Financial Issues

 

  
 
Financial Needs
Savings
You want the best for your child's/dependent's lifetime care, but sometimes sufficient financial resources to meet those needs may not be available. The death of one or both parents or other caretaker can easily disrupt the continuation of your child's financial safety net.
 
Figuring out what your dependent is likely to need is tricky. Ask yourself: What type of life do you envision for the individual with special needs? How much money will he/she need for quality lifetime care?
 
Start answering the question by estimating your child's current monthly expenses (whether the costs are paid by you, private insurance, etc.). Annualize these costs. Then, assuming a modest interest rate, determine the lump sum amount you will need to produce that much income on an annual basis without depleting principal. Of course, this does not take inflation or other factors into consideration.
 
If you are just beginning to accumulate assets to fund a special needs trust, there are a variety of funding options. Discuss these options and which ones might be best for you with an insurance agent, financial planner or other financial professional who specializes in special needs trusts.
 
 
Investments
Investments, like mutual funds and stock, are another funding option. These types of options provide an opportunity for growth, however, they do not generally provide a guaranteed amount of income due to market fluctuation and other factors. Retirement plans may offer another option. You may be able to name the trust as beneficiary for any death benefit provided by the plan.
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Life Insurance
Many special needs trusts are funded, at least in part, with some type of life insurance. Life insurance provides an alternative that can create an asset. Insurance proceeds are generally paid free of income tax and, as long as the estate is not named as beneficiary, usually outside of probate. It also can be free of federal estate tax when properly structured, and it allows you to provide the cash needed to provide for your child with special needs, while keeping the rest of your estate intact for your other family members
Here are descriptions of the basic types of life insurance.
  • Term life insurance offers protection that insures your family for a specified period of time-usually anywhere from one to 20 years. A term policy pays a benefit if you die during the period covered by the policy. If you stop paying premiums, the insurance stops. These policies do not build a cash value.
  • Whole life insurance or permanent insurance provides protection, as well as a cash value. Additionally, many companies pay policyholders an annual dividend. Dividends provide both flexibility and increased value to your life insurance policy. They can add more coverage to your overall insurance benefits and can build a sizable cash value. They are not, however, guaranteed. Of course, life insurance should not be purchased solely for accumulation. Its primary purpose is protection.
  • Universal life insurance is flexible. These policies are interest-sensitive and permit the owner to adjust the death benefit and/or premium payments, within limits, to fit the individual's situation. Your premiums are credited to an accumulation fund, from which costs are deducted and to which interest is then credited. As with whole life insurance, the cash value is yours. You may withdraw it or borrow against it at any time. Read your policy carefully to understand how loans and withdrawals affect the death benefit.
  • Variable life insurance is for those who want to tie the cash value of their life insurance policy to the performance of the financial markets. You decide among several investment options how your net premiums are to be invested. While monies invested in the investment options have potential for growth, such funds are subject to market risks including the loss of principal. In other words, some may make or lose money depending upon the performance of the market and the investment options you select.
  • Survivorship life insurance is a joint insurance policy taken out on the lives of two people that provides death benefits on the second death when the money is needed the most. Since the policy premium pays one death benefit, the premium can be substantially less than separate stand-alone policies. There are many types of survivorship life insurance policies. Check with your attorney and insurance agent to determine the policy that will best meet your needs.
Your individual needs and the needs of your child will help determine which type of insurance is best for you. Insurance policies often contain limitations, exclusions, reductions of benefits and terms for keeping them in force. Be sure to ask for full details regarding the policy and its costs.
 
The potential long-term care for the caregiver should be taken into consideration and planned for. There are steps that can be taken now in the event that a caregiver can no longer care for his or her dependent. Many people think of "long-term care" as something for older people; however an accident or illness can strike at any age. It is especially important for caregivers to prepare for their own care while arranging for the continued care of their dependents.
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Finding Financial Aid
Raising a child is expensive. Raising a child with disabilities is even more expensive. The unique supplies, equipment, treatments and procedures a child needs can strain even families with significant personal assets. Fortunately, financial relief may be available. State and federal government programs, community resources, Social Security benefits, private foundations, medical insurance and special education resources provide aid. Consult city, county, state and federal agencies for help in answering financial aid questions.
 
Generally, government benefits are paid to a disabled dependent child, based on family income. But once a child turns 18, these benefits are awarded based on the child's own assets and income (even if the child is still living at home with the parents).
The most important public benefit programs are Medicaid and Supplemental Security Income (SSI).
  • Medicaid (Medi-Cal) is a state-administered, federally reimbursed program that pays for needed medical care for eligible persons. An applicant's medical diagnosis, finances and age are used in determining eligibility. To apply for benefits, contact your local Medicaid office or the state health department.
  • SSI is a federal program that provides income from the federal government to certain individuals with disabilities. Cash benefits are paid each month, up to the "Federal Benefit Rate." To apply for SSI, contact your local Social Security Administration office.
Eligibility for both of these programs is based on need, as well as disability. A person is not qualified to receive SSI if he or she has "countable resources" in excess of $2,000 or "countable income" in excess of the Federal Benefit Rate. Keep in mind that gifts or inheritance are "countable resources" and may reduce payments received or cause the child to lose SSI benefits for an extended period of time. Also, assets in a special needs trust may be claimed by Medicaid upon the death of the beneficiary if Medicaid paid benefits while the trust was in effect. Medicaid laws and the laws pertaining to special needs trusts vary from state to state. Contact your local Social Security Administration office for additional information.
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