WSJ: Financial Help for Parents of Special-Needs Children

WSJ:  Financial Help for Parents of Special-Needs Children

WSJ: Financial Help for Parents of Special-Needs Children

June 12, 2016 10:06 p.m. ET

Increasing lifespans make retirement planning more of a challenge for everyone—but especially for parents of disabled children.

Many disabled persons are living longer today. Those with Down syndrome, for instance, have a life expectancy of 60, compared with 25 in 1983, according to the National Down Syndrome Society. Many parents with a special-needs child thus face the additional responsibility of ensuring that their child will be provided for, financially, physically and emotionally, long after they’re gone.

“You’re planning for two lifetimes,” says Adam Beck, assistant professor of health insurance and the director of the MassMutual Center for Special Needs at the American College of Financial Services.

What follows are some tools and tips to help parents of disabled children rest easier at night.

Special-Needs Trusts

Parents concerned that their nest egg won’t stretch for two lifetimes can take some comfort in the knowledge that government benefits can be available for their disabled dependents. To be eligible, however, the disabled adult must have very little in the way of assets. To qualify for Supplemental Security Income and Medicaid, disabled individuals generally must not own more than $2,000 in assets.

If that sounds like a Catch-22, potentially discouraging parents from saving for the future needs of a disabled child, there is a solution: a special-needs trust. Parents set up the trust with the help of estate planners and designate it as the beneficiary for any assets they intend to leave for the benefit of their child. When set up properly, assets held in the trust for the disabled person won’t affect his or her eligibility for certain government benefits.

Experts advise families to set up such trusts early, before, say, a grandparent dies and leaves an inheritance for the child. If they wait until after such a windfall to seek guidance, and the special-needs child directly inherited that windfall, means-tested benefits may already have been compromised.

529 ABLE Accounts

Another tool that some parents of disabled children will soon have at their disposal is a 529 ABLE account. Similar to 529 college-savings plans, these accounts will allow tax-free distributions if the money is used to pay for qualified expenses. For ABLE accounts, these include housing, employment training, assistive technology and personal support.

Approved by Congress but close to launch so far in only a handful of states, ABLE accounts can hold up to $100,000 in assets without jeopardizing the beneficiary’s eligibility for means-tested government benefits. Families can contribute up to the maximum gift exclusion each year, which is $14,000 for 2016. The disabled individual will be the account owner and designated beneficiary. To qualify for an ABLE account, the person must have been disabled before his or her 26th birthday.

More than 40 states have passed legislation to sponsor ABLE programs. Florida, Nebraska and Ohio are expected to start offering accounts this summer. Virginia plans to launch before the end of the year. Other states plan to start offering accounts in 2017.

Consumers will be able to choose whatever state’s account suits them best, without state residency requirements. In April, nine states, including Illinois, Pennsylvania and Nevada, announced they will form an ABLE consortium that aims to lower costs by increasing the number of potential participants. Each of the nine will have its own ABLE program with certain common elements, such as investment services. That launch is slated for later this year.
Because of their contribution limits, ABLE accounts should be viewed as a complement to a special-needs trust, rather than a replacement, says Jeff Yussman, partner in Wyatt, Tarrant & Combs, a law firm in Louisville, Ky., and the father of two special-needs young adults.

Mr. Yussman says he is still weighing whether to open ABLE accounts for his children. While he doesn’t see an immediate need for them, they might come in handy down the road if the children are able to work and earn some income, or if relatives want to leave them some money.

Long-Term-Care Insurance

At some point, the health-related expenses for a special-needs child also start to coincide with increased health expenses for the parents themselves.

Some financial-planning experts say long-term care insurance can help to cover expenses—and preserve retirement savings—of parents with special-needs adult children.

“There’s going to come a point where someone needs to take care of them and their child,” says Paula Considine, recreation supervisor for the city of Peoria, Ariz., who leads workshops for parents of special-needs children on planning for future needs.

Diminished capacity on the part of aging parents often results in the need for outside help. And that can be very costly. The median annual cost of a home health aide for 44 hours a week is $45,760, according to Genworth’s 2015 Cost of Care Survey, while the median annual cost of a private room in a nursing home is $91,250.

Ideally, parents should look into getting coverage around age 50, when they are still healthy enough to pass medical underwriting but typically have major expenses such as home purchases or college tuitions for other children largely behind them.

While long-term-care policies don’t come cheap—premiums for a couple can run thousands of dollars a year—policyholders can reap some tax advantages from their outlay when they use the policies in combination with a health savings account, or HSA, as follows.

Health Savings Accounts

HSAs can be a particularly useful tool for parents of disabled children. The accounts are funded through payroll deductions, allowing workers to set aside pretax money that grows tax-free and can be withdrawn tax-free when used to pay for qualifying medical expenses. IRS Publication 502 defines what medical and dental expenses can be reimbursed with HSA funds.

Account holders are required to have high-deductible health-insurance plans, but, given the opportunity for the assets to grow tax-free, they represent an attractive option particularly for parents of disabled children, for whom health-care bills are almost certain to mount in the later years of life.

For the same reasons, HSAs have additional benefits when used in combination with long-term-care insurance. The Internal Revenue Service considers qualified long-term-care insurance premiums an expense that can be funded through HSAs up to certain limits that vary by age. What’s more, long-term-care expenses themselves can be paid out of an HSA, as long as they meet certain criteria outlined in IRS publication 502.

One word of caution: If parents use HSA funds to buy durable medical equipment for their special-needs child, such as a wheelchair, that equipment could be considered as the child’s asset and complicate his eligibility for means-tested government benefits, says Sara Hart Weir, president of the National Down syndrome Society.

Mr. Yussman, the Louisville lawyer, says parents who don’t want to be put in a position of having to justify a purchase to the government may want to avoid using HSA funds to pay for a dependent child’s medical needs.

Ms. O’Brien is a writer in New York City. She can be reached at


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