Key Considerations for Special-Needs Planning

Adam Zoll: For Morningstar, I’m Adam Zoll.

Raising a family can pose a financial challenge to any parent. But those with special-needs children and face their own unique set of financial challenges.

Here to talk about some of these challenges and strategies to deal with them is Brian Rubin. Brian is a board member of the Special Needs Alliance, a national non-profit association of attorneys specializing in special needs planning, and he’s based in Buffalo Grove, Ill.

Brian, thanks for being with us by phone today.

Brian Rubin: My pleasure. Thank you.

Zoll: Let's first talk about what are some of these unique financial challenges that families with special needs children face that families with normally developing children may not be aware of.

Rubin: Well, as I like to start by explaining to parents, I, myself, have three children, one of whom, Mitch, is now 33 years old and has autism. When you're going to have children, you read all the books, you're prepared, and you know that your child in two months is going to do this, and four months going to do this, and five months going to do that. Then all of a sudden you realize you have one child for whom there is a different plan. They're not going to do what you anticipate. They're not going to be there in your twilight years to take care of you. They're going to have a different life plan.

With that, all of a sudden all your plans about, well, I need to save for college education for my child--well, those plans are altered. So instead of thinking about, well, how much money do I need to save, if I passed away prematurely, for a college for my child, you're now saying for one child, well, for the rest of their lifetime what will inflation be, what will return on investments be, what government benefit programs will even exist, and of those, what will my child be eligible for? There are so many variables, that it's really impossible to come up with a good number as to how much the child is going to need.

Therefore, the most important question is, number one, you can't help your child unless you take care of yourself. So you need to do your own appropriate financial planning, so that you're going to be able to take care of the child, provide for the child.

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But the next question is, where is this money going to come from, and how much is it going to cost for my child for the rest of their lifetime? Then we'll discuss with them, because no two children are the same, is this child going to be living independently with supports, or is this child going to be living in a group home, so to speak, a government-type housing with care providers. Is this child going to be able to work, and to what extent are they going to be able to maintain themselves in the lifestyle you want for them, or are they going to have minimal income? All of these factors go into play as to, number one, how much we need to plan to set aside and how are we going to get to that point with our own savings, with insurance, or other vehicles, or government benefits.

Zoll: And what are some of the government benefits that are available and how do families qualify?

Rubin: Parents quickly learn that for the primary benefits that our children are going to need as adults, SSI, Supplemental Security Income, Medicaid that pays for programs such as residential and work programs and day programs that's paid by Medicaid, our child needs to be impoverished. In other words, not have more currently and for many, many years, not more than $2,000 in their name.

So then parents say, well, how do I save money and have money for them and have a reserve fund for them to pay for things the government is not going to pay for, or for better services, if I can't put money in that child's name.

So the answer is, what they call a special-needs trust, and there are two main kinds of special needs trusts. There is what they call a third-party special needs trust, meaning that the money is never this child's money, there is no paper trail it was ever their money, it's coming from gifts and inheritances, goes into this trust fund. It's a reserve fund that is not counted as an asset of the child for purposes of eligibility for government benefits. If the attorney, who is knowledgeable in this area, prepares the appropriate document with dotting their I's and crossing their T's, ... and then it's also recommended that it's not tied to their will or their living trust, but it's a separate freestanding document, so that it's available for grandparents or aunts, uncles or other people to, so to speak, piggyback on to it, leave money to it, make gifts to it--so that it's available for the extended family.

Then there is a second type of special needs trust called many names, a first party trust, or an OBRA trust, or a payback trust, and that is for money that could be from a personal injury or a medical malpractice lawsuit settlement. Maybe it's from an inheritance that wasn't appropriately left with a third-party trust, but left with the child directly. So it's money that's in their child's name. That type of a trust is a newer vehicle. That one was birthed, so to speak, in 1993 by federal law. That also can protect the money--keep it as a reserve fund and have the child still become eligible for benefits. But when the child passes away, the state or states that have paid services are entitled to get reimbursement to the extent there is money left in that trust for whatever they paid during the child's lifetime.

So those are the vehicles that typically families will use in order to put funds away for the future of their child.

Zoll: You mentioned sort of at the outset trying to anticipate how much your child is going to need for their care over their lifetime. That's got to be a really daunting task. I imagine that checking in at certain intervals along the way is part of this process, maybe making an adjustment, maybe we didn't think our child was going to go to college, and maybe now we are thinking maybe they will be able to, or maybe the reverse.

Rubin: Exactly. In fact, in many situations, let's say the child does not have intellectual disabilities, but has a mental illness. We are hoping in the future with medical science and with medications that the child will be fine, or will be able to maintain their own lifestyle. So termination clauses can be put into these trusts, where the trusts are terminated.

How much is funded, one of the big questions is, families will say I have three kids, I have four kids, five kids--how do I divided the pie among the children. I feel guilty not leaving equal shares to all the children, and we'll talk about separating the brain from the heart, and you have to look at each child, what their needs are.

As you just mentioned, those needs are going to change. You don't know if one of your typical children ... is going to have a child with special needs and you want to help them out. As I like to say, the term "special needs" is very misleading because, as I say, all children have special needs, it just depends on how you want to define the term. And it is going to change, and you want to build in flexibility into these documents. So as an example, if you were purchasing insurance, you may not want the trust to own the insurance, but the parents would maintain the insurance so that they could change the beneficiary periodically, reallocating how the beneficiaries are going to be paid. Or if you have funds, you may not want to place it in the trust during the parents' lifetime, but it's going to be part of their own estate plan, their living trust upon their death allocating, so that the surviving spouse ... can reshuffle the deck, so to speak, and reallocate among the family unit as deemed appropriate at that point.

Zoll: So what sort of financial professionals or legal professionals would you recommend that parents with special needs children turn to for advice in this planning process?

Rubin: You need a team. All people that are doing their own estate financial planning need a team. They need an appropriate or competent special needs attorney, and there are a number of sources. Then, of course, you need your financial planning professional that hopefully is knowledgeable in this area, or that special needs attorney who would help you find an appropriate financial planner that is knowledgeable in this area.

For attorneys, I'll mention three possibilities. One is the one that I'm on the board of directors of, Special Needs Alliance, which is a membership-by-invitation organization. There is a screening process. You have to be in practice, concentrating in this area for at least five years; most of our members are more like 17 to 20 years. that's specialneedsalliance.org, and there is a map of the U.S.; you just click on your state, and you can find attorneys.

If you don't find an attorney in your area, the next organization I would look at is the Academy of Special Needs Planners. Their website is specialneedsplanners.com. Anybody can join. There is no screening process, but there are many, many very good attorneys that are members of the academy. I, in fact, was a charter member of that organization.

Third, NAELA, National Academy of Elder Law Attorneys, and you're saying what's the elder law [connection]? Well, many of these elder law attorneys have excellent knowledge in the special needs planning area. Naela.org is their website. They are not-for-profit. I was on their special needs planning steering committee for many years at that organization.

So those are three websites that will easily help you find attorneys knowledgeable in this area, and then they could assist you in finding the right financial planner. Most of the attorneys are like myself. You don't want them doing your financial planning, because all they'll do is lose your money. You want a professional financial planner.

Zoll: Great. Brian, this is such an important topic. Thank you so much for sharing your insights with us today.

Rubin: My pleasure.

Zoll: For Morningstar, I'm Adam Zoll. Thanks for watching.