Having a child with special needs presents unique challenges. When their condition limits their ability to earn a living and pay for living expenses upon reaching adulthood, financial worries can abound. Fortunately, there are steps you can take to ensure your child has sufficient financial resources and a dedicated support system. As you work towards protecting your child’s future, consider these six strategies:
■ Fund an ABLE account. Thanks to The Achieving a Better Life Experience Act of 2014, or ABLE, families can participate in a tax-advantaged savings program for a family member with a qualifying disability that occurred before age 26. As the owner and designated beneficiary of the account, your child can withdraw funds tax-free to pay for eligible disability-related expenses. They also may be eligible for a tax credit for contributions you make to the plan.
Anyone can contribute to the ABLE account — including grandparents and non-relatives — up to the annual gift tax exclusion. Contributions are made with after-tax dollars and are not tax deductible at the federal level. Some states allow contributors to take state income tax deductions. Not all ABLE plans are equal; shop around to find the most advantageous plan for your child’s needs.
■ Establish a special needs trust. A special needs trust, known as an SNT, provides financial security by creating an income stream for a loved one with special needs. Having funds in this type of trust would not disqualify your child, as the beneficiary, from receiving government assistance. Note that he or she would not have direct control over funds in an SNT, which may not be ideal if he or she is capable of managing their own finances.
There are several different types of SNTs (first-party, second-party and pooled), each of which is governed by various requirements. Because of their complexity, SNTs are usually prepared by a licensed attorney and may cost several thousand dollars to set up.
■ Buy life insurance. Consider purchasing a whole or term life insurance policy that names your loved one as the beneficiary when you die. To ensure the payout does not disqualify the recipient for federal and state resources, set up the policy to pay proceeds into a special needs trust.
■ Ask the courts to appoint a guardian. When an adult family member with special needs has significant assets or property and is unable to manage their own financial affairs, a guardianship may be appropriate. When a guardian of the estate is appointed, all financial matters are managed for the person with disabilities. This person will pay bills and is required by law to maintain detailed records to account for all spending. A family member is often appointed to this role; however, in some cases the court will appoint an unrelated individual.
■ Watch out for scammers. Individuals with disabilities may be more vulnerable to identify theft and other scams. Monitor credit reports to keep an eye out for unauthorized accounts. Consider enrolling your child in an identity theft protection program. Be aware that phone and internet scammers routinely target recipients of government checks by impersonating government agents.
■ Consult experts. Talk to a qualified attorney and a tax specialist for guidance as you work to safeguard the financial well-being of your special needs child.
MICHAEL W. K. YEE, CFP,® CFS,® CLTC, CRPC®
1585 Kapiolani Blvd., Ste. 1100, Honolulu, HI 96814
808-952-1240 | michael.w.yee@ampf.com
ameripriseadvisors.com/michael.w.yee
Michael W. K. Yee, CFP®, CFS®, CLTC, CRPC ®, is a Private Wealth Advisor, Certified Financial Planner ™ practitioner, with Ameriprise Financial Services, LLC. in Honolulu, HI. He specializes in fee-based financial planning and asset management strategies and has been in practice for 39 years. Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser. Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. Ameriprise Financial and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
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