Families with members with autism, Down syndrome and other developmental disabilities have different planning challenges than do more typical families.
- They have to plan for a second generation,
- Their planning must account for the governmental benefits of Supplemental Security Income (SSI) and Medicaid,
- Irrevocable trust tax rates are less favorable than individual rates and proactive management can improve after-tax returns,
- Coordinated legal, tax, planning, insurance and investment advice is the key to successful outcomes.
Special-needs planning requires advisors to consider two planning objectives that do not show up for typical families. Governmental benefits play a significant role, and those benefits can be worth hundreds of thousands to millions of dollars to the family member with a disability. People with disabilities are living long lives, and many are expected to outlive their parents; therefore, we need to plan for two generations.
There are two programs that are invaluable. First, let’s talk about SSI and Medicaid. SSI is an income benefit available to a person over 18 with a qualifying disability. The 2020 federal rate is $783 per month. A person receiving SSI can bring in more than $375,000 in a 40-year period. Medicaid-funded services including health insurance, supported living and therapy could total millions over that same time period. Directing someone to improve their estate plan to include these two programs could change a family’s financial life.
As mentioned, planning must incorporate a second generation. I can’t stress the importance of this. There are a lot of families that include parents in their 70s and 80s who have sons and daughters living at home. It is important that portfolios generate extra income, and they need to last longer.
When naming a beneficiary, consider how critical it is in directing assets to a trust and in how those assets are divided to provide support. This must be clearly stated. Another thing to consider is a home — it is one of the best assets for both wealth transfer and providing housing to a person with a disability — but proper plans must be in place to protect, maintain and pay for the home.
There’s a lot to learn in planning for these families, and as an advisor you play a crucial role in giving them unbiased, competent and personal advice. They are bombarded relentlessly with information, and they need help sorting through what is important and can work for them. Here are some key considerations:
Build a high-performance team: Outcomes improve when investments, financial planning, taxes, the estate plan and insurance work together. Wealth creation is wasted if assets transfer to a person with a disability who then loses access to benefit programs.
Unlock tax efficiency: Tax awareness adds value our planning work. Funded special-needs trusts pay taxes at the highest marginal rate on low levels of retained income — just $12,950 for 2020. Tax management in portfolios and, potentially, the use of certain annuities, could help keep taxes down. Additionally, taxes matter in estate funding, and advisors can add more value in helping families determine which assets are best to use to fund the special-needs trust.
Make sure you have a network: My phone rings weekly as people seek help. Often, they need something I cannot provide, but through my network and I can direct them to supporting nonprofits, related professionals and other experts. It’s a virtuous circle where I can assist people quickly and the network sends people back to me for the work I do.
Although the last few months have been difficult, it’s always uplifting to remember the importance of our work and the impact it has when we get planning right — especially for those with special needs. Knowing all of the benefits that are available, the tax, legal and planning guidelines and having the right network and resources at our fingertips is vital to everyone’s success.
Rob Wrubel is a Colorado CFP who is a single father of three children, one of whom has Down syndrome. He is recognized as an expert on financial planning for special-needs families and has written two best-selling books about the subject.