The life expectancy of disabled adults has been steadily increasing to the point where it has served to complicate the issue of retirement planning for their aging parents. A special-needs child brings another aspect to retirement planning. Parents have to pay attention to significant details, including the beneficiaries they assign to their 401(k) at work, as well as saving the maximum amount for their own retirement. In addition, they have to make sure that their child’s financial, physical and emotional needs will be met after their death.
As stated in a 2012 paper issued by the Institute on Disability and Human Development, University of Illinois at Chicago, in 2030, the number of adults age 60 or older in the United States who have developmental disabilities will be 1.2 million. This figure represents almost twice the amount of people who fit that description in 2000. According to the National Down Syndrome Society, currently, those with Down syndrome are expected to live to age 60, in comparison with age 25 in 1983.
A critical step that parents should take is to ensure that their savings and investing actions will not jeopardize their child’s qualification for government benefits. Parents are, therefore, encouraged to establish a special-needs trust with the assistance of an estate planning attorney. Assets will be held in trust for your disabled child, who will be able to qualify for specific government benefits, including Supplemental Security Income and Medicaid. In order to be eligible for such benefits, the disabled child must not own in excess of $2,000 in assets.
Thus, your disabled child will be unable to inherit a 401(k) account, life insurance policy or other considerable asset, such as a car. Rather than designating their special-needs child as the beneficiary of any asset, parents who have set up a special-needs trust for their child are advised to name the trust as beneficiary. During their retirement years, parents can access their 401(k) or IRA account as needed, and any extra funds will go to their beneficiary after their death.
An additional estate planning vehicle that some parents will eventually be able to use is a 529 ABLE account. ABLE accounts will keep a maximum of $100,000 in assets without placing at risk a special-needs adult’s eligibility for certain government benefits. Parents can make a contribution up to the maximum gift tax exclusion, which is $14,000 in 2017.
The special-needs child will be the owner of the account, and the beneficiary. In order to be eligible for an ABLE account, the individual must have been disabled prior to their 26 birthday. As in the case of traditional 529 accounts, distributions from ABLE accounts are not subject to tax if they are used to finance qualified disability expenses, including housing, job training, assistive technology, and support. The disabled child can access funds right after opening an account, and as often as needed.
If you would like to learn more about special-needs trusts, call the estate planning attorneys at McDevitt Law Office.