Planning for Financial Needs
You want the best for your child's lifetime care, but sometimes sufficient financial resources to meet those needs may not be available. The death of one or both parents can easily disrupt the continuation of your child's financial safety net.
Figuring out what your child is likely to need is tricky. Ask yourself: How much money will my child need during his or her lifetime?
Start answering the question by estimating your child's current monthly expenses (whether the costs are paid by you, private insurance, etc.). Annualize these costs. Then, assuming a modest interest rate, determine the lump sum amount you will need to produce that much income on an annual basis without depleting principal. Of course, this does not take inflation or other factors into consideration.
If you are just beginning to accumulate assets to fund a special needs trust, there are a variety of funding options, as discussed earlier.
A special needs trust can contain personal property, such as artwork. Keep in mind, these assets may not be readily converted into cash. A value of a home also is susceptible to market fluctuation. Moreover, you may want the family home to stay in the family and not have to be sold to provide necessary care.
Investments, like mutual funds and stock, are another funding option. These types of options, however, do not generally provide a guaranteed amount of income due to market instability and other factors. Retirement plans may offer another option. You may be able to name the trust as beneficiary for any death benefit provided by the plan.
Many special needs trusts are funded, at least in part, with some type of life insurance. Life insurance provides an alternative that can create an asset. Insurance proceeds are generally paid free of income tax and, as long as the estate is not named as beneficiary, usually outside probate. It also can be free of federal estate tax when properly structured. It also allows you to provide the cash needed to provide for your special needs child, while keeping the rest of your estate intact for your other family members. There are two basic types of life insurance.
Term insurance provides coverage for a specified time period and may be best for temporary needs. It does not accumulate a cash value.
Permanent life insurance, such as whole life insurance, accumulates a cash value and may be best for longer term needs. Often, "survivorship" or "second to die" insurance can provide the solution for special needs situations. This insurance insures two people and is less expensive, since it only pays out after the second death, when the money is needed the most. There are many variations of each type of policy. Your individual needs and the needs of your child will help to determine which type is best for you. Insurance policies often contain limitations and exclusions. Be sure to ask for full details regarding the policy and its costs.
Finding Financial Aid
Raising a child is expensive. Raising a child with disabilities is even more expensive. The unique supplies, equipment, treatments and procedures such a child needs can tax even families with significant personal assets.
Fortunately, financial relief may be available. State and federal government programs, community resources, Social Security benefits, private foundations, medical insurance and special education resources provide aid. Consult city, county, state and federal agencies for help in answering financial aid questions.
Generally, government benefits are paid to a disabled dependent child, based on family income. But once a child turns 18, these benefits are awarded based on the child's own assets and income (even if the child is still living at home with the parents).
The most important public benefit programs are Medicaid and Supplemental Security Income (SSI).
Medicaid is a state-administered, federally reimbursed program that pays for needed medical care for eligible persons. An applicant's medical diagnosis, finances and age are used in determining eligibility. To apply for benefits, contact your local Medicaid office or the state health department.
SSI is a federal program that provides income from the federal government to certain individuals with disabilities. Cash benefits are paid each month, up to the "Federal Benefit Rate." To apply for SSI, contact your local Social Security Administration office.
Eligibility for both of these programs is based on need as well as disability. A person is not qualified to receive SSI if he or she has "countable resources" in excess of $2,000 or "countable income" in excess of the Federal Benefit Rate. SSI payments are reduced by the amount of any "countable income" received by an SSI recipient. Also, assets in a special needs trust may be claimed by Medicaid upon the death of the beneficiary if Medicaid paid benefits while the trust was in effect. Contact your local Social Security Administration office for additional information.