Financial planning for families with special-needs children

By: Kimberly Lankford

If you have a child with special needs, your financial-planning strategies are different than they are for other families. Children with special needs may need financial support for their entire lifetimes, not just until their 20s, and savings in their own name could jeopardize their eligibility for government benefits. The following tools and resources can help with special-needs planning.

ABLE accounts: ABLE accounts were first introduced in 2016 and are considered to be one of the biggest new developments in special-needs planning. An ABLE account (which stands for Achieving a Better Life Experience) lets people who developed a qualifying disability before age 26 save for their future in a tax-advantaged account, similar to a 529 college-savings plan. Up to $100,000 in the account doesn’t count toward the $2,000 asset limit for Supplemental Security Income Benefits. (Otherwise, if individuals with disabilities have more than $2,000 in savings in their own name, they may lose their eligibility for SSI and other government benefits.)

You usually can invest the money in the ABLE in a fixed account or a handful of mutual funds, and then it can be withdrawn tax-free to pay for expenses that benefit the person with the disability, such as education, housing, transportation, employment training and personal support services.

Anyone can contribute to an ABLE account, but the total contributions for the disabled person can’t exceed $15,000 for the year (this number can rise in future years for inflation). You can also roll over money from a 529 into an ABLE, as long as the total ABLE contributions don’t exceed the $15,000 limit for the individual for the year.

Similar to 529 plans, these accounts are administered by the states, and they’re now available in almost all states. In most cases, you can invest in any state’s plan, although you may get a tax break or lower fees in you contribute to your own state’s plan. Look at the plan’s fees and investing options when choosing a plan.

For more information about qualifying for an ABLE account, eligible expenses, and links to each state’s plan, see the ABLE National Resource Center. The site also has a tool that lets you compare features of up to three states’ plans.

Special-needs trusts: ABLE accounts are easy to set up and can help people with special needs build up savings, but many families need a special-needs trust, too. Special-needs trusts can hold more kinds of assets (such as cash, investments and even property) and don’t have the annual contribution limit of ABLE accounts. The money can still be used to benefit the person with special needs without affecting eligibility for government benefits, such as Supplemental Security Income and Medicaid.

Special-needs trusts can also be a valuable tool for estate planning. The trust can be the beneficiary of your life insurance and other assets in your estate, and other relatives can also give money to the trust or leave money to it in their estate plans. Let your relatives know about the trust and the rules — otherwise, a well-meaning family member could leave assets outright to your child and affect his or her eligibility for government benefits.

You can choose a family member or corporate trustee to manage the trust, or you could have two trustees: Some families choose a family member to make decisions about using money in the trust, then have a bank or lawyer manage the investments and tax filing for the trust.

Special life insurance needs. If you have a child with special needs, you usually have different life insurance needs than other families, too. Rather than having a term life insurance policy that ends when your kids grow up in 20 or 30 years, you may be supporting your child for many more years and you may need permanent coverage that will continue as long as you live. You’ll also need to be careful when naming the beneficiary — if you designate your child as the beneficiary, rather than a special-needs trust for their benefit, inheriting the money could affect their eligibility for government benefits. It’s a good idea to work with a special-needs planner or attorney who can help you choose a policy and can coordinate the coverage with your special-needs trust.

Where to Get Help

There are several kinds of special-needs trusts and they need to be set up carefully so they don’t affect eligibility for government benefits. It’s important to work with an attorney who specializes in special-needs planning, because the steps can be different than they are for traditional estate planning. You can find an attorney through the National Academy of Elder Law Attorneys or the Special Needs Alliance. Many of these attorneys focus on both elder law and special-needs planning. It can also help to work with a financial planner with experience in special-needs planning. You can find financial planners and attorneys focusing on special needs at (that site also includes helpful information and FAQs about special-needs planning).

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