I received the following from Laura Holgate, chair of the Twice Exceptional (2e) Parent Group:
I felt article contains some very useful information, and I know that Jason is very understated in sharing what he does for a living, while being an active member of our SEPACS for the past three (or is it four) years? He provided Laura and her group with some very useful informaiton for parents of children with special needs, so I’m going to share it with you.
Planning for a Child with Special Needs by Jason Cowans, CFP®, ChFC
Fundamentally the two most important issues for planning for a child with special needs will fall under one of two broad categories: Financial or Estate issues. Often times the two become intertwined with one either hurting or helping the other. Everyone’s situation is unique and you should always work with a professional to make sure all aspects have been addressed.
Looking at the first issue, Financial. The two main focus points under this category will be Benefits and Shortfall of Benefits (ie Living Expense). Children can be eligible for either needs based benefits and/or means based benefits from Social Security, Medicare, Medicaid (AHCCCS/ALTCS in Arizona) and various State run Disability Development agencies. Figuring how much or how many programs the children will be eligible for can often be daunting and frustrating. A great resource for parents to start at is Raising Special Kids (www.raisingspecialkids.org), they can guide parents to agencies that will provide specific benefits based on their child’s needs. This is when the Financial and Estate begin to start to affect each other.
Once benefits amounts can be determined, creating a cash flow worksheet can provide huge benefits because it will show what portion of living expenses will be covered by benefits and what amounts need to be covered by the parent’s current or future resources. This then begins the process of looking at lifetime care funding strategies and how to avoid any financial gaps down the road. Taking the strategies out to adulthood, parents can then consider potential Means based benefits their adult child may be eligible for. Means based benefits have income and net worth restrictions on them, currently the most an individual can have in their name is $2000. The monthly income levels vary per program and number of children, here’s the link to see their current guidelines: www.ahcccs.state.az.us/Publications/Reference/IncomeLimits/EligibilityRequirements.pdf
Now herein lies the problem, how do you receive benefits, yet stay under the absurdly low net worth restriction. This is when proper Estate Planning starts to have huge benefits. Here’s the example that has caused many a sleepless night for families: Two parents have two children, one typical and one child with special needs. Both children are equal beneficiaries on ALL accounts (eg insurance policies, 401k, IRA’s, home, etc). If both parents were to pass at the same time, you have just created a net worth issue for eligibility for the child with special needs, if more than $2000 is left to them. The other choice may have been to leave everything to the typical child and “disinherit” the other child to maintain eligibility for benefits. Now you are left hoping that the benefits will be enough to cover all needs for the child with special needs and some how the inheritance money will find its way back to them. Had proper Estate Planning been done, neither of these scenarios would have happen and all such problems could have been avoided.
Now getting into the second area, Estate. The main focus areas under this category are: Wills/Trust and Guardianship/Conservatorship. Without getting into all the details of Wills and Trust, the key differences are: Wills are public records and must go through probate court; Trusts are private records that are administered by a Trustee and have precedence over a Will. Now getting back to how to the previous example would have benefitted from proper Estate Planning. The parents could have named a Trust beneficiary for ALL their accounts. This would have kept the money out of either child’s name, thus keeping the child with special needs eligible for benefits. This leads to another issue, if the Trust was drafted and the language within it gave full rights to the assets at some age/date, which is very typical in a standard Trust, this windfall would then cause the now adult child with special needs to become ineligible for benefits. A solution to address this problem may be to have two Trust, one a standard Living Trust and the other a Special Needs Trust. The Special Needs Trust, has the same mechanics as a Living Trust, except it contains language that Federal/State agencies acknowledge to be working to address the issues of special needs eligibility, yet never giving the beneficiary full rights to the assets, thus never breaking the eligibility requirements.
Naming a Guardian/Conservator can be done the same in a Will or Trust. For simplicity sake the Guardian cares for the child/dependent and Conservator watches the money. The Guardian and Conservator can be the same person, different people, multiple people or you can also name a bank as Conservator for a fee, typically a 1% of total assets. When naming a Guardian the parents must consider is the Guardian in the same state as they are because Trust don’t necessarily function the same from state to state and State benefits each have their own rules and guidelines.
Again everyone’s situation is unique and you should always consult with an attorney, specifically one who deals in either Special Needs or Elder Care Law (Elder Care Law deals with the same Medicare/Medicaid eligibility requirements as Special Needs Planning).
The material presented is not offered as legal or investment advice. Examples are given for illustration purposes and are not sited as legal advice. You are urged to seek the advice of your tax advisor, attorney, and/or financial planner to understand your overall circumstances and planning. All material is presented solely as educational information and is not a solicitation or offer.
