A Personal Perspective on Special Needs Financial Planning

December 11, 2023

Did you know that raising a child from birth to 18 in a middle-class household can cost over $300,000?1  That’s a significant financial responsibility, but what happens when unexpected challenges arise?

Aaron and his wife Natalie understand this firsthand. When their second daughter, Collyns, was diagnosed with Down syndrome, they had to reimagine their family’s plans, including their finances. Aaron, a wealth advisor with Wymer Brownlee Wealth Strategies, shares his top five tips for families navigating the expenses of raising a child with special needs while creating happy memories.

Build a circle around you of support: Connect with other families, professionals and experts who have experience in similar situations. Seek wise counsel to ease the journey, whether it’s from trusted friends or professionals like financial planners, lawyers and health care advocates.

Make decisions based on your family’s unique circumstances: Adjustments may be necessary when a child with special needs becomes part of your family. Consider factors like income changes, potential savings on daycare costs and other adjustments to ensure financial stability. Waters provides an example of this situation: “When my wife, Natalie, chose to be a stay-at-home parent, we experienced a reduction in income, but we also saved on daycare expenses. Evaluating such factors is crucial, even though making these decisions is not always straightforward.”

Think about what’s important in the short term: Managing day-to-day finances can be challenging, especially with the added costs of medical care and therapies. Explore state programs and the Tax Equity and Financial Responsibility Act (TERFA) to alleviate some of the financial burdens. TEFRA gives states the option to make Medicaid benefits available to children with physical or mental disabilities who would not ordinarily be eligible for Supplemental Security Income (SSI) benefits because of their parent’s income or resources. This option allows children who are eligible for institutional services to be cared for in their homes. Here are some main benefits to children with disabilities and their families that TEFRA can provide:

  • TEFRA pays for services under Medicaid which allow children with disabilities to remain at home with their families and receive care in the community.
    • One of the most important benefits of TEFRA for children with disabilities is their ability to remain in their own homes. In states without a TEFRA state plan option, children with disabilities who do not meet their state’s income eligibility criteria for Medicaid can generally access Medicaid only if they enter an institution, enter the foster care system, or qualify for a waiver program (which often has long waiting lists).
  • TEFRA provides more children with disabilities access to Medicaid’s comprehensive Early and Periodic Screening, Diagnostic and Treatment (ESPDT) benefit.
    • Access to Medicaid is important for children with disabilities because of the Early and Periodic Screening, Diagnostic and Treatment (EPSDT) benefit that federal Medicaid regulations require states to provide.
  • TEFRA allows families greater employment flexibility.
    • The TEFRA state plan option allows families greater employment flexibility by disregarding income eligibility limits. This disregard allows families to continue to work without their child losing Medicaid benefits.
  • TEFRA provides wrap-around coverage to supplement private health insurance.
    • The TEFRA option can allow families to use Medicaid as a secondary form of insurance for their child with a disability to help with the costs associated with covered services or to access services that their private insurance does not cover.

Plan for the long term: Look beyond immediate needs and consider the future. Develop a comprehensive financial independence plan to secure your child’s well-being even if unforeseen circumstances arise. Stay informed about laws and programs like the Achieving a Better Life Experience (ABLE) Act, which gives families the ability to establish tax-free savings accounts that will not affect their ability to qualify for, or remain on, government assistance. It’s important to know there are pros and cons about ABLE accounts and they are not for everyone. Here’s some highlights:

Pros of ABLE Accounts

  • A person with disabilities can set up their own account with their own money instead of relying on a parent, grandparent or the court to establish a first-party special needs trust for them.
  • A person with disabilities can manage the funds in their own ABLE account, making them less dependents for assistance and making it easier to access funds.
  • Funds in ABLE accounts grow tax-free and are not subject to gift tax restrictions.

Cons of ABLE Accounts 

  • Currently, ABLE accounts can only be established for the benefit of people who developed their disabilities before turning 26 years old. If a special needs trust is established with funds from the trust beneficiary, it does not matter when the person developed the disability.
  • Some people with disabilities can be taken advantage of if they have control of their own funds. If a special needs trust was utilized to hold the funds instead, a trustee has a legal obligation to safeguard the funds.
  • Contributions to ABLE accounts are limited to $17,000 per year (in 2023) and can hold up to $100,000 without hurting a Supplemental Security Income (SSI) beneficiary’s eligibility, whereas there is no limit on contributions to special needs trusts (although gift taxes could apply). (However, ABLE account owners who work may contribute up to an additional $13,590 (in 2023) of their gross income into their ABLE account if they do not have an employer sponsored retirement plan.)2

Raising a child with special needs brings unique challenges, but with careful planning and support, families can confidently navigate the financial aspects while creating a fulfilling life for their child. If you’re interested in speaking with Aaron, feel free to reach him at aaron.waters@wymerbrownlee.com or give him a call at 405-748-4000.

  1. U.S Department of Agriculture and the Bureau of Labor Statistics.
  2. Special Needs Answers


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