- Christian Bishop CFP®, EA
How to protect your special needs child’s financial future.
My son has autism, but autism isn’t his world. Like most people his world is more than a label. It includes wants, desires, dreams and so much more. How he sees and interacts with the rest of the world may be different than others, but in many ways, he is like anyone else. He has love for his family, love of life, and has activities that he loves to do. His passion for photography and videography was apparent early in his life.
For Cody this is how he expresses himself. It can be as simple as a close-up picture of a flower or as complex as a time-lapse clip of the clouds rolling across the sky. I used to look at his work and appreciate it on the surface but as I have come to understand, it is much more than that. In some ways, it is how he expresses his love for family and the world. He sees beauty in common place things and activities and captures it digitally. Where I might see a cloudy day, he sees a cold front battling a warm front for supremacy of the sky. He does this by setting up a time lapse camera that captures the spectacle over a 4-hour period, converting it into a 30 second clip. The amazing thing is, he sees this in his mind then captures it on film for the rest of us to see. Lately, he has taken video clips of family members and edits them with funny techniques to create a short video that is humorous and silly. I like this as it breaks some of the stereotypes of people with autism. He may not always laugh out loud, but he sure likes to make others laugh. This young man has much to offer the world and I love him for who he is. But I worry about what happens to him when his mother and I are gone someday.
While alive and able, we can provide a good life for Cody. We are divorced parents with our own blended families that love and support him. However, we will not always be around. Someday, we will pass away and Cody will likely need financial support. While he has brothers and a sister who will help look out for him, we cannot expect that they will or should support him financially. This is why I set up a Special Needs Trust or SNT. We could just leave money and assets to Cody like any of the other children, but this would not be in his best interests. First of all, he would not be able to manage and handle a significant amount of money nor be capable of fully advocating for himself. Second, he would likely lose most if not all government assistance programs. While I am a big believer in paying my own way and my children’s way in this life, the harsh reality is there would not be enough money to cover him for his life expectancy. If however we could design a trust that would work in conjunction with outside programs, then we may be able to insure a quality life without running out of money. This is where the SNT comes in. A quality written document would protect the beneficiary, in this case my son, from losing his assistance but at the same time provide for housing, care and a good life.
Some people who have children with special needs may feel like they don’t have money to put into a trust and worry about what will happen to their children when they die. While this may be true, especially while they are still building their net worth earlier in life, there is a potential solution. Fund the trust with a term life insurance policy. This would be a relatively low-cost way of funding the trust with heavily leveraged dollars. For example, a $500,000 death benefit policy with guaranteed rates for 35 years may cost between $40 and $70 per month depending on health and other factors. If the policy was purchased and the insured died, $500,000 would payout from the insurance company and fund the trust. At that point the trustee would administer the trust according to the specifications in the document. The idea behind the life insurance policy is to fund the trust with life insurance while building up the net worth so that by the time the term life expired, the net worth of the donor would be great enough to fund the trust either while living or at death. If the donor/parent has enough assets to fund the trust in whole or in part while living, then they certainly can do that but I still recommend consideration of leveraged money via life insurance.
A few important matters to keep in mind. First, use a qualified attorney to draft the documents unique to you and your family’s situation. Second, if you need to utilize life insurance keep in mind not everyone can get it due to underwriting requirements. If you are denied coverage, shop other companies as another one may take you. Third, carefully choose who will be the trustee. The donor can certainly be the trustee, but who will be the successor trustee once they are gone? I prefer to use a trusted family member and also recommend naming a contingent trustee. Professional trustees can be hired but will charge for their services. Last but most important, act now. It is more cost effective to plan now then to have someone later try to plan for your special needs child after you have passed away. While there are provisions in law for establishing a trust for special needs persons whom has inherited or received assets, it is much more expensive and complicated to do after the fact.
My love for my son is the motivation behind establishing a Special Needs Trust as I want him to be able to continue doing the things that bring him joy in life even when I am gone. Knowing that I have provided a secure future for him brings me piece of mind.
Christian Bishop CFPⓇ, EA
Photos by Cody Bishop