By Jason Alderman
Parents of special needs children have enough on their plates just tending to the health, educational and emotional needs of their kids - not to mention often having to cope with drastically lowered income because of reduced work hours or having to pay someone else for childcare. So it's not surprising that many of these parents haven't had time to hatch a long-term financial plan in case their kids need care after they're not around.
Fortunately, many government programs and community resources are available to help relieve the financial burden of parenting special needs children. But eligibility criteria are complicated and the application process time-consuming. Plus, if you're not careful, you or well-meaning relatives could inadvertently disqualify your kids for future benefits by not structuring their inheritances correctly.
Here's a brief overview of key government assistance programs:
The Social Security Administration provides two types of disability coverage: Supplemental Security Income (SSI) and Social Security Disability Income (SSDI). Rules and eligibility requirements differ between the two programs - and benefits differ for children and adults.
In a nutshell, SSI is a needs-based, cash-assistance program for disabled people of any age in low-income families with limited resources. Children qualify for SSI benefits if they meet certain strict criteria outlined in SSA Publication 05-11000 (www.ssa.gov/pubs/11000.html).
SSDI is a separate program funded by payroll deductions (part of FICA). Although children sometimes receive SSDI payments if their parents are disabled, their eligibility is based on their parents' disability status, not on their own. However, after turning 22, already disabled children may qualify for SSDI on their own if at least one parent qualifies for Social Security benefits.
Eligibility rules and definitions for SSI and SSDI are complex. To see if your child qualifies, call Social Security at 1-800-772-1213, or search the Disability and SSI tabs at www.ssa.gov. One particularly helpful resource is "Benefits for Children with Disabilities," SSA Publication No. 05-10026.
Many families inadvertently jeopardize their disabled child's eligibility for government-provided benefits by opening accounts in the child's name or designating them as beneficiaries. Unfortunately, federal law dictates that recipients of SSI, Medicaid and many state assistance programs will be disqualified if they have resources worth over $2,000. So, if Uncle Jerry leaves your daughter $10,000 in his will, she could lose her benefits.
One good alternative is to create a special needs trust, whose assets can be used by its trustee to manage the finances and personal effects of a disabled person. Trusts are governed by state laws and should only be drafted by an attorney familiar with this area of law.
Some parents name the trust as beneficiary of life insurance policies to ensure a source of funding if they die before their child. (Stay current on your premiums.) Other possible funding sources include cash, stocks and other investments, retirement plan death benefits, home sale proceeds and inheritances from other relatives and friends. Just make sure that the trust -not the child - is named beneficiary.
Preparing a special needs trust can be expensive - possibly several thousand dollars, depending on your situation. But weigh that against the prospect of your child losing out on a lifetime of government-provided benefits because of an accidental inheritance - speaking of which, be sure to let any well-meaning relatives or friends know about the trust.
