The patchwork of government programs for adults with disabilities, and their varying eligibility rules, create complications and traps. But more financial planners are aiming to help.
Social Security – Benefits for People with Disabilities
The government benefits catch is something that even better off families need to think about, says New York estate planning lawyer Bernard A. Krooks, a past president of the Special Needs Alliance. “The cost of caring for an individual with special needs over his or her lifetime can be catastrophic,” he says. “Even wealthy families have to address these issues, ideally by putting a contingency plan in place to let government benefits kick in if and when necessary, for example.” Merrill’s Phillips notes a special “letter of intent” relating to a child’s care can also be used in an estate plan to provide needed flexibility if circumstances change.
Parents often wait too long to plan, underestimating the time and effort needed to assure a special needs adult can live their best life—after Mom and Dad are gone.
from Congress’ Government Accountability Office gives just a taste of the kind of expenses we’re talking about. It looks at six states whose Medicaid programs provided in-home services (everything from health care to help with eating, dressing and bathing to supported employment) for beneficiaries aged 21 to 64 who have intellectual disabilities or developmental delays; the states’ spending on these recipients averaged between $51,000 and $71,000 a year–an amount pushed up by those with additional physical, mental health and substance abuse problems.
Note that those Medicaid services have (in addition to eligibility restrictions) long waiting lists, which is why families with sufficient financial means should be making any preparations they can on their own. Another gotcha to be aware of: eligibility rules for Medicaid benefits have not only changed over time, but vary by state. “It’s important to seek out experts dedicated to special needs planning in the state where you’re located,’’ Krooks says.
It Takes A Team
“Holistic, broad financial planning can be really critical,’’ says Shenkman. In other words, even a lawyer says just going to a lawyer and setting up an SNT doesn’t cut it. Financial planners acknowledge they can’t go it alone either. “Building the right team of professionals is incredibly important: The problem is that looking for just one person to solve problems and answer questions doesn’t really work,” says UBS advisor Kevin McGrath, who, with his daughter, runs a financial planning practice in Atlanta focused on special needs. (Both hold the ChSNC credential.)
Still, planners tend to be at the center of the action. “We’re often the first call for families and like to be the quarterback of their advocacy and support team,” says Merrill’s Phillips. “We’re at the center of people’s professional teams—often attorneys, doctors and other experts don’t really talk to each other, so with the right advisor a family doesn’t need to be alone in the middle of all of this,” echoes Weitz.
Another reason planners are in the middle: parents of special needs children have to save and plan for their own retirements, even as they provide for their child’s long-term care after they’re gone. Insurance policies can be an effective tool for funding SNTs, Weisz notes.
ABLE accounts, created in 2014, offer tax breaks and a way for parents to help support a disabled adult child, without jeopardizing their eligibility for federal Supplemental Security Income.
A few other members of this team effort are crucial: the person (or institution) who will serve as a trustee for any SNT or other trust when the parents are gone, as well as a potential guardian, if needed. “The knee-jerk reaction is to appoint Uncle Joe or Aunt Jane, but the rules around SNTs are not simple,” says Shenkman. He suggests families consider naming an institution or specialist as a trustee or co-trustee with a family member, to make sure there is no inadvertent disqualification from public benefits. He also sees a need in many cases for an advocate who can help the child with life and health decisions, particularly if there isn’t someone (such as a sibling) with the time and capacity to fill that role.
Look Beyond Special Needs Trusts
A Special Needs Trust isn’t always the answer—or it can be just part of the plan, supplemented by other accounts. For example, an adult child with special needs may have a job and be earning too much for public benefits, but not enough to cover all their expenses, particularly in the long term. In that case, says Shenkman, the solution may be a full discretionary trust, giving the trustee the flexibility and discretion to disperse what’s necessary for the special needs individual’s support. (An SNT is designed to pay what
covered by Medicaid.)
Obviously, much depends on the nature and outlook for a child’s disability. In an article on
planning for those with Asperger’s Syndrome
, for example, Shenkman suggested that someone who is capable of holding down a good-paying job, might be able to serve as their own co-trustee–provided a separate co-trustee or a trust protector is named. Why? While anyone can be the victim of financial fraud, the characteristics of Asperger’s, which makes it difficult to interpret social cues, could make a person even more susceptible, no matter how competent they are on the job.
“It’s not a one size fits all approach—what benefits the person is receiving or which benefits may they need in the future will ultimately decide whether it is right,” says Phillips. He points to ABLE accounts as an underutilized vehicle for families to save for disabled children that works along with an SNT, while offering some unique tax advantages. The money in an ABLE account (also known as a 529A) grows tax free, just as the money in a 529 college savings account does, provided it’s used for its intended purpose—in ABLE’s case benefits or support for a disabled person, which broadly includes housing, food, education, transportation, assistive technology, health care and personal services. In other words, just about anything.
“Having someone aware of the planning complexities who can point you in the right direction is key.”
When Congress created ABLE accounts in 2014, it specifically provided that up to $100,000 in an ABLE would be disregarded for the purposes of determining a beneficiary’s eligibility for SSI. So, for example, rather than paying an adult disabled child’s rent directly—which would count as income to them and hurt their SSI eligibility—a parent could make annual contributions to the 529 and rent could be paid from that account. In 2023, parents or others can contribute, in total, up to $17,000 per beneficiary, an amount that increases when