Money 911: How to plan for special-needs child?

How should a family with a special-needs child plan for the future? How should a married couple with two young children handle their student loan debt? What's the best way to tackle an exceptionally high amount of credit card debt? TODAY financial editor Jean Chatzky, CNBC’s Carmen Wong Ulrich and “Start Late, Finish Rich” author David Bach answer questions and provide helpful advice on these and other matters.

Q: We're a middle-income family and we have a 9-year-old daughter who has Down syndrome. We'd like to know your recommendations for us as we try to save for a rainy day, save for our own retirement and save for our daughter's future so that she isn't dependent on disability welfare as an adult. — Jawanda, Olathe, Kan.

Jean Chatzky: You're right to look ahead. The trick to special-needs planning is that you have to leave money to your child in a way that won't hurt her eligibility for government programs such as Medicaid and Social Security Income. Rules for these programs vary a bit by state, but many require candidates to have assets of less than $2,000, not including a home or car.

As you can see, that bar is low, and because of that most parents opt to set up a special-needs trust. You can fund this account with any assets you'd like to pass on to your daughter, including big-ticket items such as real estate and investments. Anything in this trust will not be counted against her for Medicaid or SSI purposes. You'll choose someone to serve as a trustee, and that person will be in charge of spending the money on behalf of your daughter.
There is an entire contingency of financial planners and estate-planning attorneys who specialize in special-needs trusts. The best way to find one is through the Special Needs Alliance or the Academy of Special Needs Planners.

Q: My husband and I have been trying to refinance our home mortgage. We currently have 100 percent of our home financed; 80 percent is a five-year adjustable rate mortgage (ARM) that will begin adjusting in a year; 20 percent is a 15-year loan with a balloon payment at the end of the loan term. Our credit is excellent, but because our home has lost $25,000 in value, no one is willing to help us refinance.

We have enough saved up to put down 10 percent of our original loan value ... and are making more than we did four years ago when we bought the house. A mortgage broker in our area tried to get our 80 percent refinanced, but the lender with our 20 percent loan will not subordinate the loan. Do you have any suggestions? We are trying to be proactive before our loan starts to adjust, but we have not found anyone who can or will help. We do not qualify for the HUD (U.S. Department of Housing and Urban Development) assistance as our loan is not through Fannie Mae or Freddie Mac. PLEASE help. We are starting a family and need to get this taken care of before the baby arrives! — Natalie, Shakopee, Minn.

David Bach: First of all, congratulations on starting a family and having a baby on the way. It's great that you are being proactive on the refinancing issue. It's hard to give you a specific answer without the exact dollar amount of the loans and the value of the home, but I can tell you that this is a classic "no-simple-solution" situation.

I would start by looking first at what your five-year ARM will adjust to. Check the loan paperwork, find the due date, and look to see what the "reset" of the loans rate is based on. Ask the bank to calculate now for you what the rate would look like today if it were to reset. As rates are at historic lows, it's possible that your rate may not actually increase. It's even possible that it could reset lower. Your reset rate will more than likely be based on an annual formula, meaning the rate resets for a year, then resets again. If the rate isn't resetting for a few years, the challenge, obviously, is that rates could be higher in a few years.

The problem you have now with refinancing the first loan (the 80 percent) is the bank would be in a second position unless the second loan (the 20 percent) subordinated. As you said, they won't subordinate the loan. I would go back to whoever holds the second loan and ask them, "Why won't you work with me to subordinate my loan?" If it is a loan-to-value issue, then ask them how much you would need to reduce the first loan in order for them to subordinate the second so you can refinance the first.

If the lender on the second loan won't work with you, the real truth here is that you probably will need to save (as you have been) and pay the second mortgage off completely. Once the second is paid off, then you should be in an excellent position to refinance the first mortgage.

Q: I am currently an unemployed information-technology professional with more than 25 years of experience. Because of my experience, I feel that every dollar that I have been paid I have earned. I am aware of "salary calculator"-type applications; however, the job descriptions for the positions that I am applying for rarely match up to the job descriptions within these (calculator) applications. How do I know if I am pricing myself out of a job? — Drew, Milwaukee, Wis.

Carmen Wong Ulrich: Drew, in this job market you may have earned every penny you made in the past, but that doesn't mean that you shouldn't consider making less. Apply for the job, the position, the opportunity — not only the salary.

Note that many companies are no longer offering benefits of any kind and are hiring people as independent contractors. Those benefits are worth as much as a 20 percent raise. So if there's a job out there that you just love and you see lots of room for growth and it pays 20 percent less — but it comes WITH benefits and it's full time — you come out nearly even or ahead. Outside of straight salary, you can negotiate a better job title, perks such as an office, extra vacation, reimbursement of continuing-education costs ... many things! Keep your job search about the job, not the price tag. Good luck!

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