Special Needs Don't Change The Baby Steps
Jonathan and his wife have a special needs child, and she will be under their care for the rest of their lives. How should they approach Baby Steps 4 and 5 knowing this?
QUESTION: Jonathan in Columbus and his wife have a special needs child, and she will be under their care for the rest of their lives. How should they approach Baby Steps 4 and 5 knowing this? Dave tells Jonathan the steps won’t change much.
ANSWER: As weird as it sounds, it doesn’t change because instead of having a child that you will be responsible for until she’s 18, you have a child you’re going to be responsible for until she’s 50.
What do we do? We buy term life insurance that in the event of both of your deaths, it would go into a special needs trust to be managed for her care. In the meantime, you go ahead and build wealth, and then if you reach a point where you have enough money in mutual funds, real estate or whatever, that money could be left into a special needs trust upon your death and would adequately take care of her. Then your family’s needs have become self-insured. You could do away with the life insurance. You’ve just got a bigger need in the event of your death that has to be filled either by investments or insurance—first insurance, later investments—than I do.
Typically, when a family’s children grow up and leave home, their need for insurance to cover survivors is not as heavy. You’re just going to carry a little more insurance and carry it a little longer, and you’re going to have to have a little more in investments before you’re willing to drop your insurance. That’s really the only change in it. In your will, you’re going to have formed a special needs trust to be funded upon your death to take care of a special needs child.