Planning for Children with Special Needs

Douglas R. Clough, CFP, First Republic Private Wealth Advisor, Spectrum

If someone in your family or circle of friends has a child with special needs, you are probably aware of the tremendous emotional, psychological, and physical adjustments that need to be made to ensure that child’s well being. What you might not know is that there are special financial considerations that may need to be addressed as well.

As the parent of a special-needs child, I’ve researched this area extensively. Here are some of the things I’ve discovered. The special-needs planning process begins with defining the nature of the child’s disability and the effect it will have on the child’s ability to be independent in adulthood. Certain physical disabilities do not necessarily preclude a person from being self-supporting, and may require minimal planning. Mental disabilities, however, often require extensive planning. Some of the questions that must be addressed in either case:

  • After I’m gone, who will provide care?
  • Where will the child live in adulthood?
  • How much money should be set aside to cover future expenses?
  • What governmental support is available?
  • Who will be trusted to handle the finances?

In many cases, the cornerstone of special-needs financial planning is protecting the child’s eligibility for government benefits, most importantly the health insurance component. Due to the difficulty of acquiring private coverage with a preexisting condition, even children who stand to inherit significant assets will benefit from protecting this health insurance eligibility. It is crucial that this aspect of the plan, when in place, be well communicated throughout the family. (Well-meaning grandparents, for example, are notorious for unknowingly throwing strategies into disarray with improperly structured gifts.)

The main governmental programs that benefit those with special needs are Supplemental Security Income (SSI), Medicaid, Social Security Disability Insurance (SSDI), and Medicare. SSI provides a monthly income which consists of a federal portion (administered by the Social Security Administration; $637 per month in 2008) and often a supplemental portion from the state (administered by the SSA or a state agency). Medicaid provides health insurance and is administered by the state, often automatic with SSI eligibility, although some states may have more restrictive requirements. Both SSI and Medicaid are need-based while the child is under age 18, with part of the income and assets of parents included in the determination.

Once a child turns 18, however, SSI and Medicaid consider the income and assets of the child only, and not of the parents. Social Security Disability Insurance (SSDI) is based on a parent’s Social Security earnings record and can benefit the disabled child if the parent is receiving Social Security retirement or disability benefits, or has died after working long enough to qualify. Medicare health insurance kicks in, after a two year waiting period, for people receiving SSDI benefits.

In order to protect the child’s eligibility for government benefits, special care must be taken by estate planning attorneys to craft special needs (also referred to as “supplemental needs”) trusts. These provide for needs other than basic support (food, clothing, shelter). The trust keeps the assets out of the child’s name and the trustee has the discretion to use trust assets toward items that SSI and Medicaid do not cover. Examples of such items which serve to enhance the quality of life are training, enrichment activities, recreation, travel, counseling, therapy, and certain medical and dental expenses.

Given the complexity of the issues to consider (such as tax implications and flexibility of irrevocable versus revocable trusts, questions regarding trustees and guardians, etc.), families of children with special needs will be wellserved to choose an attorney who specializes in this area of estate planning. One good referral source is the Special Needs Alliance (

Finally, the parents of a special needs child should compose a letter of intent, which provides specific information about the child’s needs to potential caregivers. Items to include are the names and contact information of family members, doctors, and the attorney; the child’s medical history, assets owned, and government benefits received; legal information, such as wills and trusts, trustees, and guardians; and personal information about the child, such as the past and current living situation, likes and dislikes, dietary needs, entertainment preferences, and friends.

If this sounds complicated and arduous, it may be. But as any parent of a special-needs child will tell you, knowing that your child will be properly cared for is worth any effort.

The views of the authors of these articles do not necessarily represent the views of First Republic Bank.