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3 Factors for Special Needs Financial Planning

Summary

If you have loved ones with special needs, it’s crucial you have a comprehensive plan in place for them in case something happens to the caregivers. We share three important factors to include in your financial plan. 

Financial planning for individuals with special needs

If this year’s rollercoaster ride has left you overwhelmed and anxious because of just how little we know about our current crises, I understand. Humanity has received an unfortunate diagnosis. It’s not easy to get your bearings and find a way to move forward in a world turned upside down. The emotional turmoil this year has reminded me of the time we got our son’s Down syndrome diagnosis.

It was one of those moments in life, plunging us into a tumultuous new reality. Other parents of children with special needs have shared similar experiences with me over the years. Today, what families like ours have learned about resilience and adaptation suddenly seems relevant to a much larger audience–to anybody dismayed and heartbroken by this daunting combination of a global pandemic, economic downturn, and civil unrest that is roiling society.

My work with clients over the past couple of decades suggests that you can develop clarity and a sense of purpose by reviewing and revising your goals and plans for achieving them.

 

Three financial planning tips for loved ones with special needs

Financial planning is the foundation of the work we do with all our clients, but as noted in a previous article I wrote, families that include people with special needs and disabilities need more robust and elaborate plans than those of typical families. In addition to a financial plan, a comprehensive special needs plan has three major components: an estate plan, a life plan, and a letter of intent. Each has a distinct purpose and a different timeframe.

 

#1 Create an estate plan to prevent the worst-case scenario

According to a survey cited in a recent AARP article, more than half of Americans age 55 and over are without a will or other key estate planning documents. 1However, the global pandemic seems to have stimulated an upsurge in the number of people creating or updating their estate plans. Even if you never draft a will, the state where you reside has a plan for distributing your assets after death (this is referred to as probate). Your state’s probate court will determine the value of the deceased person’s assets and the final bills remaining of the deceased that need to be settled. Different states will have different laws concerning probate and whether probate is required, so it’s important to understand how your state handles probate.

This “one size fits all” approach may provide adequate outcomes for some, but for parents of children with special needs the consequences can be dire. For example, if your loved one with a disability receives means-tested public benefits, like Supplemental Security Income or Medicaid, any assets left to them directly through inheritance or gifts can immediately strip them of those public benefits and will likely be reclaimed by the state to pay back benefits received in the past.

To support your loved one with a disability beyond your own lifetime, you will need to use supplemental needs trusts and other planning techniques so that your loved one doesn’t get disqualified from receiving public benefits. Until recently, relatively few attorneys providing estate planning services were aware of the potential pitfalls for clients whose beneficiaries included people with disabilities. Over the past 20 years, a growing number of legal professionals have become familiar with the proper use of special needs trusts. You may have to ask a few hard questions to ensure your attorney has the knowledge and experience in this specialized area of estate planning.

No matter how much effort goes into creating it, no estate plan is permanent. Any number of changes in law or your life can make it sub-optimal or even obsolete. For example, there were big changes in the rules for retirement plans at the end of 2019 (the SECURE Act) that impact estate plans. The current (very generous) federal estate tax law will sunset in 2026. Significant changes in family circumstances can happen at any time. As a general rule, your estate plan should be reviewed at least every five years.

 

#2 Create a life plan for a better-case-scenario

A life plan incorporates all the elements of your loved one’s ideal life: home, job, education, healthcare, and social activities, plus whatever assistance is needed to make all those things happen. Using a five-year timeframe is ideal. It is far enough into the future to imagine significant change happening, but not so distant as to make realistic predictions impossible. This timeframe also helps you determine which issues belong on the front burner, which can be shifted to a back burner, and which can be put into the deep freeze for a while. For example, if your child is not yet in preschool, the life plan you create today does not need to include detailed assessments of post-secondary educational opportunities or the local residential settings for adults with special needs.

Start by imagining your relative’s ideal life five years from now and build the plan around that image, just as you might organize construction plans around a vision of your dream home.

Once you have a clear vision of the future you want to create for your child or other relative with special needs, calculate how much it might cost to provide that level of support and what resources are available. Without the numbers, all you have is a wish list; adding concrete numbers is what turns wishes into achievable goals. For most families, the support provided by public benefits programs will be essential. An adult who qualifies for Supplemental Security Income and a comprehensive Medicaid waiver program today could receive benefits over the next 30 years of more than $1,500,000. 2Not many families can afford to do without these benefits, which underscores the importance of getting your estate plan right, as noted above.

Tallying up the costs of your loved one’s needs over and above what may be provided by public benefits, will likely yield another big number. Ideally, over the course of a long and productive life, you will gradually accumulate the assets needed to provide for yourself and leave a legacy sufficient for your child’s supplemental needs. Increasing your savings rate and protecting your loved ones with a life insurance plan are possible ways to help you get to this big number to cover your loved one’s needs. With thoughtful planning, these changes can be less daunting than you might imagine.

Increase your savings rate. The Federal Reserve Bank of St. Louis reports that the personal savings rate has recently soared to more than 30 percent, the highest level ever recorded. However, average Americans have only rarely saved more than 10 percent of their income since 1990. 3If typical clients have to save at least 10 percent of their annual income to fund a comfortable retirement for themselves, how much more is required of families who want to provide ongoing support for children with special needs? In my experience, an extra five percent is a good target. If you want to increase your savings rate, the easiest way to do that is by making gradual, incremental increases whenever your income goes up.

Consider life insurance. The most common and appropriate use of life insurance for a typical family might be term policies to protect against the loss of a family breadwinner any time before the youngest child has attained independence. Families with children who may never be fully self-sufficient also have to insure against the risk of premature death, but our time horizon is significantly longer. We may also want to replace income, such as pensions and Social Security benefits, that stop upon a parent’s death. Some form of permanent life insurance may be most appropriate to meet these extended needs.

 

#3 Letter of intent: The family operations manual

As parents, we know more about our children than anyone else. The depth and intricacy of such knowledge is even greater for a child with a disability. If someone else had to suddenly take on your role as caretaker, how could they quickly learn everything they needed to know just to get through the first few days? A letter of intent provides essential guidance for anyone who might have to step into your shoes at a moment’s notice.

  • The first part of the letter of intent should provide a portrait of your family and the essential characteristics of your loved one with a disability. It includes key elements from the life plan outlining your vision for your loved one’s ideal life and your plans to make that possible. It should also include a description of an ordinary week’s activities. Finally, the narrative will have specific instructions for what to do when you and your spouse die or become incapacitated.
  • The second part is an ”operations manual” of all the critical information necessary to keep your household and your child’s support systems running, including: a roster of key people who are involved in your child’s life, your child’s personal information, details about your child’s medical condition, and contact information for all doctors and other service providers. This is the place to outline which benefits programs provide support and contact information for service agencies. Employment records, if applicable, and your child’s financial accounts should be listed, as well as details about your child’s residence and means of transportation. Your current net worth statement, a list of financial accounts, online credentials, and the location of your estate planning documents round out the summary.

Taking the time to prepare and complete the letter of intent will help you and your loved one reap the benefits down the road. Most couples tend to split responsibilities for different aspects of the family’s regular tasks and neither of them may be fully aware of how to do all the things the other person is handling. Your family might also think about taking care of the letter of intent in the same way, by dividing and conquering the tasks. Your advisor can also help you pull some of this information together.

 

Starting is the most important step when it comes to planning

Now you have seen the full scope of special needs planning – a process to make life better over the next few years, ensure that your survivors maintain access to all the resources they might need, and provide as much guidance as possible to those who will assume your caretaking role. As with any big job, the sooner you start creating your own special needs plan, the better.

Don’t be afraid to enlist some help with the process. Good resources for creating Life Plans for persons with special needs are available through non-profits like Inclusion Press International (link: https://inclusion.com/path-maps-and-person-centered-planning/), the Marsha Forrest Centre, (link: https://inclusion.com/marsha-forest-centre/marsha-forest-centre-what-are-we/) and the Plan Institute (link: https://planinstitute.ca/learning-centre/).

We encourage you to create an estate plan, a life plan, and the letter of intent to provide a secure and meaningful life for your loved one with special needs. Now is the perfect time for all of us to reconsider what sort of future we want for ourselves, our families, and the world. Please reach out to your advisor about how they can help you create a comprehensive plan for your family.

 

 

1“Estate Planning in the Time of the Coronavirus Pandemic,” AARP Retirement Planning Series, April 29, 2020, http://aarp.org/retirement/planning-for-retirement/info-2020/guide-to-virtual-wills-estate-plans.html

2Financial Freedom for Special Needs Families: 9 Building Blocks to Preserve Benefits, Reduce Stress and Create a Fulfilling Financial Future, Rob Wrubel, CFP, Rosalibean Publishing, LLC, 2017, pg. 61

3“Personal Savings Rate,” Economic Research, Federal Reserve Bank of St. Louis, June 26, 2020, https://fred.stlouisfed.org/series/PSAVERT

 

Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate, but is not guaranteed or warranted by Mercer Advisors. Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors. Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly, will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. This document may contain forward-looking statements including statements regarding our intent, belief or current expectations with respect to market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Mercer Advisors’ control. Mercer Advisors is not a law firm and does not provide legal advice to clients. All estate planning documentation preparation and other legal advice is provided through its affiliation with Advanced Services Law Group, Inc.

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