Financial Planning for Special Needs Children is Different!

Preschool Children SeriesFew families aren’t touched by this issue.

According to Financial Planning magazine, more than 5% of school-age children are diagnosed with a disability of some type – seeing, hearing, talking, walking, or thinking; and, planning for their future can not only be complex, but demanding.  Indeed, many parents feel overwhelmed!

What makes it so difficult is that the planning isn’t only for the parents – it’s also for after the parents and caregivers are long-gone, which can be another 30 to 50 years!

So, financial planning must last for at least two lifetimes when special needs children are involved.

The issues are many, and often difficult to talk about.  Will the child have a shortened life-span?  Will the child be capable of living and working independently?  Will they be able to handle money?    Someone who can’t make change in their 40s will find it virtually impossible to reconcile a check book.

The families struggle, too.  Medical, therapeutic, and emergency health care issues can deplete a bank account quickly; and, often, families neglect their own retirement plans in an effort to help.   Younger couples facing these issues really need to begin their planning early – for more than just themselves.    How will special needs children be provided for?  Who will administer it all after the parents are gone?  What investment mix is required?

Many planners will often recommend that families facing these issues begin by setting-up a third-party special-needs trust – and, it should go without saying  that an experienced lawyer is a must.  The reason this type of trust is recommended is because the assets in these trusts aren’t counted toward the disabled person’s eligibility cap for Medicaid benefits; but there are rules on how the money can be used – cash, for example, is bad because if the trustee gives the beneficiary cash, that cash counts against their benefits dollar for dollar, according to Dennis Sandoval, an estate planning attorney in Riverside, California.

Some families are wealthy enough to fund trusts while they’re still alive; but, others can accomplish the same thing with life insurance, often a second-to-die policy that pays out after the second parent’s death because the premiums are less.  Term insurance can make sense if the child is expected to die before the parent.

Quite often, a family establishing a trust will want to name a family member as trustee; but, many advisors think this may not be a good idea since most lack the financial acumen to handle a trust’s administration.  Besides, what if your family trustee dies?  What then?  Who takes over?  Can the child function in an adult world, even after reaching age 50?

A better option might be to use a third-party trust company for administration and a qualified advisor to oversee the management of the assets.  Trust companies don’t die and are bound by regulatory oversight.  Quite often, an experienced advisor can help parents access an independent third-party trust company – without a conflict of interest or hidden compensation – and be better equipped to balance immediate needs against the long-term goal of ensuring that there is enough money to last throughout the disabled person’s life.



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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742. IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.