Planning for retirement? Remember to review plans for children with special needs.


As parents of children with special needs age, they should reconsider the decisions they made – sometimes many years ago – regarding guardianship, beneficiaries and other aspects of their child’s care. . Forgetting to do so, experts say, can be costly from a benefit and estate planning standpoint and can have an unintended impact on your child’s care.

“Whatever decisions you may have made in the past, they might not be appropriate today,” says Harry S. Margolis, partner at the law firm Margolis & Bloom in Wellesley, Massachusetts. Years ago, for example, you may have appointed a grandparent as a guardian, a decision that may no longer be viable or appropriate. Or maybe you’ve always hoped to downsize in retirement, but now need to rethink those plans to suit your child’s needs. There may also be health care coverage decisions to make when you leave your employer plan.

Here are some specific areas to focus on.

Designations of beneficiaries

Children with special needs who receive Medicaid and Supplemental Security Income cannot have more than $ 2,000 in assets in their name. So beneficiary designations on things like 401 (k) and 403 (b) plans and life insurance are essential, says Jessica Tuman, a senior executive at Voya Financial who runs the program for the company that provides. financial planning services for families with children with special needs.

The money should never be left directly to the child with special needs, but rather to the child through a legal vehicle known as a special needs trust. Some parents do not realize that leaving money directly to children with special needs can jeopardize their government benefits, or they may simply have forgotten to make the necessary updates to their beneficiary designation years ago after they had finished. ‘a child has been diagnosed with special needs.

If the grandparents are still alive, the estates should also be discussed with them. “The most well-meaning grandparents left direct legacies, even more than they left to their other grandchildren, trying to help them. But it gets complicated because it often exceeds $ 2,000 and can cause them to lose their government benefits, ”says Cynthia Haddad, Affinia Financial Group partner who focuses on financial planning for special needs.

This is also a good time to consider how a special needs trust is funded. Advisors advised against naming the special needs trust as the beneficiary of a traditional IRA or other qualified retirement plan. But that changed in the wake of the Secure Act since the 10-year rule on required distributions does not apply to beneficiaries of qualifying special needs trusts, Haddad says. Plus, the Roth IRA can be one of the best assets that can be left in a special needs trust because there is no tax, she adds.

Life insurance is another planning tool that is often used to fund a child’s special needs trust. “For parents in their 50s and older, a second-to-die life insurance policy is often a very cost-effective planning tool,” Haddad says. These types of policies insure both parents and pay when the second parent dies, which is usually when the money is needed most, she says. “If one parent is not as healthy to qualify for coverage on their own, their purchase may be offset by the good health of the other parent, which in turn helps to maintain the benefits. reasonable bonuses, ”Haddad explains.

“A combination of Roth IRA and life insurance assets may be the best assets that can be left with a special needs trust because of the different tax advantages of each,” Haddad said.

Put the house in order

It can be helpful for parents to create a document known as a letter of intent that spells out all of the things that are important to the care of the child. This can include what the child enjoys doing, successful behavior management strategies, dislikes, therapies, medications, doctors, assets, government benefits, insurance, bank accounts, nutritional needs, living conditions, recreation, education, employment and more, says Tuman.

It’s “about articulating all of those details that might be important after you pass away,” she says.

Parents aged 70 to 80 can consider passing the baton to another child, during their lifetime, or having that child become a co-guardian or co-guardian, to allow an easier transition after the parents have left. he said. . To avoid overburdening siblings, it may be necessary or advisable to hire a social service agency to do what the parents had done before, says Margolis.

You will also want to consider the long-term housing situation of the child, who may still be living with the parents. Ultimately, the parents won’t be there, so families need to consider whether to maintain the status quo for as long as possible or make a change sooner so that arrangements are in place while everyone is still. able to make adjustments. “These are really tough decisions to make,” says Margolis.

Consider an ABLE account

Families with discretionary income as they approach retirement could contribute to an ABLE account, a tax-advantaged savings plan for people with disabilities. The account can be opened for a person of any age, as long as the disability occurred before the age of 26.

The definition of a qualifying disability expense is broad and includes medical expenses, food, shelter, education, transportation, therapy and counseling, to name a few, explains Mary Morris , CEO of Virginia529, which administers Invest529 and ABLEnow, among the nation’s largest education and disability savings programs.

There’s an annual contribution limit – $ 15,000 in 2021, with some exceptions that would allow for larger contributions – but even so, for most families, it’s a significant amount, Morris says. This can be a good option because the account generally does not disqualify the beneficiary for many federal government benefits, including Medicaid and SSI, although the latter may be suspended if the account balance exceeds $ 100,000. Since many public benefit programs have means limits – caps on what a child with special needs is allowed to have and remain eligible – it is advisable to check with the benefit agency to understand. how, if any, the money in an ABLE account is counted, she says.

Even if you are already retired, it is not too late to contribute. You may not be able to invest much, but friends and family can contribute to the account for the benefit of the child with special needs. There may also be tax benefits for contributing states, such as the annual income tax deduction of up to $ 2,000 for Virginia taxpayers for contributions to ABLEnow or ABLEAmerica accounts, Morris says.

“You don’t have to have huge sums in an account for it to make a significant difference in someone’s life. Relatively small amounts can make a big difference, ”she says.

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