Financial Planning for Disabilities and Special Needs: What to Know

On this episode of The Long View, Cindy Haddad, an expert on financial planning for people with disabilities and their families and senior vice president and wealth advisor for Sequoia’s special needs planning practice, discusses her latest book—The Special Needs Planning Guide—housing, the role of trusts, and more.

Here are a few excerpts from Haddad’s conversation with Morningstar’s Christine Benz and Jeff Ptak:

The Special Needs Planning Guide

Christine Benz: We want to delve into special needs planning. And your book is called The Special Needs Planning Guide. It’s incredibly detailed and comprehensive. But it seems like a huge challenge in writing about special needs planning is that each situation is just so different. You talked about the huge gamut of disabilities, and it’s not just the disabilities, but also the family and community around people with disabilities that are different. So how did you overcome that challenge to put together the book?

Cindy Haddad: Well, Christine, it helps to have a great editor. So that’s important. When John Nadworny and I, we were asked many times and told over the many years ago when we wrote our first edition in 2007, you guys should write a book. Nobody has any of this information. We thought, maybe we should, because special needs financial planning is really not about just the money. It’s about all these other things that we talk about. And we sat down, and John and I wrote every word together and tried to come up with a simplifying process of who would be able to read it. So, we started with a timeline, and we stretched over the timelines. We created the special needs planning timeline that says, based on the age of your child, what are some of the things that you should need? There are the stages, from when a child is first born, age zero to three. There’s certain eligibility for benefits of early intervention, which can make a huge difference in someone’s life. And then once a child turns three, they enter into the public school system. And going from age three, where it’s all family-centered early intervention supports, more kumbaya, if you will, going from home-based early intervention services to public school, it’s like going from a cruise ship to a dinghy. So, parents then have a new world that they have to navigate throughout the education process, the years, educational years. So that’s another stage. And there’s all sorts of federal laws and entitlements for education in the least-restrictive environment.

Of course, when my brother was going to school, they didn’t have all these laws, and he was told that, my mom was told that he was uneducable, but she proved them wrong. And so now we have lots of families that have entitlements and there’s laws in place. And so, journeying through those school-age years until the child turns maybe 16, and then they start to transition into adult services, or they’re trying graduating. But then at age 18, there’s another change, major change and shift in government benefits services and supports, where the child may be eligible for certain government benefits, such as Supplemental Security Income, SSI. There are the issues of guardianship that parents need to address, or alternatives to guardianship. So, age 18 is important planning pressure point. Then when a child turns age 21 or 22 in different states, or in Michigan, it’s age 26, they lose all those federal entitlements for public education in the least-restrictive environment. But what a lot of families don’t know is that from age 18 to 22, those are great years, four years, where your child could still be entitled to educational supports that might be for life skills, for employment training skills. It’s not just about the reading, writing, and arithmetic, but that’s a very transitional time from 18 to 22, that there’s still entitlements for education. They might look different than being in the classroom. Or if they need that classroom and that structure, there are different programs and supports for 18 to 22.

Then once a child turns age, whatever that state’s age—here in Massachusetts it’s 22, in many states, it’s age 22. That’s the age when they pretty much fall off the cliff and they enter into the adult service system, where it’s dependent upon what appropriations, what funding from each state is available for them. And what services, where are they going to live? Where are they going to work? What are they going to do all day? And where are the social interactions? How is that going to happen for them? So that’s, to quote Susan Nadworny, when a child turns, from zero to three, they go from a cruise ship to a dinghy, but at 22, it’s going from that dinghy to a buoy. And parents need to just hang on and figure out what’s ahead of them for their family member. So, it’s a really challenging time. And that’s where the lifelong supports and services need to get in place. It’s also where it’s so important to plan for government benefits, as well as family’s own personal resources and striking a balance.

So, the book we wrote according to the timeline, and then within that timeline of the changes in service and support, we factored in five different factors, which is the financial factors, obviously. The legal factors—what types of legal entitlements, laws are out there, but also about estate planning and different types of trusts. Also, the government benefits, knowing what’s out there, how to access them, how to protect them for their child. Also, the family and support factor—who’s who in your child’s life and how do we help you connect with agencies and support? And are there other family members that you’re expecting? And how do we have those conversations with those family members and obviously the emotional factors. So, the five factors that we cover in the book are the family and support, the emotional, the financial, the legal and the government benefits.

And it depends on where somebody is in the planning process. So, in our book, we broke it down into four basic components. One is to give everybody their planning essentials and we go over the timeline and then talk about what’s the difference between traditional financial planning and how do we overlay all of these unique circumstances for the family member with a disability? So we get the planning essentials and then we talk about the five factors in the next section. Then we talk about a plan for your family, and we have a lot of do-it-yourself, fill-in-the-blank worksheets. And we talk about the financial framework of how you would develop a plan for your family. And then the fourth section, we just go through a bunch of frequently asked questions, give some tips and strategies and talk about the tools that are out there. And hopefully that helps to answer lots of questions that we’ve received over the years. But more importantly, at the end of each chapter, we’ve included in this edition next steps.

So, when somebody’s reading the book, they can just keep a tablet or pad of paper and pencil, the old-fashioned way, and just jot down some of the next steps that they might need to tend to, because it is a process. You can’t do everything overnight. And we always tell folks, look at the book as a resource, depending upon where you are, read what you need at the time that you need it. And that will help to simplify and keep things focused. Even when we do a financial plan for our clients or for new clients coming on board, we won’t give them the book off until we finish because they’re going to get stuck in all this, reading the book and absorbing it. But because it’s across disabilities, so many things might not apply, but it’s a great resource to go back to at times. So, putting the book together, again, it takes a village. But we’ve also shared many stories from our clients that we’ve worked with over the years. And many of the stories that we’ve included in there, or special needs planning tips that we’ve included, are from our experiences, both personally and professionally in working with folks. And we’ve also made sure that this time we’ve included a whole section on building out that team to carry on. That’s now the fifth stage of planning, since our first edition.

Financial Planning for Families With Loved Ones With Special Needs

Jeff Ptak: If you were to distill the three or four jobs that families with loved ones with special needs must accomplish or consider at a bare minimum, what would they be?

Haddad: Jeff, that is a tough question. Because there’s so much to do, unfortunately. The three or four jobs, I would suggest first, write down, take an inventory just from a basic financial planning process. Take an inventory of what you have, your assets, your liabilities, your income needs, your child’s potential for certain government benefits, their ability to earn income. Will they be dependent upon you for the rest of their life? And think about that vision that you might have for them. And just try and get an assessment, financially and with the abilities or likelihood of your child’s abilities and needs in the future. Just to try and shape that framework. And be realistic. Do you think your child will be gainfully employed and won’t need a lot of financial support, but maybe other types of support? If they’re visually impaired, maybe they need just a driver. Maybe they just need enhanced reading devices. If they’re somewhere on the autism spectrum, where are they? What kind of supports will they need? 24/7? Will they need just someone for helping navigating social cues and all that? Developmental disabilities, how much support will they need? How much support are you providing them? So do an inventory financially and also with the needs and ability of your child.

And then I think really importantly, financial and estate planning, is get your estate planning documents in place. And that is making sure that you meet with a qualified, knowledgeable disability law attorney. And there’s a couple of great resources for those, The Academy of Special Needs Planners or the Special Needs Alliance or NALA. And you’ll find a good attorney that really can help you draft those legal documents. And make sure parents have their own powers of attorney, healthcare proxy, HIPAA releases in place. As well as if your child does not need guardianship, make sure that they have their own power of attorney, healthcare proxy, HIPAA release and in many cases, even a will. I know that when we sat down with an attorney for Ron, it was an interesting conversation. But I remember one of our clients saying that their child didn’t need guardianship. But I suggested that they still meet with the attorney and have them create a power of attorney. Who’s going to help them making decisions? There’s also the power of advocacy. Like who’s going to be there as an advocate for them that agencies would want to listen to? And who’s going to be there to help them make healthcare decisions and also get that HIPAA release?

One of our clients who was sharing a story with her son that when he went to meet with the attorney, he said, “OK so my power of attorney that would help me with all the financial stuff, well, that would be my sister.” And then what if your sister’s not available? He said, “I would want this other sibling because they know how to have fun. And I would want them to tell me it’s OK to spend money on certain things that I would want. So, they would agree with me.” And then I said, “What happened with the healthcare proxy?” And of course, the mother thought for sure he’d want the sister, after the mother and father, sure he’d want the sister to go with him. And his point was, no way, I don’t want my sister going private stuff with me to the doctor. But interestingly enough, individuals with disabilities have opinions.

So, it’s really important to get them involved in that planning process. Again, getting their estate planning documents done for themselves and for that individual with special needs, even if it’s not guardianship, really, really important. Doing the inventory, getting the legal documents done, but also reviewing beneficiary designations in all of their retirement plan accounts and their life insurance policies. Because many times when you go and work with an employer, you set up all your benefits and they tell you, make sure you put down a beneficiary. So oftentimes you see the spouse first and then the contingent beneficiary is children equally. Well, the whole premise of special needs planning is protecting that individual’s eligibility for government benefits. And the way to protect that eligibility for many government benefits is to not have more than $2,000 of assets in that child’s name—a child is over the age of 18. So, if you name your child inadvertently, sometimes you write down Johnny Smith, Susie Smith and Sally Smith—you name the children. But many times, you just say “children equally.” Well, if there’s an account that’s split amongst four children and it’s $10,000 or $20,000, well, right then and there, you’ve disqualified that child for government benefits because they would inherit more than that $2,000, which is the limit for eligibility for government benefits. So that’s the third thing. Parents really need to check all of those beneficiary designations.

Also, joint ownership of assets too. So, you want to check the ownership. Now they have transfer-on-death or paid-on-death accounts. Make sure your child is not named directly, because you really want to use the supplemental needs trust to be the beneficiary. And we can talk about that in a minute. And also, fourth and final would be communicate your plan, communicate the vision, communicate what you have in place, what you’ve prepared so that there’s no surprises. And I will never forget a great lesson that I learned. I worked with a parent and the sibling. And the sibling really cared about making sure that they were going to be there for their sister. And the sister lived in another state, and she lived in another state because that’s where the voices in her head told her that she was safe. Well, when mom and dad died, the sister was the one who was the trustee for the sibling. But the sister that had mental illness was the beneficiary of the supplemental needs trust, but her sister was her trustee. Even though all well intentions, all good intentions, they did everything right. But what they didn’t do was let that child know that she wasn’t receiving an outright inheritance like the other brothers and sisters were. Not because of anything of her fault, but to protect her eligibility for government benefits.

And it just caused such a rift in that sibling, the sister’s relationship that was already fragile. So, communicating the wishes, and again, that’s the letter of intent, but having a conversation is so important. Bringing on those successors, those successor trustees, the successor guardianship, the people that you think are going to be stepping into your shoes—one, make sure they know about it and make sure that they can say yes to it or give them a backup and allow them to name a successor to them. So, there’s really important points. And of course, not having more than $2,000 of assets in that individual’s name now or in the future. There’s a lot to do. Those I think are the most important.