Long-term care for children with disabilities

You may have heard the expression, “once a parent, always a parent.” Many parents of children with disabilities carry the full meaning of that phrase for their whole lives. Having a child with a disability impacts every aspect of family life, including retirement. Their retirement approach may be more complex with the added layer of thinking about their child’s future well-being when they are no longer around to provide care.

Here are some considerations to keep in mind if you find yourself shaping a retirement strategy that accounts for your child with a disability.

The special needs trust

A supplemental needs trust (often referred to as a special needs trust) is generally the primary tool to provide for a child with a disability while protecting government benefits, such as Supplemental Security Income (SSI) and Medicaid. Such a trust is established to manage assets for a beneficiary, in this case a child with a disability. The assets are for the benefit of the child, but not owned by the child, and are usually beyond the reach of the parents’ or child’s creditors. Assets in the trust may be used to pay for rehabilitation, educational services, or medical services not covered by other sources. They can also be used toward quality-of-life enhancements, such as entertainment or vacations, but can’t be used to pay for services that a government program normally covers.

Funding a special needs trust

Special needs trusts are often empty when established, and are set up to receive future funding, usually the proceeds of life insurance. Some financial professionals and lawyers recommend not funding it until the death of both parents. While usually funded by life insurance proceeds, the trust can also be funded by cash gifts or investments, such as retirement fund proceeds or individual retirement accounts (IRAs), if the IRA custodian allows it. Funding can also be obtained through specific instructions left in a will, where parents or guardians can ensure their assets are left to the trust and not directly to the child. If you have a revocable living trust, it can also include necessary provisions to create a special needs trust.

Regardless of the source of the funds, it’s important to name the trust as the recipient for the benefit of the child. Well-intentioned family members may want to help by leaving money directly to the child, but this could be a potentially costly mistake, as those good intentions may disqualify your child from various benefits and governmental assistance.

Thinking ahead is critical

Medical and technological advances continue to occur, and generally are improving the lives and life expectancies of children with disabilities. This makes it ever more critical for parents to think about the future. However, establishing a special needs trust and drafting the accompanying will isn’t a do-it-yourself project. If you are the parent of a child with a disability, you should consider working with a local lawyer and a financial professional familiar with the appropriate laws and resources, which vary from state to state.

No matter when and how you plan your retirement, you may feel more confident knowing plans are in place for your child with a disability.