Special Needs: Unique Considerations
Here's what's involved in financial planning for families of special needs children

A client may soon come walking into your office in the most dire need of your financial advice. Medical advances and an aging population are producing a growing population of children with special needs (SN), and a growing number of families who need special financial planning services.

Though accountants have yet to penetrate this market in big numbers, they probably will soon, and there's a lot they need to know. The AICPA's Eldercare division reports some overlap between its specialty and special needs, and there are many other sources of information, as well. "I know that as a result of CPAs involvement in ElderCare, they are becoming involved in this area because many older clients have special needs children and need to know that they are going to be properly provided and cared for after the older client is no longer capable or no longer alive," says Anne Elizabeth Sammon, ElderCare team leader with the AICPA.

Kathleen O'Dania, a CFP and program manager of the estate planning services department in the office of H.D. Vest in Irving, Texas, reports that SN presents itself as a special requirement of financial planning for families "on a fairly regular basis" as she works with Vest tax professionals. "One of the greatest challenges to special needs families is how to handle matters beyond the grave," she says. "The CPA can help them."

Awareness Lacking

"We are often asked, 'What's so special about financial planning for families of individuals with disabilities?'" notes Mary Anne Ehlert, CFP and president of the Ehlert Financial Group, in Vernon Hills, Ill. "More people are becoming enlightened about the benefits of regular financial planning, but only five percent of the thousands of families we have helped with special needs planning had a clue as to where to begin or what to do."

Todd D. Bothwell, managing director, business management services for 1st Global, Dallas, says the best SN clients are "those who are aware that this is something they can work on with their CPA."

SN planning focuses not only on issues of the head, but also of the heart, according to Ehlert. "The first question parents ask is always, 'How much should we save?' It depends on many different things: What are your assets? How much are your debts? How much do you spend? How long will you live? How long will your child live? How much will care cost?"

"Most (of these) families view financial planning as too time-consuming and taxing considering that they are already fully stressed taking care of their special needs children," adds Christopher D. Sullivan, vice president and manager of the Special Needs Financial Services Group of Merrill Lynch in Princeton, NJ.

"Care must be taken not to short change the other 'normal' children in pursuit of caring for the special needs one,' says Randolph Shine, co-owner and vice president of Shine Financial Inc. in Deerfield Beach, Fla. "Most families I have worked with are aware of this issue."

"One of the other areas is that they are aware of the need for a will and they are sometimes aware of special needs trusts, but, if they have been planning, that's as far as their planning has gone," adds O'Dania. "There is also thinking that they will care for the special needs child up until their own death. They overlook the possibility of a disability of the caretaker before the caretaker's death, and they also overlook their own long-term care."

Special needs planning contains many twists not found in regular financial planning. Notes Loud Savader, CFP with The Association for Special Kids (ASK), in Baltimore, "The biggest misconception of parents and families is that they don't know they have to do something. They think that if they leave their (SN) kids money, then everything will be fine. That is not the situation."

Goals in Mind

A maze of details go into this type of planning. For instance, an inheritance of as little as $2,.000 can disqualify an SN child from government benefits. Shine says the biggest misconception of parents is a "lack of understanding of how the government program triggers work in relationship to the financial assets available to the child. The second problem is the true cost and time it will take to care for a child that becomes an adult."

The first goals, he says, are planning before the child reaches legal adulthood, and determining what can be provided after the child is a legal adult without loss of needed government aid. "Unless families are very, very wealthy, they cannot duplicate the care the government provides at any cost," Shine adds.

Richard Davenport, a financial planner with the St. Clair Shores, Mich., financial planning firm Twiddy & Associates, says CPAs would be especially helpful in getting SN families to look at their tax situation and the best deductions, and in planning for often-overwhelming medical expenses. And families can't begin planning with a CPA too early. "That's what's kind of frightening" to SN families, says Bothwell. "From the financial planner's standpoint, the 'special needs' situation can happen as soon as the child is a couple months old, depending on the diagnosis."

"The first order of business is to take care of the family as a whole," says Michael D. Lamb, CFM, senior specialist, financial planning, with the Princeton, N.J., office of Merrill Lynch. "Making sure the family is well prepared for retirement, estate planning, and other life events are all still priorities."

The Critical Planning

Lamb maintains that important issues are best set in a letter of intent "to outline everything about the child with special needs so the guardian is adequately prepared." Stipulating the need for a protected trust and a detailed parents' will, O'Dania agrees that SN families need a written master plan that expresses the family's wishes for the future of the child.

"Document the SN child's history and present situation in detail, and set forth in this plan all the relevant information about their hospitalization, medical history, medication, any pertinent details that would enable the future case providers to be more effective."

Hard questions and answers can begin here. "A lot of practitioners would say it's better for a family to disinherit a handicapped child to leave them in a better capacity regarding eligibility for benefits," O'Dania says. "Government programs provide 'sheets and heat,' or basic custodial care. But there are a lot of other areas that would be of interest to provide."

Other questions in creating a solid plan include what Bothwell calls the "tests of income and assets." though the trigger amount varies state to state regarding eligibility for benefits for SN kids when they reach adulthood, the amount averages $10,000 in income and $2,000 in assets. In estimating the SN child's future life budget and size of a trust needed to produce that budget, Bothwell's company takes an estimate of an SN child's year budget and divides by the Consumer Price Index. Thus a child with an estimated yearly need of $12,000 would have that amount divided by the CPI, which is .04, producing a trust of $300,000 that could produce enough income. "Then planners have to determine additional funds needed by taking into account medical advice given the current diagnosis, among other factors," says Bothwell.

Ehlert adds that decisions about the SN child's future need to be written down, "but parents seem to have a hard time starting this process." Her company, The Special Needs Network, has created age-defined workbooks to help parents detail the explicit information needed not only by other caregivers, but by future schools, medical personnel, camps, respite helpers, counselors and others.

Picking a guardian is the step that stops most SN planning, she notes. "When children are still young, back-up guardians should be designated in parents' wills. Once a child is older, parents need to decide if it is necessary and appropriate to become the child's legal guardian. After the child attains the age of majority, parents have no legal authority to make legal or medical decisions for their child, including those having to do with residential, medical, school or work.

"Guardianship may be the answer," she adds, "but there are also other alternatives available such as limited guardianship, powers of attorney or reliance on other state statutes that may exist. This is a very important, yet very challenging step. Our parents tell us how difficult it is to make the right selection, and they find they are changing backup guardians several times because of circumstances which change or because they realize that the person(s) they selected either cannot or should not be the guardian." One family told Ehlert that "guardianship issues are never really finished."

The ages of parents and their SN children can determine how a financial plan should be built. Parents in their thirties with an SN newborn, for instance, may turn to the special needs trust, Savader says. Older parents and guardians may not have the money for that, and may instead use life insurance policies. "I've had clients in their sixties and seventies who said they couldn't spend anymore on themselves because they wanted to leave something to their special needs child." he says. "I tell them to buy a second-to-die life insurance policy and they can leave a substantial sum of money."

Such a policy may also be appropriate for younger SN parents, too, he adds.

Cost of a plan is another consideration. "Many individuals with special needs receive government benefits, but a family must plan in a way which allows for the possibility that Social Security benefits and other funding might not be there," Ehlert says. "If it is, it can help fund room and board, care and supervision, medical care, employment and basic personal needs. Funding is currently available through a combination of SSI and Medicaid; or the funding might even be a combination of SSI, SSDI, Medicare and Medicaid."

But plans must allow for the other personal needs not covered by government programs, she says. Families may need to help fund the assistance of an advocate, or guardian to look after loved ones, and additional medical and dental care may be needed. The same applies to funds for vacations with relatives or gifts for special occasions. "And there will always e items to boost a loved one's self-esteem, Ehlert Adds. "these personal needs can be funded through the use of a special needs trust."

The documents-letters of intent, birth and medical information on the child, will s and testaments, contact information on the attorneys, instructions for funerals, the financial plan, and the names of important contacts, to list a few - should be kept together in a safe place. Remember that safe deposit boxes are often sealed immediately following the owner's death, O'Dania points out.

Matter of Trust

Families should think beyond their horizons in looking at funding for a child's life for the next 50 years, Ehlert says. Savings accounts and investments can benefit an SN child, but can also trigger cut-offs in benefits. "Insurance can be an affordable and reliable, option but must also be initiated in a specific way to protect funding," she says. "Family members often want to help and they think giving a monetary gift or making your child the beneficiary of an inheritance is a god thing. It is not!"

Savader agrees that the $2,000 benchmark for disqualification for benefits - "That amount has not changed forever; it appears to be something about the amount needed to bury somebody years ago." - often first necessitates a trust.

Discretionary living irrevocable trusts contain language that says the trust cannot be used to replace government benefits. "Most important is the disabled child must never have any ownership of the trust. The actual entity is the trust itself," says Bothwell. Such trusts, usually set up with the help of a specialist attorney, may contain IRAs, life insurance such as second-to-die policies, 401ks, pension benefits, and other assets that can be converted to cash quickly. "The need for immediate liquidity might override need for real estate in there," Bothwell notes, adding that families' largest assets are usually their home and their IRAs.

Such a trust, properly drawn up, can shield inherited assets, says Davenport, as well as assets previously left to the SN child. The trust is not meant to replace funding for things SSI and other government programs pay for, and it must be discretionary in that the trustee has the right to spend or not to spend the fund on the SN child, and it must be "supplemental," in that it's mean to supplement funding for things the government does not pay for. "Medicaid, for instance, doesn't pay dental," Savader says. "Group housing may be wonderful, but a family may want something else for their child."

Savader also recommends that two family members, rather than one sibling of the SN child, be made joint trustees. "Because it just so happens that these other children do something unpredictable: They marry someone from outside the family who may feel differently about the special needs brother or sister."

Those involved should also meet frequently to alter the plan as needs, available assets, and benefits requirements change. "On the designation of a 401k, for instance, dad may have mom as a beneficiary," says O'Dania. "Then mom dies and dad never changes the 401k, and the kids, including the special needs child, become beneficiaries, One of the steps after a plan is together is frequently, even early, formally review paperwork and notify all relevant caretakers of the plan.

Emotionally Charged

CPAs approaching this market must also bear in mind the emotions of their prospective clients. Davenport, for instance, has heard that the divorce rate of parents with SN kids is as high as 80 percent. "Tensions in the family are extreme," agrees Savader. "We've had a number of cases where spouses have simply walked out."

Boiling emotions make communication amongst the family even more important, Lamb stresses. "The entire family must be made aware and must be involved in the planning for the care of a special needs child. With proper planning, the emotional burden and stress can be significantly reduced." Bothwell thinks the best advice to a divorced couple of an SN child is "to have them remember that they still have to work together.

"The emotional strain cannot be overstated," says Shine. "Divorce is a killer of an event to the child and the spouse that ends up taking care of the needy child."

Ask!

Bothwell believes that CPAs should make inquiring about special needs in a client's family part of a regular data gathering. "They need to start asking from the onset: 'Do you have any family members that need special needs planning?' It's a pretty logical question for a client," he says. "It's one question, but we're finding it's common that an awful lot of children out there, and their parents, need help."