(See Part 1 of this article, Counting the Costs: Financial Considerations for Families With a Newly Diagnosed Child, from the June 2015 issue of Little Rock Special Family.)

Every parent is concerned from time to time about the day they will no longer be around for their children. Whether the fear is of a sudden departure from this earth, or the day age finally catches up to you and it’s time to pass the baton to the next generation, it’s a challenge all parents must prepare for at one point or another. But, if you’re the parent of a child with special needs, your estate planning needs are especially complex. You must address concerns like providing your child adequate lifetime care, appointing someone to manage your adult child’s finances, maintaining your child’s benefits eligibility, and avoiding family conflicts.

A will is the cornerstone of any estate plan. If your child needs more financial resources, your will becomes especially important. Without one, probate assets will pass according to the law of intestacy. But with a will, you can ensure your money and property are distributed as you wish.

The next step is to establish a trust, a legal entity that allows you to leave assets to your child with special needs (and others) outside of your will. A special needs trust is specifically designed to benefit individuals with special needs. It allows you to provide for your child without risking his eligibility for government benefits, something traditional trusts can’t offer.

Medicaid and Supplemental Security Income (SSI) are two government benefits that can be vital sources of support for a child with special needs. But these programs are need based, so if your child’s assets exceed the limit, he will not be eligible to receive them. However, these government benefits only provide basic support. It’s unrealistic to assume these benefits alone will be enough to sustain your child’s lifestyle, both the necessities, such as eyeglasses or dental care, and the “luxuries,” such as vacations, your child may enjoy.

A special needs trust will allow you to leave your child funds that can be used for expenses not covered by government benefits, while also maintaining his eligibility for those benefits. Additionally, establishing a special needs trust is often the best way to ensure the funds you leave behind are used for your child’s benefit.

It’s also a good idea to explain to any siblings or other family members why you’re establishing a special needs trust. Although your children may all expect equal inheritances, more resources may be needed for the benefit of your child with special needs. Communicating that now could help avoid family conflicts later.

Willing & ABLE

Another vehicle you can use to help provide funds to your child with special needs as he enters adulthood is the newly established ABLE account. The Achieving A Better Life Experience Act of 2014 created a tax-free savings account for individuals with disabilities. The ABLE Act provides individuals with disabilities the same types of flexible savings tools that all other Americans enjoy through college savings accounts, health savings accounts and individual retirement accounts.

The contributions to the account made by any person (the account beneficiary, family or friends) would not be tax deductible. The tax benefit comes from the income earned by the accounts, which would be tax free. Eligible individuals and families will be allowed to establish ABLE savings accounts without affecting their eligibility for Medicaid, SSI and other government benefits up to account balances of $100,000.

The ABLE Act is meant to allow funding for disability related expenses to supplement, rather than replace, benefits provided through private insurance and government programs. Like 529 college savings plans, each individual state will establish its own ABLE program. Gov. Asa Hutchinson signed legislation to implement the ABLE Act in Arkansas in April of this year. Contact a financial professional to find out if you are eligible for an ABLE savings account and learn more about the rules for such accounts.

Another piece of estate planning you may want to consider for the benefit of your special needs child is a letter of intent. It’s not a legal document, but it can provide important information to guardians, trustees and family members involved in the care of your child. The letter could address everything from medical needs and daily routine to interests, likes and dislikes. Such a letter could go a long way in helping care givers and smoothing the transition to a new living situation for your child.

You’ll also need to define any guardian your child may need when you’re no longer here, beneficiary designations on your life insurance policies, annuities and retirement plans, and designate a trustee to administer your trust and manage its assets.

With tools like a special needs trust and the new ABLE accounts, it is possible to build the framework for a positive future for your child even after you’re gone. It takes time, patience and planning, but so does almost every other aspect of your parenthood. This time, you’ll be taking the steps to ensure the best possible future you can for your child.

Dale Nicholson III AAMS® is a Financial Advisor at Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC, located 100 Morgan Keegan Dr. Ste. 200, Little Rock. Dale can be reached at (501) 671-1147 or dale.nicholson@RaymondJames.com. Any opinions stated are those of the author and not necessarily those of Raymond James. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.