Mark Glendon

Financial Planning For a Child Who Has Special Needs

For those who have children with special needs, financial planning for their futures can be a complex and emotional process. If you are trying to tackle the long-term planning process to ensure that your child is safe, happy, and healthy after you're gone, there are a few financial strategies you should be familiar with: special needs trusts and ABLE accounts.

Special needs trusts

Individuals who are receiving Supplemental Security Income or SSI cannot have more than $2,000 in assets. As a result, parents can't leave their home or life insurance to a child with special needs without jeopardizing SSI. To bypass this issue, many families set up a special needs trust.

As a parent, you can set up a first-person special needs trust, which is owned by the person with the disability and monitored by you (the parent) or another executor. Or, you can create a third-person special needs trust, which is owned by you or the person who created the trust. A third-person special needs trust is not funded until the parent passes away.

A special needs trust enables parents to give their children a large sum of money without it impacting their ability to receive SSI and other support services. Each state has different requirements for special needs trusts, but you can create this type of trust with the help of an elder law attorney or special needs attorney.

ABLE accounts

An ABLE account is a type of savings account that you can open in about a dozen different states in the U.S. Although it's not available in all states yet, many others are in the planning stages so availability is likely to expand.

Essentially, ABLE accounts allow a person with a disability to set up a savings account that can be used for various expenses like housing, transportation, and health care. Anyone can contribute to the savings account, but there is an annual cap of $14,000 and a total limit of $100,000. If someone contributes above and beyond those limits, the individual's ability to receive SSI will be limited.

ABLE account vs. special needs trust: What's the difference?

Before deciding whether an ABLE account or special needs trust is best for your child, there are a few key differences you should consider.

ABLE account vs. special needs trust:

• Eligibility
• • For a person to be eligible for an ABLE account, the onset of their disability must have occurred before the age of 26. They must also satisfy the Social Security's criteria for "functional limitations" due to the disability.
  • First party special needs trusts have to be established before the disabled person reaches the age of 65. There are no age limits for a third-person trust.
• Contribution limits
• • An individual can only have one ABLE account and the total annual contribution limit is $14,000. If the account's total exceeds $100,000, SSI will be suspended until the balance drops below that threshold.
  • There are no limits on how many special needs trusts an individual can have or how much each one can hold.
• Fund usage
• • The funds in an ABLE account can be used to pay for what's known as "qualified disability expenses," such as basic living expenses, transportation, employment training, health care needs, education, and more.
  • The funds from a special needs fund can be used to pay for anything that benefits the disabled individual, without affecting their SSI benefits.

If you're unsure which option you should pursue, a special needs attorney can help you compare an ABLE account vs. special needs trust to help you determine which one is best for your situation.

Author Resource:-

Mark writes often about estate planning. His articles may include topics like real estate closing attorney and business succession laws to help the people in needs. You can find his thoughts at probate administration blog.