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10 Common Special Needs Financial Planning Mistakes

10 Common special needs financial planning mistakes

  1. Failing to plan for assets to go into a special needs trust at the parents’ death. In order to maintain Medicaid eligibility, assets need to flow to a special needs trust rather than directly to the person with special needs.
  2. Purchasing term life insurance to fund the special needs trust. Term insurance is not a good solution for a permanent need. Some form of permanent insurance should be purchased.
  3. Drafting the special needs trust so that it is implemented upon the death of the second parent. It is best if the trust is operational immediately so that there is a place for gifts or bequests made before the parents die.
  4. Not establishing an ABLE Account. The tax-free accounts can be used to hold excess earnings, surprise gifts, and savings for major purchases without jeopardizing government benefits.
  5. Entering into a guardianship for your loved one prior to exploring all options for supported decision making. Guardianship can be appropriate in a number of situations but the transfer of rights from one individual to another should not be taken lightly.
  6. Ignoring federal and state benefits. Regardless of your level of wealth, having your loved one with special needs qualify for federal and state benefits provides both a safety net and an opportunity for them to access programs available only to those who meet eligibility requirements.
  7. Assuming the same family member should be the executor, trustee and guardian. You want people with the right skills for each role. The best solution may be three different people including one or more professionals.
  8. Not communicating with all family members about your planning. Proper communication with relatives about why you have a special needs trust will eliminate problems of gifts going directly to the child with special needs and jeopardizing the governmental benefits.
  9. Failing to communicate in detail how someone should care for the individual with special needs after the parents or caregivers are gone. Every individual with special needs should have a care guide. This non-legal document may be the most beneficial thing you leave behind for your family member with special needs.
  10. Not understanding that when a person is applying for means tested benefits, they are a household of 1 for reporting purposes. It does not matter how many people live in the home. If they claim to be a member of a larger household, the income and assets of others will be counted.

These recommendations are provided solely as a reference and are not intended to replace counseling from qualified professionals. Please contact Oak Wealth Advisors if you would like more information about our services.

Recommendations for Special Needs Families