The Rewards Of Financial Planning For Special Needs Families

There are many considerations that parents must account for when planning for the future. For example, a special needs plan must factor in the drafting of wills and letters of intent, as well as assigning guardianships and conservatorships. These important legal components are the foundation for ensuring proper stewardship of assets designed to care for the individual.

On the financial planning side, life insurance and special needs trusts are often the primary tools used by families for ensuring the long term care of their children. As always, life insurance provides tax-advantaged wealth transfer from the parent to heirs. While any type of life insurance may be used to benefit a special needs trust, universal and whole life policies are the most common because of the peace of mind and guarantees they provide. Term insurance is an affordable option, but there is a risk the parent may outlive the term and leave the trust short on funds. Variable life insurance is also an option, but many parents may not be comfortable riding the ups and downs of the market with so much at stake.

Regardless of which product is used, in a special needs situation, great care must be taken when passing along the death benefit. Under federal law, any inheritance of more than $2,000 may disqualify an individual from certain federal and state assistance programs such as supplemental social security, Medicare, Medicaid, Social Security Disability Income (SSDI), HUD housing programs and food stamps. That’s where the special needs trust comes in.

A special needs trust is a legal entity that is set up as the beneficiary of the parents’ life insurance policy and other inherited assets. The trustee manages the assets on behalf of the individual with the disability. The trustee also pays for important expenses such as transportation, rehabilitation, and education, as well as home health aides and other medical and dental expenses not covered by private policies, Medicare or Medicaid. And importantly, because the individual with special needs does not technically own the assets, he or she remains eligible for other assistance.

Getting involved

Special needs trusts must be established by the family’s attorney and entire practices exist to serve this purpose. While establishing the trust does not fall under the purview of financial planners per se, gaining expertise on how to structure trusts and developing relationships in the practice can lead to strong referral business among close-knit special needs communities.

Whether personally invested as parents of a special needs individual themselves or simply providing another service for clients, financial professionals who get into this field will find it both a challenge and one of the most worthwhile pursuits of their professional career. This is an industry that recognizes and respects those advisors that are truly committed to the long haul. The business requires someone who is not afraid to ask tough questions, can be up-front with families and who has the wherewithal to navigate complex regulations.

Still, all this is a small price to pay for the benefit, financial and otherwise, of helping ensure a safe, secure future for these special members of our society.

John R. James, CDFA, is a licensed advocate for Protected Tomorrows of Seattle, Wash. He can be reached at [email protected]. Karen L. Susac, JD, CEBS, CLU, ChFC, CSSC, FLMI, FFSI, is advanced markets director for Symetra Life Insurance Company, Bellevue, Wash. She can be reached at [email protected]