Plan for the Future of Your Special-Needs Child

By Harry S. Margolis

An estimated 10 million American children—one of seven—have special needs, ranging from autism to mental retardation.*

Parents of these special-needs children often cope heroically while caring for them. But these parents also face another daunting challenge: Ensuring that after they die, their children will continue getting the care and support they require.

To find out how parents of special-needs children may want to consider planning for their future, Vanguard talked with Harry S. Margolis, co-founder of the Academy of Special Needs Planners, whose members advise parents of children with special needs. Mr. Margolis is also a partner in the Boston law firm of Margolis & Bloom, LLP and an advisor to care.com, which provides access to special needs caregivers.

What's the first step to take when figuring out the future financial requirements of a special-needs child?

To sit down with a financial planner.

Providing for a special-needs child has to be done in the context of your own financial [status] because the reality is that people with a special-needs child often are financially worse off because of the cost of caring for the child and the inability for both parents to work.

Can you count on government help for your child?

Individuals who are disabled as children are entitled to Social Security benefits based on their parents' work records.

They may be eligible to begin collecting disability or retirement benefits, as well as Medicare, after a parent retires or passes away.

Beyond Social Security and Medicare, what should parents think about?

Many parents believe that Medicare, Medicaid, and subsidized housing will take care of their child's needs once they are gone and think that there is no need to set money aside.

But they don't consider all the things they do themselves, for free, while they are able. They serve as care providers, managers, and advocates for their children throughout their lives.

When they are unavailable to continue in this role, other family members may fill in, but if they can't, it may be necessary to hire professional care managers.

So what are reasonable financial strategies they could consider?

Certainly, parents should consider setting aside some money every month, as everyone should for their own retirement and the education of their children.

But one of the most important sources of funding for a child with special needs is life insurance, which can be used to replace the care and services provided by parents when they are no longer there to do it themselves.

Another advantage of buying a life insurance policy is that if the premiums seem out of reach, they may be something that other family members can help with.

You may not want to ask grandparents for [day-to-day] financial help, but you may feel comfortable asking them to pay for the life insurance premiums.

Should the proceeds from the policy or other funds you may leave in an estate go directly to the child?

In 99 of 100 cases that money should not be payable to the child.

Number one, they may not be able to manage it and they will be at risk that someone will take the money from them.

[Number two,] Medicaid, Supplemental Social Security, and subsidized housing have strict asset and income limits for eligibility. If you leave money to a child, they may not qualify for those benefits.

What is the alternative to leaving money to a child?

To set up a trust. It should have one or more trustees to manage the money and permit  them to use the funds as they see fit for the child's benefit.

How do you choose a trustee?

That is one of the more difficult issues.

If you name a family member, they will know the child, care about the child, and do a good job of communicating with the child. But they may have little or no expertise managing money or dealing with government aid program rules.

The other choice is a professional trustee, a trust company, lawyer, or accountant.

That person may do a good job of managing the trust, but the question is how well will the trustee will be able to communicate with the child or the child's care providers.

The solution you may want to consider is a hybrid that would have a family member and a professional trustee; or a professional trustee, with a list of advisors that the trustee would be required to consult, like a social worker, a family member, or a teacher.

Is there anything else that should be done, in addition to setting up a trust?

A letter of intent providing information about the child and about your hopes and plans for your child can be vital to guiding the trustee and others involved in the child's care.

Over the years, those involved in your child's care will have to make many decisions, and it will be difficult to carry out what you wanted without such guidance.

In estate issues, how do you treat your other children fairly?

If you have a limited estate and you divided it three ways, for example, that could leave insufficient funds for the child with special needs. And if you leave the bulk of your estate to that child, it wouldn't seem fair, especially since the other children probably already have had to sacrifice.

What I look to do is to advise parents to consider dividing an estate equally, but make the special-needs child's trust the beneficiary of life insurance. The child might get more, but everyone generally feels that is equitable and fair.

*Sources: U.S. Census Bureau and U.S. Department of Health and Human Services.

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