It snowed the day before Halloween, where I live. The day after, CVS and Walgreens had their Santa displays already up. Last week, I heard an ad for a furniture chain that proudly declared this “Black Saturday” promise: “We’ll have it delivered and installed by Thanksgiving.” Wait…What??? I thought Black Friday was the day after Thanksgiving and Black Saturday the day after that? No wait, that’s Small Business Saturday, followed by Cyber Monday and, as somewhat of a relief, Giving Tuesday. According to this timetable, two dollar stores and one of my personal favorite retail stores, Half Price Books, were the first to release their holiday shopping ads in early October. Despite the seemingly earlier and earlier onset of the holidays AND the fact that Chicago-area temperatures have been averaging 20-30 degrees below normal, giving a distinctly winter-like feel, I have not yet purchased so much a box of Christmas cards and I refuse to turn the dial to 93.9 Lite FM (which airs nonstop Christmas songs all throughout the holiday season.)
Even though the fact that the American retail scene seems to be morphing into one, ginormous 365-¼-day-long continuous sale that overwhelms me as a consumer, as a small business owner myself, I can appreciate the need to market early and often. The earlier the business starts, the more likely it is to succeed in reaching a holiday sales target and the more time it has to alter or increase its marketing efforts in pursuit of that goal. By analogy, while I am very encouraged by all the parents of transition-age-and-older students who frequent my workshops and especially by the ones that decide to take up planning in earnest, I am issuing an appeal to parents of younger children to consider starting a special-needs financial plan as soon as possible. While it can feel overwhelming to begin a plan for something that is seemingly so far in the future, I have actually found it to be the opposite. When I work with a client on a plan gradually, over a longer period of time, we are able to implement the plan in small steps that are easy to implement. Moreover—and this can be very impactful—many financial-planning strategies are much more effective with a long lead-time. Here are some examples to consider:
Titling assets. If you even think your child may need to access support services as an adult, you should know that most of those services are funded by Medicaid and, in most cases, a single person cannot access Medicaid if s/he has more than $2,000 held in her/his own name. It is much more effective to hold assets from the beginning in a way that will allow your child to access Medicaid-Waiver-funded supports. This is especially true now that we have ABLE accounts for people with disabilities. Assets held in an ABLE account will not affect a person’s eligibility for Medicaid (and SSI). By comparison, assets held in the child’s bank account or a joint bank account with you will. Assets held in custodial accounts under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), while not counted for Medicaid eligibility when the child is still a minor, will immediately become countable resources and income when the child reaches your state’s age of majority, usually between 18 and 21.
Saving for college. Your child with special needs may be able to attend a post-secondary program. There are more and more such programs designed specifically for youth with disabilities. As with college programs for children with more typical development timelines, these programs run the cost gamut from the low end at local Community Colleges to the pricy end for private institutions. It is virtually impossible to come up with a strategy to pay for college when your child is already in high school. It is totally possible, though, to have the funds in place if you start a modest monthly contribution from the time the child is an infant.
Paying for non-academic activities. If your child with special needs does not attend a post-secondary program, what is s/he going to do when high school, including those transition years, is completed. In Illinois, where I am, there are also a growing number of innovative vocational programs that teach skills such as computer literacy, horticulture, cooking and art. There are also recreational programs. But even if your child is Medicaid-eligible, s/he may not yet receive Waiver funding. In this case, you as parents will need to come up with the fees for these programs out-of-pocket. And while the costs are modest compared to college, they can still add up.
Funding your Special Needs Trust. One focus of special-needs planning is making sure the child with a disability is positioned to access government benefits when s/he is an adult. However, I constantly remind parents that the other focus is setting aside family money because government benefits are never going to cover everything your child needs. The usual way to set aside such supplementary funds is to use a special-needs trust. An effective way to fund such a trust can be by purchasing life insurance on the parents. While the parents are still alive, they pay supplement expenses out-of-pocket. When they die, the life insurance pays out to the trust and the trust continues to pay those expenses without interruption. When the child with a disability is still young, chances are her/his parents are also relatively young and in good health. This is the situation in which you get the most leverage with life insurance. That is, the young and healthy purchaser gets more death-benefit bang for each premium buck. In the worst case scenario, parents who only start planning when their child is a late-teen or an early-adult may discover that their own health needs have rendered them unable to purchase life insurance at that point.
Managing tax allocation. I almost always advise clients to have a mix of taxable accounts, such as a typical brokerage account, tax-deferred accounts such as 401(k)s and IRAs as well as tax-free accounts such as Roth 401(k)s, Roth IRAs, 529 college saving plans (at the Federal level and only under certain circumstances). This allows the clients to manage their later-life distribution from these assets to minimize their taxes in any given year. This can be even more important when you have a child with a disability. In a prior blog, I talked about the challenges that surround leaving an IRA to a Special Needs Trust and that arise from the IRA’s tax characteristics. One simple way around this problem is to leave taxable accounts to a Special Needs Trust and tax-deferred accounts to children or grandchildren without disabilities. For this to work, though, you have to have had the foresight to create both types of accounts early on.
I’ll admit it. I am that person running around frantically on December 22nd and 23rd, sending e-cards and electronic gift certificates, and sending screen-shots of the physical gifts I ordered to friends and family who won’t receive them till “The Twelve Days of Christmas” are well underway. I don’t buy my Halloween candy in September, order my turkey before Halloween, send out my Christmas cards before Thanksgiving, or get my tree and lights up amidst the Black Friday madness. And I’ll admit that every year I do wish I had started holiday preparations sooner. I don’t want you to be wishing when your child is about to turn 18, or ages out of school, or needs adult services, that you had started your special needs planning much sooner. Let’s get started now, and beat the rush