physical disabilities. With wait times lasting several years, many families feel they have no choice but to keep their family member at home. Thus, planning for residential concerns after the parents' death is vital.
Another challenge: if the parents wanted to downsize to a smaller house or move to a state where housing costs are lower, they may not be able to do so. Most of the public benefits available to special needs people are administered through Medicaid at the state level. Moving to a state with a lower cost of housing may also mean losing access to the disabled individuals’ benefits or being placed at the end of the waiting list for services in a new state.
For disabled individuals, maintaining eligibility is a key issue. Family members who name a disabled individual as a beneficiary might not understand how they are jeopardizing their ability to access public benefits. Any money intended for a disabled person must be held in a specialized financial instrument, such as a special needs trust.
The money in a special needs trust (SNT) may be used for quality-of-life enhancements like a cellphone, computer, better food, care providers, rent and utilities among other qualified expenses.
There are two main categories of SNTs: The first, A first party trust, created with assets belonging to the individual. Any money in this trust must go to reimburse the state for the cost of their care at the individual's death! The second is a third-party special needs trust, established and funded by someone else for the benefit of the disabled individual. These might be funded by parent’s life insurance proceeds and second-to-die life insurance policies. Both parents are covered under it, and the policy pays out after the second spouse dies, providing a more affordable option than insuring both parents separately. We had a situation where the parent thought he had prepared, but the Will that he had had drafted (by a litigation attorney) did virtually nothing to ensure a smooth transition at his death. In fact, it took months to reestablish the disabled son's SSI income!
When you have an adult-disabled child, you need to be advised by both a financial advisor and a well-seasoned attorney experienced in elder law and special needs planning and familiar with special needs trusts, to help you answer the difficult question of how do you provide financial help for a special needs child and retirement too? Book a call with us to learn more about scheduling an appointment and see how we can help!
Reference: The New York Times (Aug. 27, 2022) “Planning for Your Retirement, and for a Child’s Special Needs, All at Once”
