A financial guide: Helping your child with a disability become a financially secure adult

If you have a child with a disability, you’ve probably asked yourself how to ensure that your child has the best life possible – not only now, but after they transition into adulthood. This means setting up tools, trusts and resources that can provide your child with long-term financial security, even if they are unable to earn a living on their own.

It also means preparing for what might happen after you are no longer there to help.

“I am the single mother of a 27-year-old intellectually disabled daughter, and this topic is the focus of my life right now,” says Sarah Farmer, a writer and marketing team member at Advocates for Human Potential. “I have spent a decade ensuring she is financially able to survive once I pass away, including getting Supplemental Security Income (SSI), guardianship, SNAP, Section 8 housing, supported living staff, a day program, connection with workforce services, whole life insurance and a special needs trust.”

Those with disabilities range widely in their abilities and preferences, and disabilities can include physical or mental impairments that substantially limit major areas of life. Helping your child with a disability transition into a financially secure adulthood might not be easy – but it’ll be worth it.

How to give your child with a disability the best financial start possible

Kelly Piacenti has four children, one of whom has a disability. “At the early onset of our son’s diagnosis, we began putting a plan in place that would help to ensure his quality of life would continue for the rest of his life and without putting a financial burden on our other children,” she says.

Piacenti is also the head of SpecialCare, a MassMutual program that provides access to information and resources to families with dependents of any age who have special needs. These kinds of programs can be very helpful to parents who are hoping to give their children with disabilities the best financial start possible. Take advantage of as many programs, services, workshops and resources as you can access.

“I researched a lot online, talked extensively with disability services in my state, went to workshops, talked with other parents who had older adults with disabilities, read a book about special needs trusts and talked to several trust lawyers,” Farmer told us.

If you want to know how to prepare your child for a secure financial future, we’ve put together this guide to help you begin navigating the process. We recommend going through these steps with a trusted lawyer or financial advisor who has experience helping adults with disabilities and their families – first, because they’ll be able to offer more specific insights and, second, because they’ll be able to direct you toward state-specific and local benefits you might not be aware of.

What to do before your child turns 18

Ensuring a secure future for your child begins early. Working through these foundational steps during your child’s childhood will set you up to have a smoother transition to adulthood.

Begin the estate planning process

If you have a child with a disability, it’s important to ensure they will be financially provided for after your death. Start by consulting a lawyer or accountant with experience in this type of estate planning, because parents of children with disabilities may have to take certain financial precautions that other families might not.

“Never leave your child money directly in your will,” says Farmer. “It will cause them to lose their government benefits, including Medicaid and SSI. Set up a special needs trust and specifically state in your will that none of your assets are being left to that particular child on purpose.”

Colleen Carcone, Director of Wealth Planning Strategies for TIAA, agrees. “Any inheritance intended for that child should be directed to the special needs trust and never to the child individually,” she says. “Making a direct gift [in your will] could jeopardize need-based eligibility.”

Set up a special needs trust

If you have a child with a disability, you’ll probably want to set up a special needs trust – and, as mentioned before, you’ll probably want to bring in a financial or legal professional to help. “I hired an attorney who has children with disabilities and specializes in special needs trusts,” Farmer told us. “The attorney fee was around $2,000.”

If that sounds expensive, keep in mind creating a special needs trust now can help your children access more financial benefits later. “A special needs trust is another way to provide necessary financial resources to individuals with disabilities, without disqualifying them from government-sponsored assistance programs,” says Carcone. “There is no limit in the amount that can be contributed to the trust, no reimbursement to the state and no age limitations.”

The ability to provide for a child who has disabilities without disqualifying them from receiving government benefits is extremely important. “My son could not have any assets directly in his name over $2,000 or he would be disqualified from receiving government benefits,” says Piacenti, “but he can have it in the name of his special needs trust.”

If you are struggling financially, be aware that you can set up a special needs trust even if you don’t have the budget to fund it yet. “My trust will be funded with my life insurance, 401(k), and other savings after I pass away, so I don’t have to put money into it yet,” explains Farmer.

You can also invite grandparents, aunts, uncles and other family members to contribute to your child’s special needs trust – and since these kinds of trusts have no contribution limits. Every gift can be accepted. “We let family members know about the trust,” says Piacenti. “So if they wanted to give my son a gift or list him as a beneficiary, they could leave it to his special needs trust.”

Consider opening an ABLE account

“Individuals with special needs or guardians should take advantage of the benefits provided by the Achieving a Better Life Experience (ABLE) Act of 2014, which approves the use of tax-free savings accounts for qualified individuals with disabilities to cover expenses that are not provided by government-sponsored programs,” says Carcone.

An ABLE account is a lot like a 529 Plan, in that it allows people to set aside money toward a specific purpose – in this case, to cover qualified expenses related to your child’s disability.

“Any individual, including the account beneficiary, family and friends, can contribute to an ABLE account up to the annual gift tax exclusion, which is $15,000 per recipient in 2021,” Carcone explains. “However, the contributions may also be subject to limits set by the states and each beneficiary may have only one ABLE account. All contributions must be made in cash. Stock, bonds and other marketable securities are not acceptable contributions. Contributions are not tax deductible and will be treated as a completed gift.”

Take out a life insurance policy

One of the best ways to ensure your child will be financially provided for is by taking out a life insurance policy. “I purchased whole life insurance that won’t expire till I pass away,” says Farmer. “I have a policy for $250,000.”

Whether you end up choosing whole life insurance or term life insurance, make sure any policy benefits your child might receive after your death are distributed into their special needs trust, not given to them directly. Otherwise, it could affect their ability to receive income-based government benefits like SSI.

Prepare your child for SSI and Medicaid eligibility

Many adults with disabilities can be eligible for government benefits, such as SSI or Medicaid – and the eligibility process will go much more smoothly if you begin planning for these benefits before your child turns 18.

“We met with a financial advisor who specialized in special needs and were informed that if our son had any assets of $2,000 in his name it could disqualify him from receiving government benefits,” Piacenti says. These kinds of financial restrictions are why parents of children with disabilities set up special needs trusts and ABLE accounts well in advance – to ensure their child has enough financial resources to cover the costs of adulthood while retaining just enough personal assets to qualify for essential federal and state benefits.

Establish guardianship

Many parents identify a trusted individual who can care for their child if something were to happen to them – and if you’re the parent of a child who is likely to need some level of care for the rest of their lives, establishing this kind of guardianship becomes even more important.

“The purpose of creating either a guardianship or conservatorship is to ensure that continuing care is provided for individuals who are unable to take care of themselves or their property because of incapacity or other reasons,” explains Carcone.

Start by filing the paperwork required to establish yourself as your adult child’s guardian. This will give you the legal capacity to manage your child’s finances and medical care after your child turns 18. Then, ask yourself who should fill the role of guardian after you die.

Parents of children with disabilities often ask one of their siblings – or one of their child’s siblings – to take on this important responsibility. “If you choose a person you know, ensure they are trustworthy and understand all the financial requirements to maintain government benefits,” Farmer advises.

You may also want to appoint a conservator or financial guardian specifically to help your adult child manage their money. Your child’s primary guardian and financial guardian can be two different people, or the same person can fill both roles.

Give your child the best financial education possible

Educating yourself about your child’s financial future is only half the process. The other half is making sure your child is as prepared as possible for the financial realities of adulthood.

Depending on your child’s individual needs and abilities, they may be capable of managing anything from a small allowance to a full-fledged checking and savings account. Start by giving your child age-appropriate, developmentally appropriate financial tasks, such as the ability to earn tokens that can be redeemed for treats. If your child responds well to basic financial concepts, consider advancing their financial education to include life skills like budgeting and saving for the future.

Even if your child is unlikely to ever manage their own money, do your best to give them the kind of financial education that will prepare them for adulthood. Ask them to help you choose between two potential purchases, for example, while comparing the costs and benefits of each. Show them the household budget, and explain how spending more money in one area gives you less money to spend in another. The more your child knows about how money works, the better prepared they’ll be to participate in their own financial decisions.

What to do after your child turns 18

The exact steps you take to promote and support your adult child’s independence and financial future will vary based on your child’s disability and his or her specific needs and desires. The following are broad steps to consider as your child enters adulthood.

Involve your child in as many decisions as possible

An important thing you can do, as a parent of an adult child with a disability, is let your child participate in as many decisions as possible. Young people at every level of ability seek greater independence during the transition from childhood to adulthood, and one of the best ways to help your child achieve that desired independence is by allowing them to make choices about how they want to live as an adult.

In some cases, this could be as simple as helping your child redecorate a bedroom to reflect new tastes. In other cases, your child might want to learn to drive, join a sports league, sign up for classes at the local community college or begin hunting for their first apartment.

Some parents may not be ready for their children to take charge of their own lives, and others may be relieved their child is taking steps to become more independent. Everyone’s abilities and preferences are unique to them, so your path won’t be the same as someone else’s, even those who have similar disabilities. The path to financial independence will also look different for those who have mental versus physical disabilities.

As you and your child make this important life transition together, make sure you not only help your child make active decisions about their day-to-day life, but also about their finances. This means making sure your adult child has an appropriate understanding of how money works, as well as the kinds of responsible financial behaviors you expect from them.

In some cases, this may involve letting your child manage a small weekly allowance. In other cases, you can give your child more significant financial responsibilities. If your child is capable of helping you navigate the process of applying for government benefits, for example, get them involved. If they can manage a checking account, savings account or credit card on their own, make sure they have the skills they need to make purchases, stick to a budget and plan for their own financial future.

Evaluate the cost and benefits of independent living

If you are thinking about transitioning your child into independent living, take some time to evaluate both the costs and the benefits. Enabling your child to live independently as an adult might be more expensive than keeping your child at home – but if your adult child has the ability to live on her or his own or in a home designed for adults with similar needs, the benefits could outweigh the expense.

Group homes and assisted living centers, for example, can provide your adult child with the opportunity to build both independence and peer relationships. While some group homes and assisted living facilities can be expensive, there are federal and state resources to help families cover the costs. If you have money set aside in a special needs trust or an ABLE account, these funds could also be used to cover the expenses associated with group homes or assisted living.

There are also government resources to help your child live independently in their own apartment. Section 8 vouchers are designed to help people with low incomes find secure, affordable housing – but these vouchers can benefit people with disabilities as well, something many parents don’t realize. If your child is unlikely to earn enough money to rent an apartment at market rate, Section 8 can make the difference between living independently and living at home with a parent or guardian.

Look into jobs and opportunities that give your child a sense of purpose

If your child is capable of working independently, it’s a good idea to help her or him get a job. Joining the workforce will give your adult child both a paycheck and a sense of purpose – not to mention the opportunity to build skills, meet new people and form the type of professional network that could provide financial and social benefits well into the future.

Even if your child is unlikely to have a traditional job, you can still look for opportunities that offer similar benefits. Many organizations offer work-like experiences that help adults with disabilities add value to the community. These kinds of experiences add value to your child’s life as well.

Plus, your child may be able to put some or all of their annual earnings into their ABLE account. “An ABLE account is another option for parents if their child works,” Farmer says. It’s an option you should consider if your child is able to earn money.

Help your child build credit

“If an adult child with special needs is capable of handling their own finances, building credit should be considered and it can be advantageous when applying for loans, such as student loans,” says Piacenti. While some parents may be hesitant to give a child with certain disabilities access to a credit card, helping your child build credit as an adult is an important step toward independence and a secure financial future.

Building a positive credit history can help in many areas – from applying for an apartment to taking out a new cellphone plan. If your child plans on using credit cards to cover day-to-day expenses, having a good credit score will help them secure lower interest rates and better credit card rewards – both of which could save your child a lot of money over time.

There are two ways to help your child build a positive credit history. Start by making him or her an authorized user on your credit card. This allows your child to become comfortable with making purchases on credit, without spending more than you can afford to pay off. Most credit card issuers report authorized user card activity to the three major credit bureaus (Experian, Equifax and TransUnion). This means if you make all your credit card payments on time, those on-time payments show up on your child’s credit history as well.

Once your child is able to manage the responsibilities of being an authorized user, consider helping them apply for a starter credit card. This card will be under their name, not yours, which means they will be legally responsible for any balances they charge to the card. Make sure they have the financial skills necessary to make on-time payments, as well as the ability to calculate whether a purchase is likely to fall within their budget. If your child is able to navigate their own line of credit and establish a good credit score, they’ll be well-prepared for all kinds of future financial scenarios.

That said, not all parents should prioritize helping their child build credit – especially if he or she is likely to experience limited independence in adulthood. “There is no advantage of a good credit score for an individual with special needs who cannot handle his/her own finances,” Piacenti says. “Income, not credit score, is what qualifies them for government benefits.”

Carcone agrees – and notes that, in some cases, helping your child establish credit could limit their eligibility for other benefits or services. “While building good credit is in most persons’ interest, there are additional considerations for a special needs child who is receiving or may need to receive means-tested benefits,” she says. “Because income and assets are considered in determining the child’s eligibility, using credit in the wrong way can impact that child’s eligibility.”

“For example, if the child used the credit card to buy groceries, that could be deemed income and could potentially disqualify the child from receiving benefits,” Carcone says. “A further complication is whether the child has the acumen to handle that financial responsibility. The rules are different in every state, and parents will want to consult a qualified attorney before adding their child as an authorized user or co-signing a credit card.”

Make sure your child has access to all available federal benefits

“We applied for all benefits when our son turned 18,” says Piacenti. She suggests parents look into the following benefit programs:

• Supplemental Security Income (SSI)
• Social Security Disability Income (SSDI)
• Medicaid/Medicaid Waivers
• State-specific programs

Piacenti notes that each program has different qualifications, which means even if your child isn’t eligible for all the available benefit programs, there are still likely to be some programs that can offer assistance. Plus, the income guidelines change after your child becomes a legal adult. “Once the individual with special needs turns age 18, it is their income that is considered [to determine if they qualify], not their parents’ or caregiver’s,” Piacenti says.

Protect your child from financial scams

“Because individuals with special needs are highly vulnerable to financial fraud, it’s especially important to protect them,” says Piacenti. Start by setting up financial monitoring, especially if your child is going to use credit or debit cards to make purchases. “There are services that can assist with credit and financial monitoring that can alert a parent or guardian when there is suspicious activity.”

It’s also important to ask yourself who’s going to protect your child after you’re gone. “Get financial guardianship for your child so they won’t get scammed out of their SSI payments by other people,” says Farmer.

A financial guardian, also called a conservator, can help your child manage their assets, maintain eligibility for government benefits and ensure your child’s financial future is as secure as possible. (As we mentioned, your child’s financial guardian can be the same person as their legal guardian. You can also assign these responsibilities to two different people.)

The more people you have on your child’s team, the more protection they’ll have from untrustworthy individuals. So get your services, resources and advocates in place. If possible, talk to your child about how to avoid untrustworthy or unscrupulous individuals, as well as how to avoid common financial scams and credit card scams.

Final thoughts

If you’re the parent of a child with a disability, you probably have a lot to think about and manage. “Take little bites,” Piacenti says. “Meet with a financial professional who specializes in special needs planning, because the planning is unique. Consult city, county, state and federal agencies for help with financial aid options for your dependent. Involve your family in the planning process, and your loved one with special needs if possible.

“It’s hard to find the time, but the financial aspect is an extremely important part of caring for a loved one with special needs.”