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“What will happen to my child with special needs when I am gone?” This is a question that parents of children with special needs will eventually have to ask themselves. While this is a topic that is often avoided,

it is one of the most critical issues to address sooner rather than later. Here are some early steps you can take to develop a long-term plan:

1. Start planning early. Regardless of the age of your child, having a plan in place will avoid confusion and complications that will most certainly arise upon the death of a caretaker. Of the more than 10 million people with developmental disabilities in the United States, less than 20% of their families have made any financial preparations for the future.

2. Carefully select care providers. Parents need to ask themselves “who will be available to provide the best care for my child?” It is a mistake to assume that other family members will be open to assuming this responsibility. Begin an open and honest dialog with selected parties early to specify what roles, if any, family members or friends will be willing to take as these decisions often require a lifelong commitment.

3. Do not put assets in the name of your child with special needs. This action may disqualify your child from receiving future financial aid and may also trigger reclaiming of past benefits by Medicaid and other organizations. You should refrain from giving outright gifts or naming your child with special needs as a direct beneficiary in your will and life insurance policies.

4. Think about establishing a Special Needs Trust. If properly drafted, an irrevocable Special Needs Trust can help maintain your child’s eligibility for public plans as these assets will not be considered as being owned by him/her. Setting up a trust will also provide unbiased, professional money management of assets and funds to maximize the lifetime value of these assets.

5. Be very deliberate when selecting a guardian. Your child’s future guardian will be chosen for a number of qualities — financial discretion and money management expertise, knowledge of your child’s needs and preferences, and most significantly, a genuine interest in providing the best quality of life for your child. The guardian should be able to make decisions as needed and willing to make decisions according to your Letter of Intent to carry out your wishes.

6. Arrange for funding. A Special Needs Trust is of no value without funding. As assets cannot be removed from the trust once it has been funded, financial planners often recommended that parents establish the trust with minimal funding during their lifetime. A common technique used to fund a Special Needs Trust is for parents to purchase life insurance policies naming the trust as beneficiary. As the trust is also able to serve as a beneficiary of proceeds from wills, annuities and qualified plan assets, this is also a commonly used technique. Monies from family members and friends who want to contribute can be put directly into the trust.

7. Draft a Letter of Intent with detailed written instructions. The Letter of Intent serves as a blue print regarding your intentions in the event of your passing. This document should include general information and background about your loved one, including medical history, daily living skills, favorite leisure activities, etc. This Letter of Intent should also discuss present and future housing arrangements, rights and values you want to preserve, location of legal and confidential documents, final arrangements and any other relevant information to help caregivers provide your child with the best quality of life.

8. Think about, and make accommodations for, other family members, especially other children. Make provisions for them in your will and take out a separate life insurance policy to provide for their financial needs. This is critically important because funds can only be removed from the Special Needs Trust if the proceeds are to be used for the beneficiary. 

9. Be mindful of differences in state laws. While Medicaid, one of the biggest funding sources for individuals with special needs, is a federally funded program, it is regulated and managed at the state level. As such, laws vary from state to state. Read and understand the laws of the state that is applicable to you as guardianship laws and eligibility guidelines used to qualify for benefits differ from state to state.

10. Always seek the advice of a professional. This is a highly complex area that requires the expertise of an experienced professional. Even among financial professionals, only a small percentage is qualified experts in this complex field. Find financial experts with expertise in special needs planning. Find an attorney who specializes in this area as these professionals will work in conjunction with you to provide the best solution for your child.

Creating a sound financial plan for your child with special needs can be highly emotional, time-consuming and frustrating process. But this is an area that requires your full engagement and attention. Early preparation will enable you to ensure that your child’s needs will be attended to, even if you are not personally around to provide the care and support, both financially and emotionally.

Product Types:

Life insurance products are structured in such a manner that it coordinates the work that needs to be done with your attorney, financial planner and CPA. One of the largest advantages of life insurance is that the cash surrender value continues to compound and can be applied for any expense approved by the legal guardian.

An annuity is a long-term, tax deferred investment vehicle often designed to meet the needs of retirement. Earnings from these annuities are taxable as ordinary income when distributed. If the monies are withdrawn before age 59½, it may be subject to a 10% federal tax penalty. Annuities are not FDIC/NCUA insured. As such these products have no bank guarantees and are not insured by any Federal Government Agency.