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#27795 - 10/09/02 06:17 PM 529 provisions for children with special needs
ifateman Offline
Junior Member

Registered: 10/09/02
Posts: 2
Loc: San Francisco, CA
Joe,
Could you address any provisions in the 529 law regarding children with special needs. Can 529 funds be targeted for a special needs trust. Any exceptions or special provisions to be aware of for special needs children. Does the law contain some flexibility for this population. Any further links or resources would be appreciated. Thanks,
Ira Fateman

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#27796 - 10/09/02 09:41 PM Re: 529 provisions for children with special needs
schoolshrink1 Offline
Member

Registered: 07/13/02
Posts: 266
Loc: Tenino, WA USA
Section 529 plans are designed to address qualified higher education expenses (tuition and fees, room and board, etc.) A trust fund (e.g., UTMA) could be created if this is what you think your child will need. There are many people with special needs who attend college (e.g., deafness, visual impairment, paraplegia, quadriplegia, etc.) These individuals have some capacity to be successful in a higher education setting.

It would be plausible that an individual with mental retardation may be able to attend some kind of higher education program. If this is the special need to which you are referring, before creating a 529 Plan I would research a program that you think your child may be able to attend. The availability of the programs after your child leaves high school will be directly related to the type and severity of the disability.

Higher education institutions are required to offer reasonable accommodations for students with disabilities, according to Section 504 of the Rehabilitation Act of 1973. Determining what constitutes a reasonable accommodation occurs via a case by case basis. I went to college with a friend diagnosed with dyslexia. His reasonable accommodation was no limits on the amount of time it would take him to complete essay tests. He was accepted to a Ph.D. program after getting his bachelor's degree. If his disability were more severe, it would have been unlikely that he would have ever achieved this outcome.

The key is to save, but save smart. In your case, researching your situation pertaining to your child's special needs would be a priority. Then you can determine if a 529 Plan or another savings vehicle will be within your child's best interest. Best wishes to you and your family.
_________________________
Michael W. Kirlin

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#27797 - 10/09/02 10:39 PM Re: 529 provisions for children with special needs
Joe Hurley Offline

Member

Registered: 01/07/00
Posts: 2720
Loc: Pittsford, NY, USA
I haven't seen much guidance on who is a special needs beneficiary and what types of additional expenses might qualify. I suspect the IRS will be fairly liberal in its interpretation to include most additional expenses of the special needs student, whether it is special tutoring, recording equipment, etc.

Joe

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#27798 - 10/10/02 10:28 AM Re: 529 provisions for children with special needs
Remedy Offline
Member

Registered: 03/23/02
Posts: 887
There are a least a few higher education institutions which cater to special needs students--I did not check if they are DOE's approved list, my guess is yes they are.

If the institution is not on the DOE list it won't work with a 529. I suspect there are a few high cost institutions which cater to affluent parents desperate for solutions that don't qualify on DOE list --but thats probably rare.

My suggestion would be that you NOT put any assets in the special needs persons name, now or later by will or intestacy. Lest that they disqualify one for some generally available benefit. A special needs trust may work if properly worded. A 529 NOT owned by student may work--but its use may be prejudical to any other aid. A trust may own a 529 subject to state rules to the contrary. (I'd be cautious about putting a 529 into a special needs trust since this is untested especially if there is no other beneficiary choice possible.) You definitely need legal counsel on this one.

The community colleges in my area have tuned into this need. Their tuition is very low.

A UTMA or UGMA may be a disaster!!

Be sure you understand how to get a full appropriate public education thru HS graduation. I presume the child has an IEP and is not merely under 504 ? The IEP provides for specific tailoring to meet needs.


There is another important benefit to consider. Student loans are readily available based upon need. The repayment language all but assures that a person who is disabled and not in the job market is not required to repay loans. Depending upon your family situation you may qualify for need based aid. Don't everlook it. And some high profile colleges have converted need based loan packages into grant packages. But they do ask if the student is the beneficiary of a trust--and expect an honest answer.


CESA's will work without question for special needs student even before college.

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#27799 - 10/10/02 12:54 PM Re: 529 provisions for children with special needs
schoolshrink1 Offline
Member

Registered: 07/13/02
Posts: 266
Loc: Tenino, WA USA
Remedy,

All higher education institutions will be legally obligated to make reasonable accommodations to individuals with disabilities. This requirement impacts schools ranging from any community college or vocational program to Harvard. Some schools are certainly more equipped to address the needs of disabled students than others; Galludett University staff know a thing or two about working with deaf individuals. But not all deaf persons attend Galludett, and not all students with special needs attend community college or vocational programs, though many do.

Any recommendation may or may not be successful, depending on the circumstances. The key questions to ask would include: 1) what is the disability, 2) to what extent would the disability adversely impact one's performance in a higher education setting, 3) what are the family goals as they save for this child, and 4) what can they afford to save.

You say a UTMA/UGMA trust fund "may" be a disaster. Where I could see it would be a disaster would be if this child had a severe disability (e.g., mental retardation) and it would be realistic to suspect the need for public assistance after the child leaves the K-12 public education system, as a 21-year old. I would not consider a 529 Plan in this circumstance, either; the plan should solely be based on the identified needs of the child.

Public schools are generally expected to work with students with disabilities until they reach 21 years of age, and social services often do not kick in until use of the public school programs have ended. If this were the circumstance, I would definately not complete a UTMA/UGMA plan. Any money in the child's name, when becoming an adult and requesting access to services, will adversely impact the availability to those services (e.g., medicaid, food coupons, living expenses.) The circumstances specific to this child should dictate what should be done.
_________________________
Michael W. Kirlin

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#27800 - 10/10/02 02:17 PM Re: 529 provisions for children with special needs
Remedy Offline
Member

Registered: 03/23/02
Posts: 887
Whether an institution is required to accept handicapped students is not my point--if the institution does not accept federal funds and opts out of the federal system for aid then a 529 canot be used there as a qualified distribution.

If under any circumstances ownership of a 529 passes to a special needs person it could be a disaster. The person or his guardian or custodian could be required to deplete the 529 as a precondition to qualifying for other social services, even if no education was involved on the theory that the assets are "available" to said person.


I disagree that public schools cover the situation until 21. Unless the parent knows the IEP ropes, coverage exists only until the student graduates so many youngsters are "graduated" with the weakest of learning levels.

You are right--without some indication of the persons disability and potential and the family income/asset level we are flying blind.

And in fact there is a growing trend in some quarters to exploit a putative handicap into some special accomodation like untimed SAT's , LSATs whatever. I doubt that's what the original poster has in mind.

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#27801 - 10/10/02 04:57 PM Re: 529 provisions for children with special needs
ifateman Offline
Junior Member

Registered: 10/09/02
Posts: 2
Loc: San Francisco, CA
Thanks for the helpful suggestions. The population I am interested in is those special needs individuals who are eligible or are receiving SSI so their financial well being is affected by the need to limit assets in their names, especially come estate planning time. How does a 529 Plan compare with survivorship insurance or some other type of insurance as far as providing assets for a special needs trust. I know a 529 plan is not included in an estate but how do the provisions regarding the distributions apply after owners death. I am assuming that the same restrictions apply to distributions as when owner is alive and can only be qualified when they are used for educational expenses when ownership changes because of death. Does an ongoing demonstrated disability provide any more flexibility in distributions to avoid penalties. Sorry for the rambling but i am trying to see if 529 plans have a special advantage to the severe special needs population assuming that they will not attend a qualified institution of higher education. Thanks again,
IF

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