There are millions of individuals living with disabilities who face increasing costs for health care, housing and daily living. Their special needs can be ongoing and for life. Disabled children and their families often rely on public assistance to help make ends meet and cover varying expenses, however public assistance only goes so far.
Families with a special needs child should undoubtedly consider additional planning when it comes to the future and finances. The goal should be for parents to use their estate to benefit the life of their special needs child while also ensuring the child is benefitting from all available public assistance. There are many options that can make up a solid strategy.
A special needs trust can be created by family members of the disabled child and funded with assets that are not owned by the child. The benefit of having this trust is that the child will continue to qualify for public assistance programs and would not have access to the money. A trustee would have to be appointed as the money manager, which ensures proper financial management, especially after the parents death.
In 2014, a tax-advantaged savings account for disabled individuals was created through the Achieving a Better Life Experience (ABLE) Act. In ABLE accounts, the beneficiary of the account is the account holder and money grows on a tax-deferred basis. Distributions are tax-free, however they must be used for qualified disability expenses.
Family and friends may contribute to the ABLE account but contributions must not exceed $14,000 per year. Also, the disabled individual must have developed the disability prior to age 26. There are some additional rules when it comes to ABLE accounts, but this account can be a good addition to a special needs strategy.
Supplemental Security Income and Medicaid are important when it comes to special needs planning too. However, individuals with more than $2,000 in assets and couples with more than $3,000 in assets will not qualify for SSI. A smart strategy combines multiple available options and benefits, however every situation is different, making it important to consult a professional for special needs planning.
Setting up accounts and a trust are not the only requirements in planning for the future of those with special needs. A specific written plan should clarify how you wish for a disabled child to be care for throughout their life. This plan or document should include medical needs, social needs, dietary needs, financial resources and successor trustees.
One reason it is important to consult a professional is that mistakes could happen, such as naming a special needs child as a life insurance beneficiary, as this could affect ability for government aid. It may be a good idea for both parents of a special needs child to obtain permanent life insurance as well, then name the trust as the beneficiary.
If you are in need of a special needs trust or other special needs planning, contact the team at Bayntree Wealth Advisors. Bayntree has legal and accounting partners who collaborate to develop comprehensive and customized special needs strategies. Email questions@bayntree.com or call 480-494-2750.
Bayntree Wealth Advisors, located in Phoenix and Scottsdale, Arizona, provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.
Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.
