Financial Planning for Families with Disabilities

Financial planning is difficult for everyone, but especially so for families affected by disability. There is a range of financial help available if you or a family member is affected by a disability, but navigating all the different benefits, accounts, and bills can be overwhelming. While the costs associated with a disability vary depending on the type and severity, many conditions incur high costs that families feel unprepared to handle.

This can be made even worse by feeling that you are alone. But take heart—you are not. At any given time, almost 9 million families in America are caring for a child with disabilities. And many of these families are dealing with significant financial difficulties.

For example, the average cost of autism is $60,000 a year through childhood, and adult services are expected to exceed $461 billion by 2025. Meanwhile, according to U.S. Centers for Disease Control and Prevention (CDC) research, the average lifetime cost for an individual with cerebral palsy can top $1.5 million, once adjusted for inflation.

In this guide, we’ll help you plan for your financial future by looking at the four financial topics likely to have the most impact if your family is affected by a disability: making sure that you receive the right level of benefits, Achieving a Better Life Experience (ABLE) accounts, supplemental needs trusts, and Medicaid waivers.

You likely will still have questions, of course, because individual situations vary widely. If you need further information, the federal government offers resources, including a variety of programs and services on the many aspects of living with a disability. And if you need to talk to a specialist, the Special Needs Alliance can help you find an attorney.

Benefits

If you are caring for a disabled child, you have a wide range of federal and state benefits available to you. These benefits change, but do not necessarily stop, once a child with disabilities turns age 18.

According to Juliana Crist, senior consultant at AKF Consulting, a municipal advisor to state-run investment plans, families say three benefit programs are particularly important: Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), and Medicaid. If you are looking for an extensive list of benefits available to you or your family as a result of a disability, a great place to start is with the official U.S. government website on disability services.

For most families caring for a disabled child, the most important benefit is SSI. This program provides monthly payments to people with limited income and resources. Children younger than age 18 can qualify if they have a medical condition (or a combination of conditions) that meets the Social Security Administration (SSA) definition of disability. A young person’s income and resources must fall within the eligibility limits to qualify for this program.

When a child with disabilities reaches 18, they are considered an adult. As a result, your family’s entitlement to disability benefits will change.

Some adults can continue to receive SSI. However, the amount that they receive may change. This is because when they reach 18, the SSA no longer counts the income and resources of family members (except their spouse) when deciding if they meet the financial limits for SSI. They also apply the disability rules for adults, which are slightly different. In all cases, the SSA will review a person’s medical condition, normally within a year of them turning 18. In some cases, a person who didn’t qualify for SSI before they were age 18 will qualify for it afterward.

ABLE Accounts

Public benefits such as SSI and Medicaid have limits on how much money (and other assets) you can have and still be eligible. Before ABLE accounts, individuals receiving SSI could not have more than $2,000 in countable assets ($3,000 for a couple) without jeopardizing their SSI benefit. The ABLE program was designed to allow disabled people to save money without jeopardizing these benefits. Funds in an ABLE account do not, for the most part, count toward an individual’s eligibility for these programs.

ABLE accounts have had many positive impacts for those affected by disabilities. According to a spokesperson at the ABLE National Resource Center, people who use the accounts “identify as savers, rather than spenders. With the opportunity to save more in ABLE, [or] through employment, people with disabilities are in many cases hearing for the first time that they are allowed to work. In fact, SSA encourages people to work to their fullest ability and save income to improve their lives.”

Here’s how it works: A disabled person, or their friends or family members, can invest money in an ABLE account. The contributions themselves are not intended to be tax deductible, although some states may allow deductions against state income taxes. However, the funds within the account grow tax free. Cash funds in an ABLE account deposited at a Federal Deposit Insurance Corp. (FDIC)-insured institution are covered by the FDIC for up to $250,000.

There is a limit to how much they can contribute: $16,000 for 2022. An eligible individual may have only one ABLE account. You can use the money in the ABLE account, and you won’t have to pay any taxes on the funds, provided that you spend this on qualified disability expenses. Individuals who work can contribute above that annual limit, thanks to the Tax Cuts and Jobs Act of 2017. The ABLE to Work Act allows an ABLE account beneficiary who does not participate in an employer-sponsored retirement plan to contribute, on top of the $16,000, up to the lesser amount of either the prior year’s federal poverty limit ($12,880 in 2022) or the account owner’s compensation for the year.

Four states—Idaho, North Dakota, South Dakota, and Wisconsin—do not have active ABLE programs. If you live in those states, you should sign up with a state program that accepts outside residents. Some states only allow residents to have ABLE accounts. Different states also have different limits on how much you can keep in your ABLE account and charge different levels of fees for using them.

When it comes to choosing an ABLE account, says Crist of AKF Consulting, you should start with your home state. Many states offer state tax incentives and other benefits (such as exemptions from Medicaid clawbacks) that taxpayers could miss out on by choosing an out-of-state plan. Beyond that, says Crist, important considerations include cost, ease of use, investment options, and debit card functionality.

Supplemental Needs Trusts

Both ABLE accounts and supplemental needs trusts (also known as special needs trusts) allow a person diagnosed with disabilities—or their relatives—to save money without affecting their eligibility for public benefits. Before 2014, only supplemental needs trusts could be used for this purpose.

ABLE accounts are easier and cheaper to set up and manage. However, they come with some disadvantages—primarily, limits on the amount of money that you can save each year. Supplemental needs trusts don’t have any such limits, but they can be expensive to set up and more complicated to manage.

The money in a supplemental needs trust can be used only for a limited range of expenses. You are not supposed to use these funds to cover basic living expenses. Instead, proceeds from this type of trust are commonly used for medical expenses, payments for caretakers, transportation costs, and other permitted expenses.

If you or a family member are eligible for an ABLE account, it makes sense to establish one. This will help to protect a disabled person’s access to public benefits, can make tracking expenses much easier, and may give you immediate tax benefits.

Today, the main reason for setting up a supplemental needs trust is if you want to either put aside more money than ABLE accounts allow—up to about $100,000 without affecting public benefits—or contribute more than $16,000 per year to your disability-related accounts. In that case, it makes sense to pay an attorney to help you set up a supplemental needs trust.

Even after you set up a supplemental needs trust, you can keep using your ABLE account for qualified disability expenses—which are often common, everyday items—such as food, housing, education, personal support services, and assistive technology, as well as other quality-of-life expenses related to living with disabilities.

Medicaid Waivers

A Medicaid waiver is a way for the federal government to waive rules that normally apply to the Medicaid program. In general, states choose groups of people with particular needs and health conditions and use a waiver to make them eligible for Medicaid. Hundreds of Medicaid waivers are in force across the country, and Medicaid provides a full list of them on their website.

For most people, the most relevant type of waiver will be the home and community-based services (HCBS) waiver. The purpose of an HCBS waiver is to let states provide care to certain individuals in the community, rather than putting them into institutional care. This includes elderly people and those with disabilities.

Those accepted into their state’s HCBS waiver program will receive a range of medical and nonmedical care, which can vary depending on the individual’s needs and situation, as well as state guidelines.

This may include:

• Personal care services and supervision, at home or in an assisted living facility
• A home health aide
• Nursing
• Medical supplies and equipment
• Chore and homemaking services, such as shopping, laundry, and cleaning
• Hot meal delivery services
• Respite care to relieve a primary caregiver
• Counseling services
• Home and/or vehicle modifications, such as ramps and safety rails, to increase independence
• Support and case management
• Assistance transitioning from a nursing home into the community
• Access to senior centers or adult group day care
• Transport to and from nonemergency medical appointments
• Nonmedical transportation services
• Personal emergency response systems

Katie Beckett Waiver

The Katie Beckett Waiver, sometimes also called TEFRA Medicaid, is a type of Medicaid waiver. It is a particularly important type of Medicaid waiver for families affected by disability because it provides people under the age of 19 with serious conditions with “institutional level” care at home.

Financial eligibility for the waiver is assessed only against the child’s income and assets, not those of their parents. Unlike HCBS waiver programs, states cannot limit the number of “Katie Beckett” participants, so there are no waiting lists.

If your child qualifies for the Katie Beckett program, they are eligible for a full range of services covered by Medicaid. You can start using these services right away. There is no waiting period.

Here are some examples of the types of care that this waiver will cover:

• Doctor visits
• Hospitalizations
• X-rays
• Lab tests
• Prescription drugs
• Dental and hearing screenings
• Behavioral health screenings
• Physical, occupational, and speech therapy
• Medical equipment and supplies

Coverage varies a little by state, as does the definition of institutional-level care, so check your state’s program for more specific information.

The Bottom Line

Financial planning can be difficult for any family and is especially complicated for families affected by disability. However, there are a few key elements that can make your financial future more secure.

You should check that you are receiving the right level of benefits, look into setting up an ABLE account or supplemental needs trust, and make sure that you understand Medicaid waivers. This advice will apply to almost every family with a member who has a disability, but every family is different, so you should also seek specialist advice when you need it.