Parents of special needs children have enough on their plates just tending to the health, educational and emotional needs of their kids -- not to mention often having to cope with drastically lowered income because of reduced work hours or having to pay someone else for childcare. So it's not surprising that many of these parents haven't had time to hatch a long-term financial plan in case their kids need care after they're not around.
Fortunately, many government programs and community resources are available to help relieve the financial burden of parenting special needs children. But eligibility criteria are complicated and the application process time-consuming. Plus, if you're not careful, you or well-meaning relatives could inadvertently disqualify your kids for future benefits by not structuring their inheritances correctly.
Here's a brief overview of key government assistance programs:
The Social Security Administration provides two types of disability coverage: Supplemental Security Income (SSI) and Social Security Disability Income (SSDI). Rules and eligibility requirements differ between the two programs -- and benefits differ for children and adults.In a nutshell, SSI is a needs-based, cash-assistance program (similar to welfare) for disabled people of any age in low-income families with limited resources. Children under 18 (under 22 if they attend school) qualify for SSI benefits if they meet these criteria:
- They have a medically determinable physical or mental impairment which results in marked and severe functional limitations (including blindness); and
- The condition has lasted or can be expected to last for at least 12 continuous months or result in death; and
- They must not work and earn more than $1,040 a month (non-blind) or $1,740 (blind).
Under age 18, income and resources for both the child and other family members living in the same household are considered when determining the child's SSI eligibility; however, after 18 only the child's resources are considered. Also after 18, the adult definition of disability applies, which means they must be unable to do any substantial gainful activity, such as work for pay.
SSI payment amounts vary by state, since some states supplement federal payments. And, in most states, children receiving SSI also qualify for Medicaid to help pay medical bills.
SSDI is a separate program funded by payroll deductions (part of FICA). Although children sometimes receive SSDI payments if their parents are disabled, in those cases their eligibility is based on their parents' disability status, not on their own. However, after turning 22, already disabled children may qualify for SSDI on their own if at least one parent:
- Is already receiving Social Security retirement or disability benefits; or
- Died and worked long enough to qualify for Social Security (i.e., paid into the system during their working years -- usually at least 10 years).
Eligibility rules and definitions for SSI and SSDI are very complex. To find out if your child qualifies, call Social Security directly at 1-800-772-1213, or visit the Social Security website and search under the Disability and SSI tabs. One particularly helpful resource is Benefits for Children with Disabilities, SSA Publication No. 05-10026. Click HERE to learn more about Medicaid.
Special Needs Trust. Many families inadvertently jeopardize their disabled child's eligibility for certain government-provided benefits by opening accounts in the child's name or designating them as beneficiaries of their wills, retirement accounts or life-insurance policies. Unfortunately, federal law dictates that recipients of SSI, Medicaid and many state public assistance programs will be disqualified if they have resources worth more than $2,000. So, if Uncle Jerry leaves your daughter $10,000 in his will, she could lose her benefits.
One good alternative is to create a special needs trust (a.k.a. supplemental trust), whose assets can be used by its trustee to manage the finances and personal effects of a disabled person. Trusts are governed by state laws and should only be drafted by an attorney familiar with this area of law. If you don't have a personal recommendation, good resources for finding such specialists include the Academy of Special Needs Planners and the Special Needs Alliance.
Special needs trusts can be funded in many ways. Some parents name the trust as beneficiary of their life insurance policies to ensure a source of funding if they die before their child. (Be sure to stay current on your premium payments.) Other funding sources might include cash, stocks and other investments, death benefits from retirement plans, proceeds from the sale of a house or other property, and inheritances from other relatives and friends. Just make sure that the trust -- not the child -- is named beneficiary.
Preparing a special needs trust can be expensive -- possibly several thousand dollars, depending on your situation. Plus, there will be ongoing administration expenses incurred by the trustee. But weigh that against the prospect of your child losing out on a lifetime of government-provided benefits because of an accidental inheritance -- speaking of which, be sure to let any well-meaning relatives or friends know about the trust.
One last thought: Most diseases and genetic disorders have robust support groups and research organizations that can help. A good place to start your search for the appropriate group is the Alliance of Genetic Support Groups.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
To participate in a free, online Financial Literacy and Education Summit on April 17, 2013, go to Practical Money Skills for Life.