The day parents get the diagnosis that their child has a special need, their whole world changes. What will this mean to my life and my child's life?
Often the answer to that question is of-the-moment. Treatments, therapies, tests, and
servicesâ€¦the list goes on and on, and may last one year, ten years, perhaps an entire lifetime.Planning typically falls to the wayside because there's always something that comes up.
In fact, planning should take precedence and be the anchor in an ever-changing, often
unpredictable world. In addition to the typical financial planning needs a family may have, such as retirement, emergency funds, etc., special needs families have many other issues to consider.
Living in the Moment
As anyone who has worked with ADHD children can attest, the main issues are inattention
and the inability to plan. These children are truly living in the moment. The same can be true for these special needs families. Every day can be different, and there are a hundred different reasons to be short-sighted. It may work to take life day by day, but it also means that the future may be sacrificed by being so myopic.
One of the best strategies to cope with special needs is to create a high degree of structure. Every hour of every day has a purpose, plan, and goal, but there is enough flexibility to roll with the punches. This enables the special needs child to be highly focused and functional to each and every task, while still allowing for the off day.
This type of structure and scaffolding can also be applied to the financial plan for a special needs family. The more structure a plan has, the more successful it will be. However, that does not mean the plan is too inflexible to allow for hiccups, bumps, and significant life changes, but rather highlights the importance of professional monitoring to ensure the plan is going down the right road. After all, how can you get to the right destination without having a good map?
So Many Demands, So Little Dollars
When is that last time you said to yourself, "I don't have time," or "I'll do it when I'm ready."? There will always be too many things to do, and not enough time or resources. It doesn't take an expert to know that everyone could probably use help with time management and organization.
Waiting for the "right" time will likely have no results. It is human nature to be short-sighted, but it is important not to sacrifice tomorrow for today. What helps many children with learning differences is creating an organized space and having clear checklists to visually see what has been accomplished and what remains to be tackled. In the same way, it is necessary for special needs families to be organized and focused on not only what needs to be done today, but also what they're hoping to accomplish on the many stops along the way.
Building Peace of Mind
By now, it seems more than apparent to have a good financial plan. That statement is probably equivalent to saying "Get a good education." Where to begin? What should be in this plan? In addition to the predictable financial needs for the average family, special needs families require extra planning consideration for today, tomorrow, and beyond.
The most obvious financial needs are all the items and services that need to be paid today: all the additional costs for special needs, including frequent doctors' visits, extra prescription drugs, several therapists, and increased support services. What may often go overlooked, however, is the importance for parents to protect what they have built up by creating a larger emergency fund, a thorough estate plan and obtaining proper insurance. Not only are both parents likely to be working, but they are also probably spending a significant amount of time to meet their child's special needs, so what is the plan if something were to happen to one or both of the parents?
First, an important part of any sound financial plan is to create an emergency fund. Typically, this will include 3-6 months of housing and living expenses. For the special needs family, this should also include extra funds for medical co-payments and support services, as well as special schools or other educational needs. The silver lining from all of these costs today is that some may be tax deductible. Special needs schools, as well as support services provided by specialized teachers may be qualify as a medical expense if the educational need is prescribed by a doctor and total medical expenses exceed 7.5% of adjusted gross income.
Next is to protect the family from adversity. Car insurance is a legal necessity, yet health and life insurance are not. Obtaining the appropriate amount of health and life insurance are absolutely necessary for any parent. Health insurance is often dependent on an employer, so this facet may be more difficult for the individual family to control. The best options may be a flexible savings account or health savings account, if offered, or simply the tax deductions described above. Life insurance needs must take into account the fact that a special needs child's requirements are greater, so to ensure the child can be cared for adequately, parents should consider a higher coverage amount, especially if the child may have life-long needs.
Often when it comes to an estate plan, people think it applies only to the "stuff" they own. In reality, the entire estate plan will outline what should happen with the children and the "stuff," and who is responsible for various decisions. The complete estate plan should include a will, a trust, a health care directive and a power of attorney. The most important estate planning tool for any parent is the ability to name different people for different responsibilities. This may go overlooked, but can be more paramount when discussing special needs children. In the will, a parent can state who will care for the child/children, but that person may not necessarily be the best-suited person to manage the money in the estate. The trustee/power of attorney can be the
designated person who makes the financial decisions, but these people do not need to be the one and same.
Most parents find it important to save for their children's education, it may be even more vital for special needs parents to put money away for education in a tax-efficient savings plan, such as a Coverdell or a 529 Plan. While parents may be unsure if their child will go to college, if the child does, it is likely he/she will need to go to a private university. As states are forced to slash their budgets, public universities are only becoming more crowded with less individualized attention for students. Private universities may be ideal since certain schools will dedicate more resources and attention to the special needs student. Unfortunately, this type of service and accommodation isn't cheap, with the average private university tuition cost of $27,293 per year for 2010-11 (CollegeBoard: Trends in College Pricing 2010 and Trends in Student Aid 2010), not including room, board, food, and other supplies.
Additionally, it may take more specialized help and support to identify the right college fit or alternative education program for your special needs child. These services can be as general as practicing the SAT to being so specific as to help craft personal statements and application essays. For any range of these services, the costs can range from $100/hr. to several thousand dollars for a complete package. In this case, a Coverdell education plan may be most flexible, yet still tax-deferred, since expenses from elementary and secondary school are allowable. There are many rules and overlaps for the different education plans, which makes even more important to formulate a plan.
Parents may question and re-evaluate their expenses often, wondering if these treatments and therapies are really making a difference for their child. For children that may need life-long support, may outlive their parents, or have needs that exceed parents' capabilities as the parents age, a special-needs trust is likely the best option to ensure that the child is adequately and responsibly cared for during the remainder of his/her life.
Special needs or supplemental trusts have several benefits for the special needs child. First, assets in the trust can be specifically allocated for the care of the special needs child. These assets will not be considered part of his/her assets when calculating Medicare and Social Security benefits. This enables maximum government benefits, while supplementing needs beyond what government assistance will pay for. Second, since the trust is specific to one individual, if there were a lawsuit or liability against the parents (or other care-giverâ€”e.g. sibling, relative, etc.), the special needs trust remains safe from litigation, providing extra protection for the special needs child. Finally, a suitable trustee can either be assigned or appointed by the court, where
necessary, providing extra lifelong financial protection for the special needs child.
Early and thorough planning can help ensure that you meet all your and your child's goals. With the help of the right planner, parents can focus on what is most importantâ€”their special childâ€” and have a partner who can help take the worry out of the special needs.
Wendy Wan Turk
Gerber Kawasaki Wealth Management
2716 Ocean Park Blvd #2020
Santa Monica CA 90405
Securities offered through LPL Financial, member FINRA/SIPC. Investment advisory services and fixed insurance offered through Gerber Kawasaki, Inc., a registered investment advisor and separate entity from LPL Financial.
This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. Investing involves risk including potential loss of principal.