Caring for a special needs individual can easily deplete a familys time and resources. Without knowing the available opportunities and potential pitfalls, you could jeopardize your childs financial future and miss out on significant benefits. Please refer to the following to help you plan for the future of your child:
Be aware of different financial and education life stages From a financial perspective, if your child is under 18 then you have primary support obligations and are considered a natural guardian. Deeming rules are in place for government assistance which confers your assets to your child for resource calculation purposes. After age 18, your child may need to have a guardian appointed. In terms of education, birth to age 3 involves detection and early intervention, from 3-5 you will help develop an Individualized Education Plan (IEP), from 15-21 your child will finish high school and potentially pursue college or vocational school, after age 21 your child will no longer have a right to public education, state-level therapy services, vocational training, or residential living options.
File for guardianship if necessary As stated above, once your child reaches the age of 18, you are no longer considered their legal guardian and will have to petition the court for renewed guardianship if you deem it necessary. Keep in mind, guardianship proceedings can be expensive and your child must go through a process to determine their competence. This can be expensive for you and stressful for your child, so guardianship should be considered carefully.
Take advantage of applicable tax deductions and credits Many families are not aware of the potential tax breaks available to caregivers of special needs individuals. Among the most beneficial are the medical expense and the impairment-related work expense deductions:
–Medical Expense Deduction Can be used for capital expenditures (permanent improvements and/or removal of structural barriers), unreimbursed cost of attending a special school, medical conferences and seminars, nursing home expenses, and travel and transportation costs.
–Impairment-Related Work Expenses Used for tools or services needed to satisfactorily perform job duties; not subject to the 2% of Adjusted Gross Income (AGI) limitation for itemized deductions.
Execute/update your estate documents If you have not recently executed legal documents with consideration for your special needs child, it is imperative that you do so immediately. Without advance estate planning, your childs government benefits could be jeopardized by an unintended bequest.
Update beneficiary designations Many people forget to update their beneficiary designations after marriage or the birth of a child. To ensure your childs ability to maintain government benefits, it is important to properly coordinate beneficiary designations with your estate documents to avoid an unexpected inheritance.
Create a letter of intent This document outlines basic information about your child, including your childs functional abilities, routines, interests, and particular likes and dislikes as well as identifying specific doctors, services and resources that will help your child maintain the highest level of independence and self-reliance possible.
Form a plan of action for your family It is of critical importance to make other family members aware of your plans for your child. Without properly informing your family of your plans and intentions, they could unintentionally penalize your child with a well-meaning inheritance.
Consider setting up a special needs trust There are three types of special needs trust, each with the objective of protecting your childs eligibility for government benefits while at the same time providing for current and future financial support. In order to not disqualify your child from receiving government assistance, trust distributions must supplement but not supplant those benefits. Additionally, the trustee must be given absolute discretion.
–Payback Funded with the assets of the child, including unexpected inheritances and structured settlements. Must be created irrevocably for the benefit of a disabled individual under age 65, by a parent, grandparent, guardian, or the court. It can only be used for one child and the state must be named the primary beneficiary.
–Pooled Funded with the assets of the child, usually when those funds are modest and will likely be exhausted in the near future. Trustee is a non-profit that pools together and invests the assets of many beneficiaries, while each individual has their own account. No payback provision is required, but any remaining funds must be left in the trust for the benefit of other disabled individuals.
–Third-Party Generally funded by Will bequests or lifetime gifts. No payback provisions are necessary since the trust is not funded with the disabled childs assets and multiple beneficiaries can be named.
Consider an ABLE plan While not a substitute for a special needs trust, these accounts can be useful wealth accumulation vehicles for your child. They are similar to 529 college savings plans, but distributions must be for qualified expenses related to the childs disability. These accounts must be created before the beneficiary is age 26 and cannot contain more than $100,000 without reducing governmental assistance. Any remaining funds at the beneficiarys death will be paid to the state, up to the amounts paid on their behalf during their lifetime.
Take inventory of assets Taking stock of your childs assets as well as yours (if your child is under 18) will be important in determining eligibility for government benefits, including Supplemental Security Income (SSI), Social Security Disability Income (SSDI), Medicaid, and Medicare. Remember, if your child is under 18, deeming rules are in place and your assets are considered when applying for benefits.
–SSI Needs based. Qualifying individuals include those who are blind, disabled, or at least 65 years old and financially eligible. Resources are limited to $2,000 per individual, unearned income up to $20 is exempt, and earned income up to $65, plus of earnings above, is exempt. Maximum 2015 benefit is $733 per month. a
–SSDI Qualifying individuals include those who have accumulated a sufficient number of work credits under Social Security and who cannot engage in any substantial gainful activity. There is no resource limitation, but the income limitation is equal to the substantial gainful activity level ($1,090 per month). Maximum benefit depends on work history. Disabled child can qualify and receive benefits if they became disabled before 22 and have a retired, disabled, or deceased parent.
–Medicaid Needs based. Automatically enrolled upon receiving SSI. Resource and income limitations are the same as SSI.
–Medicare Automatically enrolled after receiving SSDI for 2 months. Does not pay for nursing home expenses.
If you are currently caring for an individual with special needs, or anticipate that you might be a caregiver in the future, you may wish to consider having a MASTERPLAN done; this financial plan will take a comprehensive look at your financial situation and help you decide on the best course of action. Please contact Hefren-Tillotson for further details.