Financial Planning For Families With Special Needs Children

By Robert Weisbein, President of Complete Financial

Financial planning for families with special needs children is complex and very different from the typical planning of ones own retirement and estate.

Structured properly, it can assure that a child retains the same quality of life that his parents provided. But if the financial and legal arrangements are mishandled, a well-intentioned parent could destroy a son or daughter's eligibility for essential -- and expensive -- services.

Social Security provides special-needs individuals with money for food, shelter, clothing and medical care. Having even a modest amount of assets in their own names can cut them off from benefits.

The complexity of laws and the emotional issues are the biggest problems for special needs families – resulting in a failure to plan. The federal law says if you leave a person with special needs with more than $2,000, they'll automatically lose benefits. It kind of paralyzes people to not doing any planning.

But without proper planning, a family member with special needs could become a ward of the state after his parents' death.

While every family's situation will be unique, there must always be a special needs trust, a letter of intent, a trustee and a guardian.

The special needs trust is a special trust with one purpose: to leave assets to care for a loved one while protecting his eligibility for government benefits. It needs to be drawn up by an attorney with background in that area.

We stress that special needs planning requires a qualified team that includes a family member, a social worker or medical professional to discuss ongoing care needs, an attorney and a certified public accountant.

Don't make the mistake of using a relative or friend if that person lacks the proper experience.

Ask the attorney and CPA how many special needs trusts they've handled in the past year, what percentage of their client base is special needs families, and how well-versed they are in government benefits eligibility.

This kind of estate planning is different. Here, oftentimes, you need to create money, not preserve it. It's also critical to alert extended family members about the existence of the trust.

Funding options

When considering funding sources for the trust, parents not only have to consider their own longevity for retirement, but the potential life spans of their children.

Your decisions for what happens to them depend on knowing very well could be there long after you are gone. You're not dealing with a 12-year-old. Your planning has to take into consideration not just your supporting you in retirement for 25 years or more but for the support of your child for this life expectancy which may be many years beyond that.

The most common source of funds in a special needs trust is life insurance. We recommend a second-to-die, or survivorship, policy, which only pays out when both named policyholders die and, thus, is more affordable than regular policies.

We caution against considering a house or an individual retirement account as the principal asset funding the trust.

You have to make sure your retirement is set first. How will you be able to help your special needs child if you can't take care of yourself?

For those parents who can afford it you may want to consider an immediate annuity. You take a lump sum of money and give it to an insurance company in return for a lifetime income, no matter how long your child lives.

Letter of intent

The letter of intent is your instructions to the trustee and the guardian on how you want your child cared for when you're gone. It's not a legal document, so it should be witnessed and notarized. If the child has cognitive ability, he should be involved in drafting the letter.

It should be specific, and cover such issues as health care, education, living arrangements and religious preferences. If your child loves baseball and you want him to be able to go to every home game, this is the place to discuss that.

Share it with the guardian because it tells them what you expect. When you just ask, 'You're always going to make sure Johnny's taken care of, right?' it's very vague. The name and address of physicians, areas of specialty, doctors you never want them to go back to, put that in.

Choosing who will care for your child

In addition to establishing and funding a special needs trust, the most critical decisions for parents are the selection of a trustee and a guardian. The trustee will have control over the child's money and its investment; the guardian will be responsible for his day-to-day care, including life-and-death medical decisions. It's vitally important because "when someone turns 18, they're a legal adult whether they function as one or not.

Some families may decide to use the same person as trustee and guardian; most choose two people, or may use a family member as guardian and a financial institution as a trustee. Since the individuals will have responsibilities to the child for his lifetime, successors need to be selected as well.

Once a trustee and a guardian have been selected, it's important to review the plan on a regular basis, or at least after a major life event, such as a marriage, divorce, a job change, or the birth of a child. – www.cfinc.net