In the knowledge that their children may never be able to live an independent life after they have died, parents of children with special needs have to make extra provisions for their children’s future.
A recent study by Cornell University revealed that there are 2.6 million or more children aged five to 15 with one disability, with more than 30% of them having at least two disabilities. Another recent study, by Hartford, questioned 580 parents with special needs children and found that 23% of them spend over $500 per month on addressing their care.
60% of parents said that they believed their children would continue to need financial help into adulthood – but only half the parents said they had a plan in place to cover this cost. The 42% who felt confident they had planned for their children’s financial futures had mostly used life insurance as a tool to do so.
Parents of Disabled Children Unaware of Federal Laws regarding Inheritance
Many parents of children with special needs plan to leave their money to their children on their deaths – with 58% of them in the study planning to name their children as beneficiaries. However many are unaware that doing so could bar their children from receiving essential state services and benefits.
Parents of Special Needs Children have to Plan carefully when it comes to Life Insurance
Under Federal Law an inheritance of over $2000 can bar someone from receiving state assistance. SSI (State Security Income) can be withdrawn altogether for a special needs child, if they have received an inheritance – and this includes life insurance benefits.
A Special Needs Trust is an Option
A ‘Special Needs Trust’ can supply children with financial help towards their care, and will not disqualify them from receiving help and support from the government. The trust is the legal owner of financial assets such as stocks and savings and also manages any benefits or properties which ensue from a life insurance policy. The trustee is barred from profiting from the assets, but is charged with investing or dispersing them.
However according to the recent survey, just a quarter of parents have taken the step of setting up a ‘special needs trust’.
Parents need to become more Educated how to use Life Insurance
Donna Scalaro, a Director at The Hartford believes parents of special needs children need to become more informed about these ways of managing their children’s future finances. “Most parents think they cannot devote extra savings to a trust, because they feel they have to amass this large amount of savings to cover expenses.””They do not realize they can cover the expenses by using life insurance. Using dollars from life insurance can be a very affordable strategy.”
Due to the way the trusts are set up, the children with special needs to not ‘own’ the money in the trusts and therefore it cannot be viewed as income. This is why they will still be considered eligible for government aid to help with such things as food, housing, utilities, property taxes, and cash.
But the trusts can help pay for important expenses for their care such as disability aides, transportation, computers, and rehabilitative treatment.
The most important thing is that parents should always seek help from a financial advisor who can supply them with specialist help in this area. Only when they are fully armed with legal information and financial options open to them, can they come up with the best way to safeguard their children’s future.
Source: Insure.com – Life Insurance Planning for Parents of Children with Special Needs, June 2010
photo credit: Beverly & Pack