Sections Supplements

Planning Ahead for Your Special-needs Child

Take Steps Now to Ensure Lifelong Financial Security

For parents of a grown child with disabilities, the most pressing question is “what will happen to my child when I’m no longer here?” This concern grows more urgent as parents retire or experience a decline in health.

Today, more than 700,000 adults with disabilities live with caregivers over age 60. While this reflects the positive trend of longer life expectancies for the seriously disabled and the general population, it also presents a new challenge for older parents: the need to make plans to preserve their children’s lifelong financial security.

Fortunately, it’s not too late to get started. Partnering with a team of professionals who are knowledgeable about disability issues — including a trusted financial advisor who can look at the impact on your overall financial goals — will help you take the steps necessary to secure a bright future for your child.

Step 1:Create a ‘Life Plan.’ The first step is creating a ‘Letter of Intent’ or ‘Life Plan’ that will serve as a road map for everyone involved in your child’s future care. With the help of a social service representative who specializes in your child’s area of disability, you can write (or record or videotape) your preferences, including where your child will live, what types of enrichment programs they’ll attend (e.g., vocational or adult activity programs), what type of daily care they’ll require, and who will assume a guardianship role.

To help caregivers view your child as a unique individual, it also is important to provide as much detail as possible about the child’s life, including medical and therapeutic history, challenges and triumphs, hobbies and interests.

Step 2:Calculate the Cost. The next step is estimating the cost of your child’s future lifestyle. A financial advisor trained in disability issues can help you do this using a specially designed financial calculator. You can find one by visiting www.totalmerrill.com/specialneeds. Based on information you provide about your child’s anticipated income and expenses — including costs for housing and enrichment programs — and assumptions about inflation and investment returns, the calculator will estimate how much you’ll need to set aside to close any shortfall in monthly needs.

Step 3:Preserve Public Benefits. As you take the next few steps, it will be critical to consider how your actions may impact your child’s eligibility for means-tested public benefits such as Supplemental Security Income (SSI). SSI serves as the gateway to Medicaid and numerous other programs that form the bedrock of support for the seriously disabled. Your child’s uninterrupted eligibility depends on having limited income and no more than $2,000 in assets.

Step 4:Fund Your ‘Special-needs Goal.’ Most parents wish to supplement SSI income to provide their children with a higher quality of life. If you’ve already set aside funds in your child’s name, named your child as beneficiary of policies or accounts, made a bequest through your will, or encouraged relatives to do the same, you’ll need to make some changes — with the help of a financial advisor and attorney — to avoid jeopardizing your child’s eligibility for SSI.

If you plan to fund your child’s needs with retirement plan assets or proceeds from the sale of your home or business, a knowledgeable financial advisor can suggest ways to balance your child’s financial needs with your own. If saving for this goal is out of the question, a financial advisor can help you consider cost-effective alternatives like purchasing a ‘second-to-die’ life insurance policy payable after both parents die.

Step 5:Consider a Special Needs Trust (SNT). However you fund your goal, where you place the assets will be of paramount importance. Generally, the only way to supplement the lifestyle of an individual receiving means-tested public benefits is to place assets in an SNT.

A disability and elder law attorney can help you establish a trust in a manner that supports your overall estate-planning goals.

Step 6:Plan Ahead for Long-term Care Needs. Finally, you’ll need to ensure that your own health care expenses won’t deplete assets set aside for your special-needs child. A long-term care insurance policy is one possible solution. A disability and elder law attorney can help you consider other alternatives, such as placing assets earmarked for your child in a ‘Disability Annuity Trust’ held inside an SNT.

Following an organized plan of action and working in concert with the right professional resources can ensure your child’s future. Partnering with the right financial advisor is essential to this strategy, and can help you assess and attain your most important intergenerational financial goals.

Chris Sullivan is vice president of Special Needs Financial Services at Merrill Lynch.