Planning for Special Needs Children
Parents of over 56 million individuals with disabilities depend on a combination of government benefits and using their own assets to care and support their adult children. It can be difficult to care for adult children with disabilities because that person is only allowed to have $2,000 in total assets. Careful planning is required.
Thankfully, there have been some recent changes to the laws that allow parents and other caring people to set aside funds for the care of that individual. In that past, it meant expensive trusts, but now even parents with modest means can save some money for the future care of their child.
Michigan now has launched an ABLE account (Achieving a Better Life Experience) which allows people to set aside up to $14,000 a year and grow tax-free. But there is a threshold of $100,000 that the account can grow to. As long as the money comes out of the account to pay directly for expenses related to the health and well-being of the child, those assets will not count against any government assistance the child is receiving. These qualifying expenses can include everything from health care, housing, to travel or medical equipment.
In addition, the parents can also set up a third party special needs trust. The funds in the trust can be used to supplement government benefits. There are no limits to how much can be accumulated in the trust and you can fund the trust with life insurance benefits, real estate, and stocks. Personally, I like having the trust funded with life insurance as a way to ensure that after the parents are gone, there is a pool of money available for the care of the adult child. It can be a cost effective way to ensure their long term care while making sure they have access to government assistance programs.
Some folks may feel this is taking advantage of the “system”. But for many adults with disabilities, the only way they can get independent living is through a government assisted housing program. Many of these programs allow these people an opportunity to live independently- or with some supervision- and contribute to our society in a positive fashion. With more and more families having fewer children, relying on immediate family members to care for an adult child is no longer an option.
As with anything, there are rules to be followed, so consult professionals who specialize in this type of planning. You would not want to do something wrong and jeopardize valuable benefits.