Financial Planning for a Special Needs Child

Parents of children with special needs have a lot to think about. You are your child’s greatest advocate and strongest support system. Financial planning may be the last thing on your mind at the moment, but your preparations will significantly impact your child’s entire life.

A key to supporting your child’s development and future quality of life, while also minimizing your out-of-pocket expenses, is to utilize government programs and services. There are numerous programs that can help support your child’s health, development, support and well being throughout life. However, parents of children with special needs should dedicate a portion of their budget to supplement these benefits or cover unexpected expenses. Public benefits and services will not always cover all of your child’s needs, and there is no guarantee that they will continue indefinitely. (For more, see: Special Trusts For Special Needs.)

Many special needs individuals will earn very little or nothing, putting a strain on you to support them in retirement for the duration of their lives. Creating the capital to support this can be daunting, so it is important to create a financial plan for your special child. However, as your child approaches adulthood (age 18), it is important that assets are not held in their name. Doing so may disqualify them from means based public benefits. So how do you manage this?

Special Needs Trust

A cornerstone of special needs planning typically involves a special needs trust (SNT). Funds for your special child’s benefits can be held in an SNT. Setting this up properly and using the proper language is critical. There are two general types of SNTs - a self-settled or first party SNT or third party SNT. Money that originated with a special needs individual should utilize a first party SNT. Money coming from other sources will typically utilize a third party SNT. A key difference between the two is that a first party SNT has a Medicaid payback provision at the death of the trust beneficiary. The third party SNT does not.

ABLE Accounts

Recently, the Achieving a Better Life Experience act was passed, which created ABLE accounts. These accounts allow special needs individuals to accumulate assets in an account under their name. Money in this account grows tax free, similar to the 529 education account. There are annual contribution limits of $14,000, with a cap of $100,000. Similar to a first party SNT, there is a Medicaid payback for any funds still in an ABLE account at the beneficiary’s death. When utilized properly, understanding contribution and distribution rules, the ABLE account can be an effective new tool.

Life Insurance

Most families are not able to accumulate sufficient assets to sustain their special child during their entire lifetime. Life insurance is often utilized to create the necessary nest egg. Life insurance can be effective because it uses leverage, can provide a guaranteed death benefit, is income tax-free and completely liquid.  Very often, a second to die policy is used for the benefit of a special-needs individual. Because these policies pay a death benefit only after the second death of two insureds, typically the parents, there is usually a higher death benefit per premium dollar. As with all these other tools, life insurance must be used and coordinated properly in order to have its intended effect without negatively impacting public benefits.

A financial planner and estate planning attorney understand the unique challenges that a special needs individual faces. It is also important they understand the intricacies, interdependence, and special rules around public benefits and personal planning. This will help you create a comprehensive, well coordinated plan to make sure that your special-needs loved one lives a safe, fulfilling and happy life. (For more from this author, see: Life Insurance Decisions Made Easy.)


David Chazin & Jon Elfin are registered representatives of Lincoln Financial Advisors. Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor.  Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. Insight Wealth Strategies is not an affiliate of Lincoln Financial Advisors Corp.  Lincoln Financial Advisors does not provide legal or tax advice. 3000 Executive Parkway, Ste 400. San Ramon, CA 94583. (925) 659-0217.  CRN1734086-031317