Ensure a Future for Your Special Needs Child

by Chris Schneck

While today's uncertain economy is proving difficult for many families, parents of children with special needs face even more unique challenges. If you're a parent of a special needs child, you know all too well that it's very easy to neglect your short and long-term financial goals as you prioritize the care of your child. Caring for a child with disabilities requires lifetime financial support that can often affect every area of your financial life.

Parents of children with special needs face important financial decisions. From estate planning to insurance, it's important to approach any financial strategy in a balanced, integrated way that considers the financial needs of every family member.

BENEFITS OF A SPECIAL NEEDS TRUST

A Special Needs Trust (SNT) is a fund that can be set up with the help of an attorney. It can be an effective way to help ensure that your child will have the financial resources necessary to preserve a comfortable quality of life. The essential purpose of an SNT is to provide for funding and care without disqualifying your son or daughter from eligibility for public benefits, such as Medicaid and Social Security's Supplemental Security Income (SSI). Therefore, it's important for the trustee of an SNT to understand what public benefits programs might be available to the beneficiary and how receipt of income, or provision of food or shelter, might affect eligibility.

With numerous programs, competing-and sometimes even conflicting―eligibility rules, and at least two different types of SNTs to contend with, the resources and options are filled with opportunities to make mistakes. Because of the complicated eligibility criteria and importance of proper planning for the sake of your entire family, partnering with a financial advisor sensitive to your situation can help you to navigate these issues and find a solution designed to best help you meet your family's financial goals.

LIFE INSURANCE

Funding your SNT in the most effective and tax-efficient manner is also important. You may take into consideration the tax treatment and any limitations of lifetime gifting and at-death bequests to the trust, as well as the taxation of the assets that are held in the trust. In addition, it's important to consider the level of funding for the trust, depending upon the age of the special needs individual and the desire to provide for any other children, among other factors.

If you plan to fund the trust during your lifetime and know that at least a portion of the trust's assets won't be used until you pass away, you may want to consider having the trust purchase life insurance on the life of one or both parents. An insurance policy owned by the trust offers several potential advantages:

*The life insurance death benefit is received by the trust income tax-free and is excluded from the value of your estate for federal estate tax purposes, provided the trust is properly structured.

*The death benefit provides the trust with significantly greater value than the cost incurred to pay premiums on the policy.

*Any potential cash value accumulation within a permanent life insurance policy is not subject to current federal income taxation.

PLANNING FOR YOUR OWN FUTURE

There are several ways to provide for adequate funding of an SNT for your child. The most important consideration is to remember that you can't care for your child if you haven't first prepared for your own financial future. It's imperative that you work with your outside professional advisors to help you put an estate plan into place that is designed to provide for the care of your loved one.

While balancing all of your goals may seem difficult to achieve, the good news is that with a team of knowledgeable legal and financial professionals who specialize in managing the issues of families of children with disabilities, you can build a strategy that addresses all of your financial objectives.

Chris Schneck is a Certified Special Needs Advisor and Wealth Management Advisor at Merrill Lynch in Mesa.

totalmerrill.com/specialneeds