While there are many things to consider when caring for your special needs child, financial planning is often the area most fraught with worry for many parents. This is because financial planning is so difficult to understand, and tax laws are constantly changing. However, if your family has a special needs child in it, you will definitely want to take a few specific steps to avoid classic mistakes that are often not discovered until after the parents’ or guardians’ deaths.
Create a Trust
Every special needs child should have a trust set up. All funds that are designated for the child should be placed in this trust to be distributed by the trustee as necessary. If a trust is not set up, the child may lose many or all of his or her governmental benefits.
Choose the Right Insurance
Some parents purchase term life insurance to fund the special needs trust. However, this is not the best life insurance option because most special needs individuals will outlive their parents. Instead, a permanent type of life insurance, such as whole life, should be chosen.
Check Your Will
Parents and other loved ones must stipulate in their wills that any money designated for the special needs individual should go into the trust rather than directly to the individual’s bank account.
Check Your Beneficiaries
In addition, to the will, parents should also check their life insurance policies, IRAs, and other long-term financial planning areas to ensure that the special needs individual is not designated as the beneficiary. Instead, the trust should be listed.
Tell Your Family
To avoid confusion, particularly after death of the parents, all involved family members should be told about the financial plan.