Mark Albertson's Special Needs Planning Blog

Thoughts on Special Needs Planning

The 7 Steps to Special Needs Planning

The 7 steps to a Special-Needs Plan

Parents and caretakers of children with special needs are faced with daily challenges which make it difficult to do much in the way of planning or preparing for the future. The take-it-one-day-at-a-time approach may work most of the time, but experts say parents of special needs children should pause to consider what may happen to their special-needs child if something should happen to them. With increasing lifespans among disabled people, odds are good that many of these children will survive their parents.

Planning beyond their own lifetimes is a task that many parents have not gotten around to, according to a 2008 survey by The Hartford Financial Services Group. Some 62 percent of parents have no long-term care plan in place for their special-needs child.

Among parents with a plan, half said they plan to leave money directly to their child, and 58 percent name their child as a beneficiary.

Either of those plans could disqualify a child from eligibility for government benefits and services, which impose strict limits on the assets a beneficiary can have in his or her name.

Financial and estate planning for a special-needs child can be tricky, but if you start with a good road map, you’ll avoid costly financial mistakes and have peace of mind that your child will be taken care when you and your spouse are gone.


  1.  Get the right advisors to help you

When Karen Greenberg’s son Ricky was diagnosed with autism, doctors told her to plan for the likelihood that he would never hold gainful employment and that he would require financial assistance well into his adult life.

Greenberg, a Certified Financial Planner based in Delray Beach, Fla., says the advice from her attorney at the time was to leave her estate to her youngest daughter.

“As a financial planner, I knew that was very poor advice because contingencies like divorce and lawsuits could befall even the most diligent and protective sibling,” she says.

After doing research at a law library, she decided to establish a third-party special-needs trust, also known as a supplemental needs trust, to provide for Ricky financially while protecting government benefits such as Supplemental Security Income and Medicaid.

She says the trust she established for her son is usually beyond the reach of creditors of the child and the parents and is not available in divorce proceedings if the child marries.

Ricky, now 21, lives in a group home in New York that is completely funded by Medicaid. Greenberg says it would cost more than $100,000 per year out of pocket otherwise.

Greenberg was fortunate in having a financial planning background, but the majority of parents are often in a quandary about financial planning for special-needs children. It’s a good idea to get together a team of experts that includes a medical professional familiar with the child’s health care needs and an attorney who is well-versed in the area of special-needs trusts and government benefits.

Additionally, getting a good understanding of what financial needs a special needs child will have during their lifetime, and creating a plan to fund that need can’t be left to chance.  It is critically important to have the advice of a good financial advisor – one with experience in the area of special needs planning, to project future costs and needs for funding the child’s future.

2.     Start with a LifeCare Plan (also called a letter of intent)

The LifeCare plan or letter of intent, really is the backbone of your financial plan because it serves as your instructions to the trustee and guardian on how to care for your child. As part of your child’s life care plan, it describes your child’s medical history, social issues, medical treatments that have both been effective and to avoid in the future, the current status and other important information that can guide caregivers in the event of your death. It’s a written guide for future caregivers of all the unwritten knowledge you have gained as a caretaker for your child.

Ideally, it should be a fluid document that is started when your child is young and updated periodically as your child grows.

It should describe medications your child takes, attending physicians and developmental milestones. It may include things such as physicians to avoid, and your child’s favorite activities, food preferences, entertainment activities and quirks. It should also include the child’s Social Security number and birth date as well as the parents’ financial information.

Potential guardians should get copies periodically as the letter is updated.

“We had a lot of doctors involved in Ricky’s case and a lot of things that we needed to be aware of, and it was impossible to keep all of that stuff straight,” Greenberg says. “Parents have a lot of information in their heads, but they really need to write it down.”

3.     Draft a will or living trust

A letter of intent is an excellent way to create a record of your child’s medical history and milestones, but it doesn’t have legal enforceability.  That’s the place of a will or living trust.

No one understands your special-needs child better than you, the parent, but without a will or living trust, the door is wide open for the courts to decide how your assets will be distributed — which may or may not be in your child’s best interests.

Not only does a will specifically detail how and when your assets will be distributed, but in conjunction with a well-thought-out financial plan, you can avoid unnecessary taxes and expenses. Wills appoint guardians for your child in the future, designate trustees and designate the person who will be in charge of making sure that your estate is settled properly.  Without a will, or with an out of date will, these will be left to chance (and the courts).

4.     Understand how government benefits work

Government programs such as Supplemental Security Income, or SSI, and Medicaid provide basic support services, but they are income and resource sensitive. In the case of Medicaid, eligibility varies from state to state.

In general, to be eligible for such benefits as SSI, a child must be disabled and have limited resources.

To begin with, special-needs children younger than 18 must have an impairment that meets the government’s definition of disability, which is a physical or mental impairment that seriously affects the ability to function. In addition, the disability must have lasted, or be expected to last, at least one year or result in death to qualify for SSI benefits.

Many special-needs children won’t qualify for federal benefits prior to age 18 if their parents make too much money. After age 18, to be eligible for SSI benefits, the adult child cannot have earnings that exceed a certain income threshold. Also consider that the adult child with special needs may be eligible for Social Security Disability Insurance benefits, which are based on a parent’s earnings record.

In most states, if a special-needs child qualifies for SSI benefits, he or she usually can get Medicaid to help pay medical bills. Always check on Medicaid eligibility in your individual state, though, because even if the child is not eligible for SSI benefits, the child still may be eligible for Medicaid under other state rules.

5.     Establish a special-needs trust

Special-needs trusts are established to manage assets for a beneficiary, while at the same time insuring that those assets won’t be taken into consideration to disqualify a disabled person from receiving government benefits.

The assets in the special needs trust are usually used to pay for rehabilitation, educational services or medical services not covered by other sources, but they can also be used to pay for quality-of-life enhancements, such as entertainment or vacations, education, or even the cable bill.

Special-needs trusts can be complicated and costly to establish, so it’s a good idea to hire an attorney who is well-versed in estate law, taxes and government benefits — particularly Medicaid and Social Security.

Costs can range from $1,800 to $3,500 or more to establish a special-needs trust depending on the circumstances and other factors, according to Vincent J. Russo, a Westbury, N.Y.-based attorney and co-founder of the Academy of Special Needs Planners.

Ideally, your attorney should have an extensive network of community resources because families often need help with quality-of-life issues beyond establishing the trust.

“It’s not unusual for a parent to call me with concerns about a child having trouble with schooling or who is having a housing issue,” he says. Oftentimes parents call him if they need a therapist or a financial adviser to help with managing assets or purchasing life insurance, he adds.

6.     Determine how you will fund the special needs trust

Special-needs trusts are funded with a number of different resources, including inheritances, personal injury settlements, gifts and very often, by the proceeds of life insurance policies, but they can also be funded by cash gifts or from investments such as retirement fund proceeds or IRAs if the IRA custodian permits it.

Well-intentioned family members often want to help by leaving money directly to their special-needs child.

Too often though, they make the potentially costly mistake of naming the child as a beneficiary. Even high-functioning individuals may not have good money-management skills. And as mentioned above, gifts willed directly to a special-needs child could jeopardize government benefits.

“Instead of naming a child individually, you should name the special-needs trust for the benefit of the child,” says Cynthia R. Haddad, a member of the board of directors for The Arc of Massachusetts and a Certified Financial Planner based in Waltham, Mass.

Special needs trusts can be established inside a will and only funded at the time of the parent or granparent’s death, or can be established as “living” special needs trusts, that are funded with assets while the giver is still alive.

7.     Consider the need for a guardianship

Oftentimes advisors are quick to recommend the caregiver establish a guardianship for the child when they turn 18.  Whether or not a guardianship is needed will depend upon several factors, including how high the child is functioning, how independent the child is, and how cooperative the child is in allowing the parents to manage complex issues for the child after 18.  Sometimes a guardianship is necessary in order to protect the child from legal or financial harm as the child gains independence.  Just as often, however, when the child has legal capacity, Durable powers of attorney for health care and financial matters can be just as effective, without the need to cause the courts to intervene.  This is an important area to discuss with your special needs attorney.


Parents often look to siblings or close relatives when choosing a trustee or a guardian, but that’s not always a good idea if they can’t balance a checkbook or aren’t parent material. Parents need to consider the capability of siblings to take on the job, and the burden they are placing on that sibling.

“With a trustee, you’re looking for someone who has good judgment with money and who is responsible with certain things like investment management or tax returns,” Greenberg says. “With a guardian, often it’s the person that’s best with the child.”

In some cases, it may be a good idea to select two people to act as co-trustees, but you’ll want to avoid choosing a husband and wife in case they divorce. Greenberg says it’s a better idea to choose a relative from each side of the family.

Keep in mind that trustees don’t have to be human beings; they can be financial or nonprofit institutions as well.

In cases where there are no related trustees to choose from, parents can transfer funds to a pooled trust run by a not-for-profit organization. This type of trust is managed for a number of different beneficiaries, with all funds kept separate from one another. The Web site of the Academy of Special Needs Planners provides a resource of pooled trusts that exist nationwide.


August 12, 2009 Posted by | Uncategorized | 1 Comment