3. SPEAK WITH AN ADVISOR. There are many things that an advisor can do for you; although the most important is to share information. They should teach you what strategies will work best for your situation as there are no cookie cutter solutions for family finances. A few areas to focus on for a family that has children with disabilities would be:
3.1. Disability Tax Credits & Federal Assistance: Check with your advisor regarding the state or provincial legislation. Your family may be entitled to tax credits, and in some cases, there can be a re-assessment as far back as 10 years. If the bearer of a disability tax credit has no income, a spouse, partner or caregiver may be able to use the tax credit. For American citizens be sure to ask your financial advisor about Social Security Income, Social Security Disability Insurance & how this may affect your ability to contribute to an Individual Retirement Account (IRA). Canadian citizens can acquire a certificate approved by the CRA that allows for tax credits & allowances for caregivers & people who have a prolonged or severe disability. With this certificate you may be eligible to claim the disability tax credit and certain medical & care expenses. If the disability is intellectual in nature, it may also permit you to create a Lifetime Benefit Trust (LBT) which will allow a parent to transfer their RRSP to their child on a tax-deferred basis upon death. This certificate may also give you access to provincial tax credits & benefit programs that will provide allowance and income support.
3.2. Savings Plan: It is never too early to start saving for the future. It is recommended that you put 10% of your monthly income towards savings. The more you can afford to put away, the more prepared you will be when it comes to your children’s future. Always look for a tax-advantaged vehicle when investing. In Canada there are Registered Disability Savings Plans (RDSP’s) which offer people with disabilities a way to save money in a tax-advantaged account with government contributions. A Tax-Free Savings Account (TFSA) can also be a useful tool when saving. Although there are no government grants, this saving vehicle can be utilized by Canadians with or without disabilities. Be sure to check with your local advisor for solutions that would work for you.
3.3. Education Plan: In Canada there are Registered Education Savings Plans (RESP’s) An Investment account in which the government will match a certain percentage of contributions as grants. The parent doesn’t initially pay taxes on the money, so they have a double incentive for saving for their children’s education.
Taxes are paid when the student withdraws the funds (which will probably be lower than what their parents would have paid on the same money). In the United states there are “529 Plans” that parents can contribute to. Although they do not offer government grant programs, the money contributed to these plans is with after-tax dollars, so they are paid out taxfree. There are also some states that do offer state deductions for parent contributions. Again, I always recommend you speak with your local advisor.
3.4. Plan for a future that may not include you: When any child is under the age of majority, a parent is a legal guardian of the child and is responsible for making decisions on behalf of them. However, when a child becomes an adult that all changes. With families that have children with disabilities it is possible that you may need to continue deciding for your child including finances and personal care decisions. Therefore, it is a good idea to create a sound estate plan for you and your child; in case you are not around or in a position to take care of them. An estate plan could include powers of attorney; which allows you to designate a person to make both property and personal care decisions on your behalf for the child, and creation of a will for both yourself and the child so that any assets can be passed on as you direct.
There are many challenges to estate planning when a child with disability is involved. There must be a plan to provide for the child financially through the course of their lives. It is common practice for these families to set up a trust in their parents will. This type of trust, called a “testamentary trust”, takes effect upon the death of the person making it. The parent may choose anyone to act as the trustee, but it should be someone the person trusts to act in the best interests of the child. The trustee will be responsible for managing and distributing those assets in the trust.
Along with the will, it may also be useful for families that have children with disabilities to create a detailed letter of intent. It’s not a legal document but can be very helpful to a caregiver or trustee. List any items, like your child’s routines, preferences, medicines, and specialists.
Trusts can be quite complicated so if you’re thinking about setting up one up you should consult a financial advisor or estate planner who can help you with this task.
3.5. Plan for the worst, hope for the best: There are many situations that can devastate a family, especially ones with special needs. Here are a few scenarios and a few tools that can be implemented to mitigate them:
- Something happens to the primary wage earner: If the primary source of income were to become disabled, get a critical illness, or pass away, how well is your family equipped for that? There are many products in the financial industry that can help cover that, including; Disability Coverage, Life Insurance and Critical Illness Protection. In many cases, there are debts and final expenses that arise upon a loved one passing. Life insurance is in place to take care of this, while also creating an income for the surviving family members.
- Something happens to a non-wage-earning spouse: There are many adverse effects that can happen to a family that are not based in finances. There are many contributions to a household that a non-wageearning spouse creates and thus a family can have coverage in place to help ease the burden of losing a loved one. This type of life insurance policy can give the wage-earning spouse an opportunity to grieve, take some time off work and spend it with the rest of the family. Of course, money cannot replace a loved one, but it is always better to be in a situation where you do not have to worry about finances while dealing with loss.
- Nothing bad happens: This is what we are all hoping for, although tragedy is so common its almost predictable, it is always good to plan for the best as well. That is why there are insurance policies that include a cash component in which people can access their money tax free and, when set up properly, be used as a retirement fund.
3.6 When speaking with an advisor, make sure you look at your entire family situation and not just the child with disabilities. There are often cases where an advisor can help move things around to free up cash-flow or reduce debt. There are a LOT of different financial tools out there so be sure to speak with a specialist to make sure you are getting the right tools for your particular situation.