How Does Planning for a Special Needs Child Work?

Planning for a special needs child requires considering long term needs and expenses while considering the care providers’ own needs.

Funding a Special Needs Trust (aka Supplemental Needs Trust) is just the start of the planning process for families with a family member who has special needs. Strategically planning how to fund the trust, so the parents and child’s needs are met, is as important as the creation of the SNT, says the article “Funding Strategies for Special Needs Trusts” from Advisor Perspectives. Parents need to be mindful of the stability and security of their own financial planning, which is usually challenging.

Before going to far, I’m going to assume you’ll have a basic understanding of a SNT.  In short, it is a trust that holds assets so that the disabled beneficiary may qualify for governmental assistance.  See here for more information.  https://www.galliganmanning.com/what-should-i-know-about-a-special-needs-trust/

To start planning for a special needs child’s financial needs, parents should keep careful records of their expenses for their child now and project those expenses into the future. Consider what expenses may not be covered by government programs. You should also evaluate the child’s overall health, medical conditions that may require special treatment and the possibility that government resources may not be available. This will provide a clear picture of the child’s needs and how much money will be needed for the SNT.

Ultimately, how much money can be put into the SNT, depends upon the parent’s ability to fund it.

In some cases, it may not be realistic to count on a remaining portion of the parent’s estate to fund the SNT. The parents may need the funds for their own retirement or long term care. It is possible to fund the trust during the parent’s lifetime, but many SNTs are funded after the parents pass away. Most families care for their child with special needs while they are living. The trust is for when they are gone.

The asset mix to fund the SNT for most families is a combination of retirement assets, non-retirement assets and the family home. The parents need to understand the tax implications of the assets at the time of distribution. An estate planning attorney with experience in SNTs can help with this. The SECURE Act tax law changes no longer allow inherited IRAs to be stretched based on the child’s life expectancy, but a person with a disability may be able to stretch an inherited retirement asset, depending on their needs.

Whole or permanent life insurance that insures the parents, allows the creation of an asset on a leveraged basis that provides tax-free death proceeds.  Life insurance is often utilized for special needs planing because it may be low cost during life but provide a sizable fund for the beneficiary when his or her parents can no long provide for them.

Since the person with a disability will typically have their assets in an SNT, a trust with the correct language—“see-through”—will be able to stretch the assets, which may be more tax efficient, depending on the individual’s income needs.

Revocable SNTs become irrevocable upon the death of both parents. Irrevocable trusts are tax-paying entities and are taxed at a higher rate. Investing assets must be managed very carefully in an irrevocable trust to achieve the maximum tax efficiency.

It takes a village to plan for the secure future of a person with a disability and that is certainly true with planning for a special needs child. An experienced elder law attorney will work closely with the parents, their financial advisor and their accountant to ensure proper planning for your disabled loved one.

Reference: Advisor Perspectives (April 29, 2020) “Funding Strategies for Special Needs Trusts”

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Long Term Care Costs Going Up Due to COVID-19?

Long term care costs are already expensive, but will likely increase due to costs from COVID-19. No one can predict how much, so it is better to plan now.

About 70% of seniors 65 and older will eventually require some type of long term care in their lifetimes. That care already isn’t cheap, but how will prices be affected by COVID-19?

Motley Fool’s recent article asks “Will COVID-19 Drive Up the Cost of Long-Term Care?” According to the article, unfortunately those figures may begin to look like a bargain in the coming years as facilities change their policies and long term care costs go up after COVID-19.

The impact of the coronavirus has been experienced throughout the country, but we all see that nursing homes are an especially hard hit. As of April 23, there were over 50,000 reported COVID-19 cases in long-term care facilities, according to the Kaiser Family Foundation, and to date there are well over 100,000. In six of the 23 states that are publicly reporting death rates (Delaware, Massachusetts, Oregon, Pennsylvania, Colorado, and Utah), deaths in long-term care facilities are at least half of all COVID-19-related fatalities.

Again as of April, COVID-19 has been detected in at least 4,000 long-term care facilities across the country and has caused more than 10,000 deaths among residents and staff members. As a result, nursing homes and other long term care facilities will most likely reconsider how they train and rotate staff and implement sanitary standards to avoid this from occurring again.

All of this is will likely come at a cost, and the question will be if that expense is passed on to seniors, who can hardly afford these facilities in the first place.  If so, long term care prices, already difficult for many to manage, will increase.

We can’t really predict if you’ll require long term care in the future and to what extent. We also don’t know how much long term care costs will go up in the coming years after COVID-19. However, you may be well served to purchase long term care insurance while young enough and healthy to qualify.  See here for more information.  https://www.galliganmanning.com/when-should-i-consider-long-term-care-insurance/

The best time to apply is during your mid-50s, so that you aren’t paying those premiums for too many years. However, you’re also applying at a time when you’re relatively young and more apt to get a nice discount on your premiums based on your age and health. However, if you’re already past your mid-50s, you still should look at applying in your 60s, too, especially if your health is good.

Not all long term care policies are created equal. Different policies offer varying levels of coverage. Take the time to assess your financial resources, research the cost of long-term care in your area and determine the amount of coverage you think you’ll need.

If you don’t have a plan for the rising costs, then you’ll have to consider either private paying the higher rates, or seeking government benefits to cover the costs.  Time will tell what effect COVID-19 has on Medicaid.

Even if COVID-19 doesn’t directly mean big increases, the cost of long term care has already been increasing every year. The more financial protection you have, the less stress you and your family will have when you are older.

Reference: Motley Fool (May 5, 2020) “Will COVID-19 Drive Up the Cost of Long-Term Care?”

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