Financial Literacy - Families and Finance
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Planning for a special-needs child

Parents of children with special needs are faced with daily challenges. The take-it-one-day-at-a-time approach may work most of the time, but experts say these parents should pause to consider what may happen to their special-needs child if something should happen to them. Odds are good that many of these children will survive their parents.

Yet planning beyond their own lifetimes is a task that many parents have not gotten around to, according to a 2008 survey by The Hartford Financial Services Group. Some 62 percent of parents have no long-term care plan in place for their special-needs child.

Among parents with a plan, half said they plan to leave money directly to their child, and 58 percent name their child as a beneficiary.

Either of those plans could disqualify a child from eligibility for government benefits and services, which impose strict limits on the assets a beneficiary can have in his or her name.

Financial planning for a special-needs child can be tricky, but if you start with a good road map, you'll avoid costly financial mistakes and have peace of mind that your child will be taken care when you and your spouse are gone.

7 steps to a special-needs plan
  1. Get the right experts to help.
  2. Start with a letter of intent.
  3. Draft a will.
  4. Understand government benefits.
  5. Establish a special-needs trust.
  6. Name a trustee and guardian.
  7. Determine how to fund the trust.

Get the right experts to help you

When Karen Greenberg's son Ricky was diagnosed with autism, doctors told her to plan for the likelihood that he would never hold gainful employment and that he would require financial assistance well into his adult life.

Greenberg, a Certified Financial Planner based in Delray Beach, Fla., says the advice from her attorney at the time was to leave her estate to her youngest daughter.

"As a financial planner, I knew that was very poor advice because contingencies like divorce and lawsuits could befall even the most diligent and protective sibling," she says.

After doing research at a law library, she decided to establish a third-party special-needs trust, also known as a supplemental needs trust, to provide for Ricky financially while protecting government benefits such as Supplemental Security Income and Medicaid.

She says the trust she established for her son is usually beyond the reach of creditors of the child and the parents and is not available in divorce proceedings if the child marries.

Ricky, now 21, lives in a group home in New York that is completely funded by Medicaid. Greenberg says it would cost more than $100,000 per year out of pocket otherwise.

Greenberg was fortunate in having a financial planning background, but the majority of parents are often in a quandary about financial planning for special-needs children. It's a good idea to get together a team of experts that includes a medical professional familiar with the child's health care needs and an attorney who is well-versed in the area of special-needs trusts and government benefits.

Start with a letter of intent

The letter of intent really is the backbone of your financial plan because it serves as your instructions to the trustee and guardian on how to care for your child. As part of your child's life care plan, it describes your child's medical history, current status and other important information that can guide caregivers in the event of your death.

Ideally, it should be a fluid document that is started when your child is young and updated periodically as your child grows.

It should describe medications your child takes, attending physicians and developmental milestones. It may include things such as physicians to avoid, and your child's favorite activities and food preferences. It should also include the child's Social Security number and birth date as well as the parents' financial information.

Potential guardians should get copies periodically as the letter is updated.

"We had a lot of doctors involved in Ricky's case and a lot of things that we needed to be aware of, and it was impossible to keep all of that stuff straight," Greenberg says. "Parents have a lot of information in their heads, but they really need to write it down."

Draft a will

A letter of intent is an excellent way to create a record of your child's medical history and milestones, but it doesn't have as much legal clout as a will.

No one understands your special-needs child better than you, the parent, but without a will, the door is wide open for the courts to decide how your assets will be distributed -- which may or may not be in your child's best interests.

Not only does a will specifically detail how and when your assets will be distributed, but in conjunction with a well-thought-out financial plan, you can avoid unnecessary taxes and expenses.

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