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Caring for a child with special needs

Key takeaways:

  • The financial planning process can start by simply considering the best options for treatment you can afford.
  • Be careful about how you title assets for a child with special needs, because it could impact benefits down the road.
  • Make sure your family knows the benefit rules so they do not leave assets in a way that could reduce disability benefits.

My child has special needs—how do I think about what happens to her after I'm gone?

It can be overwhelming when you are on this journey. I didn't know my daughter Joslyn was autistic until she was 7. They couldn't diagnose her with something specific before that, and even when they did, it took me a while to accept it. I thought it was something I could fix. Now she's in her 30s, and we've learned a lot along the way.

It's almost impossible to think about what happens to your child when you're gone. Who will take care of her medications? Who will comfort her? Who will do all the things I do that I can't even enumerate for anyone? The list of worries bulldozes into a huge mountain.

Every family is different, and every child has different needs. For my daughter, the way I started was simple: I looked at the best options I could find for her that we could afford. She didn't have any acute medical needs, so our focus was on education and communication. I didn't know at the beginning if she'd ever be able to care for herself independently, but now that she's older, I know that she won't be able to do that.

Our attention at the beginning was on making sure she'd be able to have the therapies and tutors she'd need, no matter what happened to me or her father. For us, that meant getting special needs trusts. Her father and I are now divorced, so we each have third-party special needs trusts. These are trusts that allow the trustee to control assets to pay directly for certain items and services not covered by the beneficiary's monthly Supplemental Security Income for disability and will not affect eligibility for benefits.

We didn't do this all perfectly at first

We made the mistake initially of putting money directly in Joslyn's name in a trust, using an attorney who didn't specialize in special needs trusts. As a result, we had to establish yet another trust to pay back the benefits that she wasn't eligible for because of the money in her name. We also had some issues because her great-grandmother had US government savings bonds in a safe deposit box for her, and we had to put those in the payback trust as well.

You have to be very careful. Family, out of love, will do a lot of things, even listing an individual with special needs as a beneficiary on IRAs or as an heir to other assets. Joslyn has had her Social Security disability payments taken away a couple of times because of such gifts, and we've had to reapply. I had to go in with binders of documents and records. Now I keep close tabs on everything.

What is an ABLE account?

Earnings in an ABLE account can grow tax-deferred for a disabled beneficiary. Distributions for "qualified disability expenses" are not subject to federal income tax.

The annual contribution limit from all contributors to an ABLE account in a single tax year is equal to the annual exclusion amount under IRC Section 2503(b) and is currently at $18,000 (in 2024) and may increase from time to time. A disabled beneficiary can only have one ABLE account.

A qualified employed beneficiary, as defined by federal tax law, may contribute annually to their ABLE account in excess of the standard annual contribution limit by an amount equal to the lesser of the designated beneficiary's compensation for the taxable year, or an amount equal to the Federal Poverty Level for a one-person household, as defined by federal law, which is $14,580 in 2023 for most states.

There’s a type of account known as an “Achieving a Better Life Experience” or ABLE account, which allows the families of disabled young people to set aside money for their care in a way that earns special tax benefits. These accounts can be used to help save for expenses above and beyond what the government is going to cover. The assets in the account (up to $100,000) don’t count toward the $2,000 limit on eligibility for federal benefits like Medicare, so, depending on your situation, it can be a good way to help build up some long-term savings for your child.

Friends and extended family members can contribute, as well, which can help head off some of the complications we ran into with well-intentioned gifts. (However, there is an annual contribution limit, which is equal to the annual exclusion amount under IRC Section 2503(b), on an ABLE account.)

When Joslyn got older and was considered an adult. I had to get legal guardianship over her. This was because every time we went to the doctor, I wouldn't be allowed in with her because it technically violated her privacy. Guardianship gets me financial and medical access now.

If something happens to either me or her father, Joslyn's 2 younger sisters are her designated successor guardians for legal and financial decisions, and to be trustees of her trusts. They are fierce advocates for her. I know that whatever happens they will be there for her.

Beyond the estate planning, we are trying to find the right living situation for Joslyn as an adult. I've looked at group homes in Michigan. I've visited campuses around the country. There are not many that will keep adults with special needs until end of life. If she has some health issue that crops up at 60, or anything that she needs, and I'm not around, I want to make sure there's a plan for her. That's what all this advance planning is really about, I need the peace of mind that I've set her up as best I can, and not burdened the caregivers who will take over for me.

For more on planning for loved ones with special needs, see Financial planning for loved ones with disabilities.

Robin Waldman
Robin is a vice president, wealth planner at Fidelity. She is based in Farmington, Michigan.

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