Buying investment properties for clients or deciding whether they can go vacationing with a friend in Florida is not normally considered part of the job description of the financial advisor. But for John Nadworny, a certified financial planner and principal of Bay Financial Associates, Waltham, Mass., it’s all in a day’s pay.
The reason: Nadworny serves as a trustee of special needs trusts, a responsibility that requires him to make financial decisions–and, as necessary, consult with attorneys–about when and how much money to distribute from a trust to its beneficiaries: individuals who depend on the trust funds to meet expenses not covered by Social Security Income and Medicaid programs.
“It’s a huge fiduciary duty,” says Nadworny, “You have to account for every dollar and ensure that [trust beneficiaries] are spending the money prudently. But the work has also been fun.”
The enjoyment derived from fulfilling the financial needs of a disabled person–a client’s son who has severe autism, a spouse with Down syndrome or a daughter suffering from emphysema–might also be viewed as the fruits of a sometimes lengthy process engendered by special needs planning. The starting point is an in-depth assessment of the disabled individual’s near- and long-term financial needs. Also required are “yardsticks” (or benchmarks) with which to measure decisions about special needs; and the establishment of a successor support team.
This includes a guardian to care for the individual in the event of the trust grantor’s death or disability; an executor of the grantor’s will; a trustee to oversee the special needs trust (preferably a corporate trustee who can be expected to act with impartiality); and an advocate who serves in an informal capacity on behalf of the disabled individual.
“The successor team you pick will have to carry the plan forward, so it should include the best people you can find,” says Steve Rhatigan, a certified estate planner and principal of Stemark Associates, Houston. “When ill-prepared successors are named, bad things can result, like having a guardian give up on the job because he or she really didn’t understand that diapers would have to be changed for a 21-year-old.”
Topping the issues to be addressed in most special needs cases, sources say, is how and where a disabled child is to live upon reaching adulthood. Depending on the child’s disabling condition–Down syndrome, autism and cerebral palsy are among the most common–parents will need to choose from several housing options.
These include remaining in the home of the parents, another family member or guardian; or moving into a private or state-supported group home. The choice will depend on the extent of disability (and, hence, the level of care required); resources available in the new home to provide needed services; and, not least, money to fund the preferred option.
The cost can be steep. Rhatigan cites rates as high as $3,700 per month, or $44,000-plus per year, for a top-tier community home, though assisted-living housing offering basic services can be had for about $1,200 per month, he says.
Means-tested public assistance programs, including Social Security and Medicaid, are available for qualifying individuals to cover housing and other essentials like food, clothing and health care. The challenge, observers say, is how to maintain eligibility for these programs while funding additional expenses not covered by public benefits, such as trips to family members, reading materials, educational tools and over-the-counter medicines.
Special needs persons who have more than $2,000 in “countable resources” are ineligible for public assistance; they first must draw down personal assets below this threshold–potentially leaving them in poverty or unable to fund supplementary expenses–before they can qualify, advisors say.
The public benefits restrictions are not, of course, a problem for disabled people who have sufficient assets to do without the government programs–a figure that Rhatigan pegs at $1 million or more. Below this benchmark, he says, clients will need to look to outside assistance.
Enter the special (or supplementary) needs trust, which enables clients to bequeath property to a disabled person to fund additional expenses without jeopardizing government benefits. The trust can also coordinate with the trust grantor’s estate plan so the beneficiary will be provided for if the grantor becomes disabled or dies. The vehicle can additionally protect assets from the beneficiary’s creditors.
Accomplishing these objectives, however, requires a proper structuring of the trust, starting with the appropriate type. Too often, advisors say, attorneys select a boiler-plate from a manual that contains language for a first-party or self-settled trust, one created using the grantor’s own money, rather than a third-party trust funded with assets from parents, grandparents, a spouse or relative.