Financial Considerations for Parents with Special Needs Children
Raising a child may be an expensive prospect—with parents spending an estimated average of more than $233,000 to raise a child to age 17 in 2021. Having a child with special needs may add to this cost, whether increased medical expenses or special schooling or rehab therapies. If your child has a mental or physical disability, take extra care to plan for your financial future. What financial considerations should you consider as the parent of a child with special needs?
Life and Disability Insurance
It's typically important for all parents to have life and disability insurance policies. These policies provide financial protection for children and surviving spouses by paying out—either through a lump sum or monthly benefit—if the beneficiary becomes disabled or dies.
Even if you're not the primary breadwinner in your household, life insurance is often crucial—from childcare to nursing expenses, it may be expensive to replace the services you provide to your children and family. Having a life insurance policy in place may help cover some of those costs.
Long-Term Care Savings
If you think your child may require long-term care during their adulthood, it might make sense to purchase a long-term care insurance policy on their behalf now. These policies tend to get more expensive as the beneficiary grows older, so purchasing a policy while your child is relatively young may help you save money while providing a safety net for the long term.
Special Needs Trust
Many disabled adults are reliant on Medicaid and other income-sensitive government programs. These programs may have strict asset limits, which means that leaving your child a bequest in your will or gifting them funds in their adulthood may compromise their eligibility for Medicaid, Supplemental Security Income (SSI), and other benefits.
A special needs trust typically provides a way to bypass these limits while helping to ensure your child may have adequate funds for their care. By placing your child's funds in a special needs trust, where they're not immediately or freely available, your child may continue to qualify for Medicaid and other government programs. These trust funds may be used for many costs, from transportation to "extras" to housing to health care.
Tax Benefits
Caretakers of a disabled child may be able to take advantage of some federal and state tax benefits to help defray expenses. These include the Child and Dependent Care Credit, the Earned Income Tax Credit, and the Child Tax Credit. You might also be able to deduct certain medical and dental expenses. A tax accountant may help you review the credits and tax benefits to which you should be entitled.
Important Disclosures:
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This material contains only general descriptions and is not a solicitation to sell any Long Term Care or Insurance product, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about Long Term Care and insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Sources:
https://spendmenot.com/blog/how-much-does-it-cost-to-raise-a-child/
https://www.medicaidplanningassistance.org/medicaid-eligibility/