How Do I Align Retirement Planning with Planning for a Special Needs Child?
As parents of children with special needs approach retirement, they must reassess decisions made years earlier regarding guardianship, beneficiaries, and their child’s care arrangements. Neglecting to update an estate plan creates problems, but failing to do so when a special needs child is involved can prove catastrophic.
Key Issues When Life Changes
Past decisions may no longer work or be legally permissible. A grandparent designated as guardian a decade ago might have relocated or passed away. Retirement strategies based on selling the family home and downsizing may no longer be viable. Healthcare insurance options can become limited after retirement ends. Life circumstances shift, and estate plans must evolve accordingly.
The Critical SSI and Medicaid Problem
This is perhaps the most crucial consideration: children with special needs who receive Supplemental Security Income (SSI) and Medicaid may not have more than $2,000 of assets in their name. If they appear as direct beneficiaries on retirement accounts or life insurance policies, they immediately lose eligibility for these vital benefits. Assets should flow through a Special Needs Trust instead, never directly to the child.
Updating Beneficiary Designations
Parents and relatives often remain unaware of how inheritances impact special needs family members. It’s essential to discuss these concerns with grandparents and extended family who might want to leave something to a special needs child.
Recent Legal Changes
Recent modifications to Special Needs Trust funding rules have improved planning opportunities. The previous ten-year distribution requirement no longer applies to qualifying SNT beneficiaries, allowing SNTs to receive qualified retirement plan proceeds. Roth IRAs offer particular advantages since distributions come tax-free.
Life Insurance Strategies
Life insurance remains a popular vehicle for special needs planning. Second-to-die policies insuring both parents can direct proceeds to the SNT when money becomes most needed. If one parent faces health challenges, the other’s good health may help keep premiums reasonable. Ensure your state laws and financial institutions permit directing proceeds to an SNT.
ABLE Accounts
ABLE accounts provide tax-advantaged savings for individuals with disabilities. These can be opened at any age provided disability onset occurred before age 26. The 2021 annual contribution limit was $15,000, though numerous exceptions apply. Consult an estate planning attorney before establishing one–account balances exceeding $100,000 can suspend SSI benefits, and higher balances may jeopardize other means-tested programs.
If you need help aligning your retirement plan with planning for a special needs child, contact our office today to schedule a consultation with attorney Trey Stegall.
