When families receive a difficult diagnosis for their child, the way forward is seldom clear. Helping clients navigate the day-to-day realities of this new life—while planning for their child’s future financial security—requires sensitivity and detailed planning expertise.
State and federal government laws address some areas, but there is still no clear path to a world where a family’s disabled member can lead the fullest possible life. Even the language to describe a person with an intellectual disability is constantly evolving. To help clients manage the road ahead, keep these key points in mind.
Start With The Numbers
Having a disabled child requires a unique solution for every family. The best advisors help their clients strike a balance between a child’s needs today and in the future. How much should families allocate toward long-term caregiving, medical needs, and housing? Do expenses match or exceed what is covered by government benefits? How should they structure their estate, so funds intended for their child do not incur estate taxes? Should they divide their estate equitably among siblings? Crystallizing these figures will allow families to enjoy the present while instilling a better sense of control.
Protect Against Worst-Case Outcomes
A disabled child may not have the wherewithal to become a financially independent adult who can generate meaningful income on her own. And expenses may exceed what government benefits cover. However, in order to qualify for benefits, careful planning is required to ensure a disabled child minimizes assets held in her name. As a result, most families plan to fund a third-party Special Needs Trust for their loved one, so the inheritance that would otherwise go to her is set aside without interfering with government benefits.
Since legal documents don’t capture everything, be sure to memorialize the family’s vision for their child’s best life and the team that will help the child achieve this in a Letter of Intent that will complement the Special Needs Trust. Don’t forget to involve siblings, who may ultimately partner with trusted advisors to ensure the disabled family member’s quality of life.
What about high-net-worth clients who have the wherewithal to provide for a disabled family member outright? Preserving government benefits via a third-party Special Needs Trust (SNT) still makes sense—not for monthly income, but for access. Certain programs or housing opportunities are solely available to individuals eligible for federal supplemental security income (SSI), regardless of their family’s ability to privately pay. Given that new government programs continue to emerge—and no one can predict what the landscape might look like decades from now—maintaining flexibility for your clients is vital.
Don’t Underestimate The Complexity
Once a Special Needs Trust is created, families need help determining how to fully fund it to meet their child’s lifelong needs. Planning for a “rainy day” scenario—like a medical emergency or gap in supportive care—is more complex for disabled individuals who may find it challenging to advocate independently for optimal outcomes.
Beyond funding, other questions arise. Should the trust be created during the lifetime of the grantor—often a parent—or following the grantor’s death? Are there extended family members, such as grandparents, who also intend to contribute to the child’s lifelong care? Which assets are most appropriate assets for funding the SNT? Liquid assets—such as cash, stocks, and bonds—are desirable, but aren’t always available. What if a family’s wealth largely comprises retirement plans or illiquid assets, such as real estate or a family business? Once again, special care must be taken with these assets to ensure that the property can be managed for the disabled family member without disqualifying him or her from accessing valuable government benefits.
Selecting an appropriate trustee for a family member’s special needs trust is also an important decision, which can be impacted by family dynamics. The SNT trustee’s duties, such as tax reporting, record keeping, and benefits management can be intricate. In some cases, naming an independent corporate trustee, such as a bank or trust company, is ideal because it assures professional management and avoids a situation in which a disabled family member is dependent on the decisions of another family member. The preferred trustee, whether individual or corporate, will also be determined based on the type of special needs trust the family determines is best for the disabled family member.
Families Are Their Own Best Advocates
Building a dream team takes on special meaning when working with families with disabled children. Financial and tax advisors are critical for core planning needs. Lawyers not only help create a Special Needs Trust and a Guardianship/Limited Conservatorship but can also provide meaningful insights on Individualized Education Plans (IEPs) for school-aged children. Longer-term, some families may also wish to establish a Person-Centered Planning team that surrounds a child with a lifelong circle of support.
Above all, give your clients the space to do what’s best for them and their child. Not all experts will offer the optimal solution for every family. Each situation may require a unique combination of services. It’s natural for parents/guardians of disabled children to worry about lifelong care—especially because they know they won’t always be there. Everyone just wants what is best for their loved ones. But for disabled children, these concerns rise to a whole new level. With some forethought, and the right professional partners, you can help families ensure their child lives the fullest possible life.
Ashley Velategui, CFA, is a director in the Wealth Strategies Group at Bernstein Private Wealth Management.
