Financial Planning for Special Needs Individuals

Caring for a special needs individual can easily deplete a family’s time and resources. Without knowing the available opportunities and potential pitfalls, you could jeopardize this individual’s financial future and miss out on significant benefits and opportunities.    

Be Aware of The Different Financial and Educational Life Stages

From a financial perspective, if a child is under 18 then the caregiver has primary support obligations and is considered a “natural guardian.” Deeming rules are in place for government assistance which confers your assets to the child for resource calculation purposes. After age 18, the child may need to have a guardian appointed. In terms of education, birth to age 3 involves detection and early intervention, from 3-5 you will help develop an Individualized Education Plan (IEP), from 15-21 the child will finish high school and potentially pursue college or vocational school, after age 21 the child will no longer have a right to public education, state-level therapy services, vocational training, or residential living options.

Consider if Filing for Guardianship is Necessary

As stated above, once a child reaches the age of 18, the person caring for them is no longer considered their legal guardian and will have to petition the court for renewed guardianship if deemed necessary. Keep in mind, guardianship proceedings can be expensive and the special needs individual must go through a process to determine their competence. This can be expensive for you and stressful for them, so guardianship should be considered carefully.

Take Inventory of Assets & Income

Taking stock of the special needs individual’s assets as well as your own (especially if the individual is under 18) will be important in determining eligibility for government benefits, including Supplemental Security Income (SSI), Social Security Disability Income (SSDI), Medicaid, and Medicare. Remember, if the individual is under 18, “deeming” rules are in place and your assets are considered when applying for benefits.

SSI | Needs based. Qualifying individuals include those who are blind, disabled, or at least 65 years old and financially eligible. Resources are limited to $2,000 per individual, unearned income up to $20 is exempt, and earned income up to $65, plus ½ of earnings above, is exempt. Maximum 2018 benefit is $750 per month. If an individual is also receiving SSDI, these benefits may be reduced.

SSDI | Qualifying individuals include those who have accumulated a sufficient number of work credits under Social Security and who cannot engage in any substantial gainful activity. There is no resource limitation, but the income limitation is equal to the “substantial gainful activity” level ($1,180 per month). Maximum benefit depends on work history. Disabled individuals can qualify and receive benefits if they became disabled before 22 and have a retired, disabled, or deceased parent.

Medicaid | Needs based. Automatically enrolled upon receiving SSI. Resource and income limitations are the same as SSI.

Medicare | Automatically enrolled after receiving SSDI for 2 years. Does not pay for nursing home expenses.

Ensure You Have Updated Estate Documents

If you have not recently executed legal documents with consideration for the special needs individual, it is imperative that you do so immediately. Without advance estate planning, this individual’s government benefits could be jeopardized by an unintended bequest. 

Consider Incorporating a Special Needs Trust

There are three types of special needs trust, each with the objective of protecting the special needs individual’s eligibility for government benefits while at the same time providing for current and future financial support. In order to not disqualify them from receiving government assistance, trust distributions must supplement but not supplant those benefits. Additionally, the trustee must be given absolute discretion.

First-Party (“Payback”) | Funded with the assets of the special needs individual, including unexpected inheritances and structured settlements. Must be created irrevocably for the benefit of a disabled individual under age 65, by a parent, grandparent, guardian, or the court. It can only be used for one person and the state must be named the primary beneficiary.

Third-Party | Generally funded by Will bequests or lifetime gifts. No payback provisions are necessary since the trust is not funded with the disabled individual’s assets and multiple beneficiaries can be named.

Pooled | Funded with the assets of the special needs individual, usually when those funds are modest and will likely be exhausted in the near future. Trustee is a non-profit that pools together and invests the assets of many beneficiaries, while each individual has their own account. No payback provision is required, but any remaining funds must be left in the trust for the benefit of other disabled individuals.

Review Your Beneficiary Designations

Many people forget to update their beneficiary designations after marriage or the birth of a child. To ensure the special needs individual’s ability to maintain government benefits, it is important to properly coordinate beneficiary designations with your estate documents to avoid an unexpected inheritance.

Create a Letter of Intent

This document outlines basic information about your child, including your child’s functional abilities, routines, interests, and particular likes and dislikes as well as identifying specific doctors, services and resources that will help your child maintain the highest level of independence and self-reliance possible.

Formulate a Family Action Plan

It is of critical importance to make other family members aware of your plans for any special needs individual in your care. Without properly informing your family of your plans and intentions, they could unintentionally penalize this individual with an otherwise well-meaning inheritance.

Take Advantage of Available Tax Breaks

Many families are not aware of the potential tax breaks available to caregivers and/or special needs individuals. Among the most beneficial are the medical expense and the impairment-related work expense deductions:

Medical Expense Deduction | Can be used for capital expenditures (permanent improvements and/or removal of structural barriers), unreimbursed cost of attending a “special” school, medical conferences and seminars, nursing home expenses, and travel and transportation costs.

Impairment-Related Work Expenses | Used for tools or services needed to satisfactorily perform job duties; not subject to the 2% of Adjusted Gross Income (AGI) limitation for itemized deductions.

Consider an ABLE Plan

While not a substitute for a special needs trust, these accounts can be useful wealth accumulation vehicles for special needs individuals. They are similar to 529 college savings plans, but distributions must be for qualified expenses related to their disability. These accounts must be created before the beneficiary is age 26 and cannot contain more than $100,000 without reducing governmental assistance. Any remaining funds at the beneficiary’s death will be paid to the state, up to the amounts paid on their behalf during their lifetime.

If you are currently caring for an individual with special needs or anticipate that you might be a caregiver in the future, please contact us at Aspen Wealth Strategies to help you formulate a comprehensive and inclusive financial plan that will coordinate all of your goals and priorities.

 

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DISCLAIMER: Any opinions are those of the author and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

About the Author
Stephanie McElheny, CFP®, EA, ChSNC™

Stephanie McElheny, CFP®, EA, ChSNC™

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Stephanie is a Wealth Planner and Vice President at Aspen Wealth Strategies. A Certified Financial Planner™ professional with close to 10 years of industry experience, Stephanie is incredibly passionate about identifying opportunities and implementing comprehensive financial planning solutions for both individuals and businesses.As a Chartered Special Needs Consultant™ and an Enrolled Agent, Stephanie’s specific expertise includes special needs planning as well as individual and business taxation. Stephanie also holds Series 7, 66, and Life, Accident, and Health licenses.Prior to joining Aspen Wealth Strategies, Stephanie has acted as a Director of Financial Planning and a Registered Investment Advisor for both small and large investment management firms. A Pittsburgh native, Stephanie has served as President and Symposium Chair of the Pittsburgh chapter of the Financial Planning Association (FPA), among other roles. She also spent time on the pro-bono committee, offering financial literacy education to seniors, veterans, and underprivileged families.Outside of work, Stephanie enjoys spending time with her husband, Steve, and their corgi, Myron. She is an outdoor enthusiast who loves hiking, camping, cycling, and snowboarding. Stephanie also takes great pride in cheering on her hometown sports teams and alma mater – the Pittsburgh Steelers, Penguins, and Pirates and the Penn State Nittany Lions.

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