by Tony Novak, CPA, MBA, MT
originally published 11/21/2011, updated 4/17/2012
Author's note: I revised this article in April 2012 after coincidently learning that three families close to me made significant errors in planning for their special needs child. I made the mistake of assuming that these families had access to adequate financial advice so I did not inquire earlier when proper guidance could have made a difference. The consequences were to the children and the families were severe - both in terms of finances and quality of life for the child. I vowed to do my best to prevent this from happening again and am not working on an educational video on this topic that will be made available free of charge through another Web site.
In 2005 Forbes Magazine reported that the majority of parents with special needs children don't expect their child to be financially independent, but haven't done much to plan for the child's financial future. More recent reports from other sources published through 2012 confirm these issues and indicate that the problems may now be more acute.
Financial advisers have long ignored the critical planning needs of middle income families with special needs children. Surprisingly, a 2005 survey by MetLife1 reported that 85% of parents actually turn to their doctor for financial advice about a special needs child.
The results can be devastating; lack of proper planning frequently causes a child to become ineligible for government programs, education and financial assistance. The risk of long term financial hardship - both to the parents and eventually the child - appears to be sharply influenced by the extent of formal financial planning exercised by the family.
The statistical measurements confirm that financial planning for special needs children has become a critical issue in our nation. The following bullet points are compiled from a variety of sources including the MetLife report previously mentioned:
Parents cite a lack of available time and information on the topic of financial planning for their special needs child. Some mistakenly believe that financial planning is only "for people with money", as one affected family explained. While lack of money or reluctance to pay for planning help was not cited in any survey, we suspect it may be a factor in deterring parents from seeking professional financial planning.
Parents seem to be unaware that even a small error or oversight of financial management detail can have immediate and dramatic affects on the quality of life of their child. If parents were aware of the high stakes and impact of their failure to plan then more would likely make time for the process.
"It's not surprising that parents have little time to focus on the future," says Nadine Vogel, MetLife's vice president and founder of MetDESK, the company's division of estate planning for special needs children, and mother of two daughters who require special attention. "But if they don't, the consequences can be life altering...It's not about lifetime care, but about quality of life."
Parents need to ensure that the child's assets don't exceed the $2,000 federal limit, which would make the child ineligible for some government benefits. Perhaps the most common error is to leave money in a Uniform Gift to Minors Account when the child turns age 18. Funds above the exemption amount could be placed in a special needs trust.
Money is not the only issue to consider in planning: caregiver time requirements are often ignored when planning for a child's care. The MetLife survey also found that 32% of parents spend more than 40 hours per week with their special-needs child, or time equal to a second full-time job.
Severe financial problems for a special needs person are most likely to appear after the death or retirement of a parent. Even middle income families that made ends meet for their dependent child while both parents were alive and working may find increased difficulties later. The trends indicate that it no longer makes sense to look at planning for the special needs child as a parent/ child issue but rather as a means of providing lifelong financial security for the child that will survive past the parents' lifetime.
Parents should take six basic steps to preserve eligibility for government benefits that include establishment of a special needs trust to protect the child's assets without interfering with public benefit program eligibility.
1. Prepare a letter of intent and discuss it with family members.
2. Review all financial accounts, insurance policies and employee benefits for ownership and beneficiary clauses.
3. Prepare a will. It may be advisable to partially disinherit the special needs child to the extent necessary to preserve critical government benefits.
4. Prepare a power of attorney for financial matters.
5. Prepare a durable power of attorney for health care.
6. Establish and fund a special needs trust. (Lower income families should still consider alternate strategies that may accomplish the same goals).
It is always best to use an attorney and professional financial adviser for these basic planning steps. Yet it is more important to see that the job gets done - regardless of who handles it. Some advisers are sensitive to the financial position of families with special needs children and will make special effort to provide affordable service.2 Parents who decline or postpone the use of professional help should consider the possibility of handling these issues on their own as a temporary measure. While there are clearly risks and difficulties to a "do-it-yourself" approach to special needs planning, it may be better than not taking any action at all.
1MetLife's survey, "The Torn Security Blanket: Children with Special Needs and the Planning Gap," questioned 1,718 parents of children with special needs. The survey, conduced by NOP World, has a plus or minus 2% margin of error at a 95% confidence level.
2The author does not decline an initial planning meeting request based on a client's inability to pay.
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Opinions expressed are the solely those of the author and do not represent the position of Freedom Benefits or any other person, company or entity mentioned in the article. Information is from sources believed to be reliable but cannot be guaranteed. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Tony Novak operates as an independent advisor under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator" and is not a representative, agent, broker, producer or navigator for any securities broker dealer firm, federal or state health insurance marketplace or qualified health plan carrier. He has no financial position in any stocks mentioned. Novak may work as an accountant, agent, adviser, writer, consultant, marketer, reviewer, endorser, producer, lead generator or referrer to the companies listed on this site and for other commercial companies.
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