CMP Financial Planning

Creating a Special Needs Financial Plan


Creating a special needs financial plan involves putting together two plans: one for the parent and one for the child with a disability. Because the combined financial plans take into account the needs and goals of both the parents and the adult child with a disability there is additional complexity in producing an overall projection that works. This article summarizes the elements involved in creating a special needs financial plan.

The diagram below shows how the plan for the parents and the adult child with a disability fit together. The top half of the plan are the elements comprise the parent’s financial plan. Income derived from retirement assets (e.g. 401Ks, IRAs, pensions, & social security any part time work, represents the income flows in the plan. The family financial plan represents the goals and dreams of the family in retirement. From these goals and estimated annual expense is determined. Retirement assets can be withdrawn in the years where expenses exceed income; however the successful plan will have sufficient assets to pay for the cumulative expenses throughout the parent’s lifetime and leave sufficient residual assets for dependent loved ones. Note that the typical financial plan does not include the assets of the home to meet current goals and expenses of the parents; however, the family home is a substantial asset that needs to be factored into the plan for the adult child with a disability. The family home, along with any residual retirement assets are passed on to the adult child with a disability though the special needs trust (SNT).

The lower half of the diagram represents the plan for the person with a disability. Similar to the parent’s financial plan, the child’s plan takes into account the various income streams that the adult child will have available during his or her lifetime: income derived from the SNT, Social Security, works earnings (if applicable) and any income from an ABLE account. The adult child’s needs and goals help determine what the annual expense of the plan might be. The successful plan will ensure that there are sufficient assets available to pay for the person with a disability’s expenses throughout their lifetime. If the person with a disability is likely to be eligible for a Medicaid waiver, only the expenses after the necessities and supports that are provided in a waiver need to be considered.

Creating a special needs financial plan is more complex than establishing a retirement plan for a typical family because the plan takes into the account the goals of both the parents and the adult child with a disability. The time span covered by both these plans can be over 50 years depending on the life expectancy of the adult child with a disability. Putting together this type of plan involves a lot of educated guesses. Ultimately the plan will need to be updated regularly. Despite the complexity and the guesswork involved the special needs financial plan provides a necessary road map for the family in making planning decisions now and into the future.

Planning-Diagram-1.pdf (81 downloads)