Our Thoughts

Financial Planning for Families with Special Needs 

One-quarter of U.S. households have a family member with special needs. More than 8% of children under 15 have a disability and half of those are severe. Most families’ main focus is on early medical intervention, so it makes sense that many are unaware of their options for early intervention on the financial front.  

Three key components in every special needs family’s financial planning toolbox are described below. 

Stand-Alone Third-Party Special Needs Trust 

Third-party special needs trusts are established by a donor who contributes funds as part of an estate plan. The trusts can be attached to life insurance policies, own real estate, and have no age restriction or limit on the size of the fund or the scope of its use. Because the funds are simply used for the beneficiary’s care but are never the direct assets of the beneficiary, the government is not entitled to reimbursement for Medicaid payments upon the death of the beneficiary. The donor also has full control over who the balance transfers to at that time. 

These types of trusts have factors that should be considered. The most significant is they are unable to hold any funds directly belonging to the person with special needs, so any other inheritances or awards need to be managed in a separate account. 

Medicaid Waivers: 

Families with special needs children under 18 generally aren’t eligible for Medicaid unless they have very low assets and income. This is where Medicaid waivers come in. If you qualify for a waiver, it means that only the child’s personal assets are being considered when applying for Medicaid, not the families. Those who qualify for waiver services and supports are eligible for full Medicaid health-care benefits, which is critical if your child has no other health insurance. Additionally, Medicaid waivers permit states to use those funds to assist special needs individuals with obtaining long-term home and community-based services. This is so they are not limited to living in hospitals or other institutionalized facilities.  

The wait list for these waivers can be extensive – some exceeding ten years – so it’s important to sign up as early as possible to take full advantage of the benefits. Some states have multiple lists, so add your child to each one, and eligibility will be determined once you come off the waiting list. Make sure to confirm your contact information is updated on an annual basis so that if your child does come off the list, the program administrator can reach you as quickly as possible.  

Life Insurance:  

When addressing the needs of a special needs child, the dependence on caregivers for physical or financial support is often permanent. Term insurance is usually not appropriate because it will lapse at the end of the defined term. Consider permanent forms of life insurance, such as what’s called a Second-To-Die policy. This is an insurance policy taken out on two people that provides benefits to the heirs only after both spouses die. Also known as dual-life insurance or survivorship insurance, this type of policy can often cover two people for a lower premium. 

Most parents of special needs children are proactive in purchasing life insurance policies on themselves to ensure the child’s needs will be met for the duration of their life. Very few consider the need of purchasing a policy on the life of their child. Sadly, it is not uncommon for the special needs child to predecease the parents. Those parents have potentially sacrificed career development, retirement savings, and other benefits over the years they have been caring for their child. While it’s not pleasant to think about, an insurance policy can help recoup some of these losses and helping with funeral or other related expenses.  

Other Things to Consider 

Once these financial protections are in place, you should strongly consider drafting a Letter of Intent. This is a Care Guide you will be leaving for whoever you have designated to care for your special needs child once you are no longer able to. Having an updated Letter of Intent is one of the greatest indicators that a family has a complete plan in place for the ongoing care and support of their child.  When drafting such a document, communication should be clear.  Identify the roles you want individual family members to play going forward and the corresponding responsibilities they will be tasked with. Make sure that these conversations are held far in advance of drafting the document and that everyone is comfortable with what is expected of them.  

For people who developed disabilities before the age of 26, Congress has allowed a tax-free savings vehicle through the Achieving a Better Life Experience (ABLE) Act. These accounts can provide a supplement to the basic plan and will not affect a person’s qualification for government assistance. There are limitations, so be sure to consult your advisor for more detail.  


Financial arrangements for a special needs family are complex, extremely personal, and can be emotional. Early intervention is key to planning and knowing your options. The FJY Financial team understands the importance of early planning and stands ready to help you navigate your options.  

Special Thanks: We want to give a huge thank you to Mitzi Lauderdale for a wonderful presentation on this topic. http://www.depts.ttu.edu/hs/pfp/lauderdale.php