Home > Uncategorized > 5 Money Mistakes Parents of Special Needs Kids Make

Comments 1 Comment

Parents of a child with special needs face unique challenges when planning their estates, and unless they address them correctly, they risk making mistakes that could have long-term, costly consequences for their child.

For example, they may make the child ineligible for important federal government benefits once he or she becomes an adult, and they may leave their child without the financial resources he or she needs to live the same kind of life they provided when they were alive.

This article is the first of two that will discuss the biggest estate planning mistakes parents of special needs children tend to make.

1. Disinheriting the Child

As adults, children with special needs typically rely on means-tested federal programs, like Supplemental Security Income (SSI) and Medicaid, to help pay for their basic needs such as food and shelter. (A means-tested program is one in which eligibility is based on a potential recipient’s financial resources.) Therefore, to ensure that their special needs child will be eligible to participate in these programs, parents are sometimes advised to disinherit him or her.

The problem with this advice, however, is that means-tested federal programs typically finance a very minimal standard of living, and unlike adult children without special needs, special needs children may not be able to supplement those benefits through work.

A far better option is for parents to set up a Special Needs Trust to benefit their special needs child. Also called a Supplemental Needs Trust, this trust lets parents leave their special needs child an inheritance without jeopardizing his or her eligibility for federal benefits. Furthermore, a Special Needs Trust can also benefit a special needs child should his or her parents become incapacitated. And by the way, anyone who wants to provide for a child with special needs — like grandparents, for example — can establish a Special Needs Trust or contribute to one that has already been set up.

A Special Needs Trust is complicated, so parents should not try to establish one themselves; they need the help of an experienced attorney. The attorney will also help them make certain that all of the beneficiary designations on their life insurance and retirement accounts are coordinated with the trust. (Full disclosure: I am an estate planning attorney.)

2. Procrastinating

None of us know when we will die or if we will become incapacitated, so it’s essential that we plan our estates sooner rather than later. Ignoring this advice can have very negative consequences for the people we leave behind, including minor children and especially minors with special needs. Among other things, parents’ failure to plan can mean that their children don’t have the financial resources they need to continue living the kind of life they enjoyed while their parents were alive.

3. Not Making Your Planning a Team Effort

Estate planning for a special needs child is complex, so it’s critical that parents assemble a team of experts to help them ensure that estate plan does what they want it to do. This team should include an attorney with specific experience in the area of special needs planning; a life insurance professional to help ensure that there will be enough money to enhance the benefits parents want for their special needs child; a CPA who can prepare the Special Needs Trust’s tax return if one is needed; an investment adviser to ensure that the resources in the trust fund will last for the child’s lifetime; as well as any other key advisers who may be necessary to help support the goals of the trust.

4. Ignoring the Particular Needs of a Special Needs Child

Planning that is not designed to meet the specific needs of a special needs child will probably make that child ineligible for essential government benefits. A properly designed Special Needs Trust promotes the comfort and happiness of a special needs child without sacrificing his or eligibility for those benefits.

Such a trust can pay for a multitude of things, including medical and dental expenses; annual independent check-ups; necessary or desirable equipment (like a specially-equipped van); training and education; insurance; transportation and essential dietary needs.

Furthermore, if a Special Needs Trust is sufficiently funded, a child can also receive electronic equipment and appliances; computers; vacations; movies; payments for a companion; a more appropriate dwelling and other things that help maintain the child’s self esteem and enhance his or her quality of life — the sorts of things his or her parents may be able to provide the child now as a minor, but not as an adult.

A generic or “form” special needs trust is often unnecessarily inflexible. As a result, distributions to the child are overly strict, and certain luxuries the child might otherwise have been able to enjoy are forfeited.

5. Including a ‘Payback’ Provision in the Trust

Another frequent mistake occurs when a Special Needs Trust includes a “payback” provision. A payback clause provides that any money remaining in the trust when the beneficiary dies is paid to the government or state where the beneficiary was living, rather than to the family. Although a payback provision is necessary in certain types of Special Needs Trusts, a qualified attorney can ensure that any money left goes to the family, not to the state.

More Money-Saving Reads:

Image: IvanJekic

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Ron Dickstein

    good article. there are several mistakes. these have to do with person first language.
    it is not special needs kids it is kids with special needs.
    it is not special needs child, it is a child with special needs.

    i am surprised that these mistakes would be made.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team