When it comes to Diversity and Inclusion and how we serve diverse communities, I find myself drawn to one community in particular: families of children with disabilities. Financial planning for these families is such a rewarding endeavor. These are people who perhaps thought they had all of their planning laid out before them only to learn that having a child with disabilities requires them to throw those old plans away and create something brand new.
That’s where a trusted financial advisor can come in. Families of children with disabilities need guidance and support. They need someone to help captain their ship, plot a course through the storm, and make sure all of their life jackets are in place. The most rewarding thing about partnering with these families? Knowing that the more time I can free up for them by not having to worry about their finances, the more time they have to enjoy fulfilling lives with their children.
The True Costs of Disability
More than 20 million U.S. families have at least one person with a disability. In 2014, the U.S. Department of Agriculture estimated the cost of raising children from birth to 18 years was between $176,550 to $407,820, depending on the parent’s income and where they live. The Centers for Disease Control and Prevention notes it costs $40,000 to $60,000 more per year to raise a child with autism.
Depending on how severe the child’s challenges are, the cost of lifetime care can run well past $1 million dollars, with occupational, behavioral, and life skills therapy, private schooling, and private caregivers among the major expenses. The truth is that disease and disability do not care how much you have in your bank account or what you can afford.
What Kind of Government Help Can I Get?
Supplemental Security Income (SSI) is the only source of federal income for children with disabilities. For many families, this is their only income stream. But not every child qualifies, and SSI favors disadvantaged families, so there are income limits applied.
According to ssa.gov, children on SSI receive an average of $647 per month; the maximum payment for an individual is $791 per month. The maximum monthly amount of earned income a family can make for a child with disabilities to qualify for SSI is $3,301 for a one-parent family, and $4,095 for a two-parent household (assuming no other children are in the home; these amounts increase with other children.) If all income is unearned, the monthly limits are $1,628 and $2,025, respectively.
There are governmental health programs to help defray costs of treatment and medical care. In 2016, Medicaid and the Children’s Health Insurance Program (CHIP) covered almost half of children with disabilities’ health care needs. These programs are important for families, along with private insurance, to find ways to cover costs.
Types of Planning You May Need
So what is a financial advisor’s goal for families of children with disabilities then? To help families afford present care needs while also planning for their future selves and their children’s future – all while protecting the funds that will be used by, and for, their child when they become an adult.
The most well-known planning tools for these families are Special Needs Trusts and ABLE Accounts. While these do behave differently, their goal is to provide protections for the funds to be used by the child.
Special Needs Trusts
A Special Needs Trust (SNT) is a specific type of irrevocable trust that exists under Common Law. Like other trusts, it is a legal arrangement and fiduciary relationship that allows a physically or mentally disabled (or chronically ill person) to receive income and access funds without worrying about income limits and reducing eligibility for essential public assistance disability benefits provided by Social Security, Supplemental Security Income, Medicare, or Medicaid. The money in this trust is used for permitted expenses like medical, food, and caregiver costs. Another perk of these trusts is the funds are protected from creditors and lawsuits.
There are two types of SNTs:
- First Party Special Needs Trust – These are most often used when a person with disabilities inherits money or property outright, or receives a court settlement. Property in a first-party SNT can only be used for the “sole benefit” of that beneficiary. Individual first-party SNTs may be created (and funded) only for individuals who meet the government’s definition of “disabled” and are under 65 years of age when the SNT is established (and funded).
- Third Party Special Needs Trust – These are commonly used for planning in advance for a loved one with disabilities. They can be established by parents, grandparents, etc. and can be included in their wills or living trusts, or be “Stand Alone” SNTs.
What is an ABLE Account?
An ABLE (Achieving a Better Life Experience) account is a tax advantaged savings vehicle, similar to an educational 529 plan, for qualified individuals with disabilities and their families. This account can assist with saving and paying for expenses as it relates to living with a permanent disability. The account can be used for expenses such as education, transportation, home renovations, and assistive technology.
A person with disabilities can open their own ABLE account and manage their funds themselves, making them less reliant on others for assistance and making it easier to access funds. Most frequently, ABLE accounts are accessed by the person with disabilities using an ATM card. Unlike a SNT, ABLE accounts can be managed by the beneficiary if they are able to do so.
If liquid assets outside of this ABLE account exceed $2,000, it could disqualify the beneficiary for Supplemental Social Security (SSI) or other government benefits. A recent change now allows individuals to open the account who became disabled before the age of 46 (previously 26). Key features of ABLE accounts include:
- Income: The income associated with the account is not taxable to the beneficiary.
- Contributions: Individuals can contribute whatever they wish to the account, but anything over $15k must be reported as it reduces your lifetime gift exemption.
- Some states allow for a tax deduction related to the contributions (i.e. PA does up to $15k, CA does not).
- Contributions can be made by anyone (i.e. friends, family, SNTs, etc.), however they must be made with after tax dollars.
- Availability: ABLE accounts are available in 43 states and the District of Columbia and can have a balance of up to $100k.
- Balances over $100k will risk the individuals’ eligibility for SSI and other government benefits (i.e such as Medicaid).
It’s important to note, that unfortunately some people with disabilities can be susceptible to being taken advantage of financially. If a SNT was used to hold the funds instead of an ABLE Account, a trustee has a legal obligation to safeguard the funds.
Regardless of what vehicle is used to hold funds, it’s important to determine whether or not a primary caretaker should establish legal guardianship so they can make financial decisions on behalf of the individual with disabilities.
Other Important Things to Know
Beyond the types of trusts families should consider, there are an increasing number of moving parts when it comes to planning for children with disabilities. Below is a snapshot of some of the most essential.
- There are tax credits available for families with disabilities.
- The Social Security Administration uses its own medical guide, known as the Blue Book, to evaluate all Social Security disability applicants and deem benefits accordingly.
- Create life insurance policies so funds paid out to the child upon the primary caretakers’ death are funneled through the SNT instead of being left directly to the child.
- It’s also important for primary caretakers to establish in their own wills who will assume legal guardianship if they should die unexpectedly.
- When estate planning, remember to create a “Letter of Intent.” This is a document with special instructions on how to care for the child or adult with disabilities. It’s not a legal document, but it’s just as important as an estate plan. The letter will describe the dependent’s medical history, doctors, and personal information like preferences and habits.
- Work with a lawyer to include the SNT in the primary caretaker’s will, so any money left to the dependent doesn’t count as part of the dependents’s assets.
- Check in with grandparents and other family member’s estate plans. Gifts willed directly to a person with disabilities could affect their eligibility for government benefits.
- Upon the beneficiary’s death, a Third Party SNT is not required to use remaining assets to reimburse any state(s) for Medicaid benefits received by the beneficiary during their lifetime. As a result, this type of SNT is a useful planning tool for people who want to set aside property for a beneficiary with disabilities, preserve essential public benefits during that beneficiary’s lifetime, and remain in full control of where all remaining SNT assets will go upon the beneficiary’s death.
Financial Support and Grants
There are also various grants available to provide financial support to individuals with disabilities and their families. The need criteria and income requirements vary greatly, so it’s important for families to do the research and try to apply for as many as they can qualify for. They don’t have to pay these funds back! A small sample includes:
- Autism Cares Today SOS Program – Supports those impacted with autism who have an immediate need for treatment or support and whose safety is jeopardized if treatment is not found.
- Parker’s Purpose Foundation Assistance – Provides financial assistance up to $1,000 to any family who has a minor with a life-altering illness or disability that is in immediate financial crisis from unforeseen medical expenses. Funding preference is given to Ohio residents, but is granted outside of Ohio if deemed eligible.
- First Hand Foundation – Provides funding for items to improve the quality of life of individuals with disabilities not otherwise covered by insurance.
- Autism Support Network – Has an extensive list of grants available for autism related expenses.
Educational Support and Scholarships
There are numerous scholarships available to ensure that students with disabilities are able to achieve their education goals despite potential setbacks such as learning differences, environmental challenges, or medical needs. Scholarships available include:
- Rise Scholarship Foundation – Five students diagnosed with ADD or ADHD and an additional learning disability receive this $2,500 award annually. Applicants must have a grade point average of 2.5 or higher to qualify.
- Organization for Autism Research – Two nonrenewable, $3,000 scholarships are available for students on the autism spectrum who are full-time students working toward certification or accreditation in a particular field.
- Anne Ford Scholarship – This $10,000 scholarship ($2,500 per year over four years) goes to a graduating high school senior who will attend a four-year bachelor’s degree program. Recipients must demonstrate financial need and be involved in school and community activities.
- Landmark College Scholarships – Landmark College is one of only two colleges in the country specifically for students with learning disabilities. Multiple scholarships ranging from $5,000 to $34,000 are available based on financial aid and merit.
- Lighthouse Guild – Up to 10 merit-based scholarships are awarded each year to legally blind high school students preparing to attend college.
- Microsoft DisAbility Scholarship – Awarded to promising high school students with financial need who plan on attending a vocational or academic college. This scholarship provides $5,000 per year (up to a total of $20,000) and is designed for students who seek a career in the technology industry.
Talk to a Financial Advisor Today
Individuals with disabilities and their families don’t have to go it alone. While there are many complexities in this type of financial planning, a financial advisor can be a trusted ally in helping build a solid foundation for families to thrive. Reach out to an Abacus advisor today.