The Finance of Special Needs

Advisors must take a comprehensive view
in developing effective plans

by Channing T Schmidt, J.D., CFP

Mr. Schmidt is Senior Advanced Marketing Counsel, Securian Financial Group. Connect with him by e-mail:

Families with members who have special needs face a future filled with complex challenges. Ensuring proper care for family members with special needs and meeting the financial needs of the rest of the family is a constant concern.

As the family’s financial advisor you can help them establish a strong long-term strategy to provide long-term financial security. Financial strategies for special needs Individuals with special needs fall into a wide spectrum of persons with physical, mental and emotional disabilities. They may need additional medical care, physical, occupational or speech therapies and special educational support to help ensure their environments meet their unique needs and allow them to establish and maintain a degree of independence.

With recent advances in medicine and technology, the life expectancy for adults with disabilities continues to rise. Longevity for people with Down syndrome, for example, has risen dramatically in recent decades – from 25 years old in 1983 to 60 today. This means parents and guardians must make long-term financial strategies for their family member with special needs as well as for the rest of their own lives.

People with special needs may be entitled to federal and state government programs that provide resources for basic care and living needs, such as Social Security Income and Medicaid. The income limitations to qualify for these benefits are strict. If the recipient inherits funds, the benefits could be reduced or stopped. When government funds do not fund the desired standard of living, family members need to be careful about establishing supplemental income.

Without careful preparation, the court could determine who cares for and financially supports the family member. If parents do not make it clear who is responsible for taking care of the person with special needs, he or she could become a ward of the court when the parents pass away. When that happens, the courts make the decisions about who cares for the family member and how financial support will be provided. Life insurance and the special needs trust The primary purpose of life insurance is to provide income tax-free financial support for the family when the breadwinner dies.

It also offers solutions for families with special needs members:

  • Life insurance can be used to fund a special needs trust to support the family member with special needs into the future.
  • When the caretaker or parent dies, the death benefit funds the trust. By going into the trust instead of directly to the person with special needs, the death benefit does not make that person ineligible for government benefits.
  • Help the family choose a trustee who has experience managing large sums of money and will hold the fiduciary responsibility for correctly managing the trust and carrying out its stipulations into the future. Family members seldom make ideal trustees, either because they don’t have asset management expertise or they’re too close the family to make objective decisions.
  • The death benefit can provide tax-free financial support to help maintain the family’s standard of living after the parents are gone.
  • Cash value in life insurance, which has the potential to grow tax-deferred, can help meet current and future expenses associated with caring for a person with special needs. However, it is important to remember that both policy loans and withdrawals may create an adverse tax result in the event of a lapse or policy surrender, and will reduce both the cash value and death benefit.
  • Additional agreements may enhance a life insurance policy to address each of the family’s goals – from providing for the parents’ care to customizing the death benefit payout. Keep in mind, agreements may be subject to additional costs and restrictions
When government funds do not fund the desired standard of living, family members need to be careful about establishing supplemental income

Disability insurance is another important consideration for parents and caretakers. Loss of income due to disability could jeopardize the family’s financial strategies.

Your role
For some people, the most daunting part of developing a financial strategy is getting started. You can jumpstart the process by showing them how to accomplish it in manageable steps.

  • Step one: Identify the team
    Help the family identify a team of professionals who know them well. The team can include – in addition to you — family members, an attorney and a social worker. Team members should have expertise in fiduciary requirements, government benefits and tax laws.
  • Step two: Needs assessment
    The financial strategy should include short-term and long-term goals. Help your clients analyze the family’s financial situation as it is today and as they expect it to be tomorrow. Help them estimate how much money the family will need plus the cost of supporting the family member with special needs.
  • Step three: Prepare and implement the financial strategy
    Encourage your clients to think about the details of the lifestyle they want for the entire family. Factor in housing, education, retirement and long-term care costs and attach an estimated dollar value for each.
  • Step four: Letter of intent
    Encourage the caregivers to describe in detail the lifestyle they want to provide for the family member with special needs. In this letter of intent, they should explain where will he or she live, educational needs, employment opportunities and favorite activities and foods. This detailed information provides direction for future caregivers and gives the parents a sense of security.
  • Step five: Review regularly
    Arrange for periodic review of each of these steps to make sure the family remains on track to reach its goals. Review them at least annually, perhaps using the family member’s birthday as a reminder.

Try these questions as guidelines:

  • Did health or benefit eligibility change?
  • Did the family’s financial situation change?
  • Is the composition of the team still appropriate? Are members up to speed on recent developments?
  • Review the special needs trust to ensure its provisions are up to date.
  • Help the family identify changes that should be made to reach its financial and lifestyle goals.

The future quality of the family member with special needs life may greatly depend upon your clients’ willingness to properly prepare today. Special needs estate planning requires specialized knowledge and expertise. You can help the family identify the questions they need to ask and find the answers that are right for them and for their family member with special needs. Be sure to work with an attorney experienced in these areas to help ensure that you are addressing appropriate legal issues.


Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. The opinions expressed in this article are those of the writer and not of Securian Financial Group, Inc.