Keys to Financial Wellness
By Stephen Fournier, President, Central New York Market, KeyBank

As a nation, we tend to look at disabilities and special needs requirements as statistics. For example, one out of nine children under the age of 18 receive special education services, and nearly 21 million families have a member with special needs. These numbers give us pause, but for parents of children with special needs the number that means the most is one. One child. That’s what it takes to make it real.

One of the major challenges of raising a child with special needs is the strain it puts on family finances. Some equate it with tuition—but tuition for life. While government aid helps, it often covers just the necessities. Many parents want more than that for their children, and for those who do, financial planning—specifically special needs financial planning—provides the structure and guidance they need to successfully navigate the financial challenges of raising a child with special needs.

Getting started

As mentioned above, the most important thing to do is to ensure your child qualifies for government services. This includes meeting eligibility requirements for Medicaid, SSI or Social Security disability when they reach age 18. Next you will want to meet with a financial advisor experienced in establishing special needs trusts.

A special needs trusts supplements government benefits. The question for many parents and guardians is how much do they need to supplement? In short, you want to make sure your special needs child has enough assets to remain financially secure even when you are no longer there to provide support. To do this, determine your goals and expectations for your child’s future—education, health, living arrangements and work. Then focus on your child’s future income sources, which includes public benefits. Last, consider future expenses. Understanding these three things will provide you with the foundation you need to begin building your plan.

Establishing a special needs trust

Anyone can establish a special needs trust. It is the best way to leave any type of assets to a child with special needs.
Many times trusts are established with joint trustees and/or a corporate trustee to manage the investment and administration of the trust. It is the trustee’s responsibility to understand the beneficiary’s needs and to distribute assets to cover those needs. It is important to know that the funds can never directly go to the beneficiary, as it will decrease the amount of public benefits they are eligible to receive.

A trustee has to be well versed in what can and cannot be distributed from the trust. This is why many people opt to use a corporate trustee or trust officer with substantial background and experience administering special needs trusts. Trustees should be able to demonstrate experience in three areas:

1. Financial duties
2. Personal needs and advocacy
3. Accountability

The trustee has a fiduciary responsibility to make prudent investments, which means neither too conservative nor too aggressive. It is also important that the trustee have an understanding of federal and state tax law, which will influence investment and distribution decisions. The trust can invest in stocks, bonds, mutual funds and other products. The goal is to ensure the assets last as long as the beneficiary needs them.

Funding a special needs trust

Anyone can contribute to a trust at any time. However, there may be tax implications in the way some people choose to fund the trust, so it is important to discuss any contributions with your financial advisor or accountant. You will also want to inform family members that you have established a trust. It is not uncommon for well-meaning family members to set aside funds for your child without realizing the negative implications of directly transferring the funds to them.
In addition, it is usually a better option to wait before funding a special needs trust with assets while you are living. The reason: financial setbacks, long-term illnesses or other life events can deplete the assets and reduce remaining funds available. Insurance is a common way parents fund a special needs trust. Other assets that can be used to fund a special needs trust include family savings, investment accounts, mutual funds, CDs, military benefits, IRAs and real property.

Other considerations

When you have a special needs child, your approach to financial planning changes. Not only are you planning for your financial future, but you must also account for a second generation of planning to secure the stable financial future for your special needs child.

As far as leaving your assets to a family member to manage, consider that even the best intentions can hit obstacles. For example, death, divorce or spending down of the assets can all impact the future quality of care and services available to your child.

Long term, the most important thing you can do for you special needs child is to have your estate in order. Complete your wills, health care proxies, power of attorneys and trusts so that your estate is distributed according to your preferences. And continue to be mindful of preventing automatic asset distributions to your special needs child. Your attorney and financial advisor can help you with any questions you many have.

Stephen Fournier is president of KeyBank’s Central New York Market. He may be reached at either 315-470-5096 or [email protected]. © KeyCorp 2016. KeyBank member FDIC. Opinions, projections, or recommendations contained herein are subject to change without notice and not intended as individual financial, legal or tax advice.

Four “must-do’s” for parents of children with special needs

According to a MetLife survey, parents of special needs children are not adequately securing their child’s financial future. In fact, 60 percent of parents surveyed don’t believe their child with special needs will ever be financially independent.

Given that nearly one-third of parents with special needs children commit more than 40 hours a week to care and spend an average of $326 per month on out-of-pocket medical expenses, it’s not surprising that they’re not planning long term for the financial needs of their child. However, it doesn’t have to be a losing battle. Here are four things parents of special needs children can do to create a more financially secure future for their special needs child:

1.  Prepare for age 18 – When a child becomes 18 years of age they are legally presumed competent to make their own medical, financial and educational decisions. For parents of special needs children, there are two options they can pursue to maintain influence in their child’s care: power of attorney (POA) or legal guardianship. In addition, when turning 18 a child may become eligible for public benefits. It is important that parents understand the procedures and plan to ensure their child continues to receive the support and care they need in their adult years.
2. Draft a last will and testament – A special needs individual who has more than $2,000 in their name may become ineligible to receive certain public benefits. Therefore it is important for parents of special needs children to declare how their estate is distributed upon their death. An estate attorney can work with you to prevent automatic asset distributions to your special needs child.
3. Create a special needs trust – The special needs trust is a means to provide stability and security for special needs children should something happen to their parents or guardian. It can be a supplement to public benefits, which can greatly improve the beneficiary’s quality of life. Special needs trusts can be funded through gifts, life insurance, investment accounts, mutual funds, CDs, military benefits, IRAs and real property.
4. Choose an appropriate trustee – There are typically two choices when it comes to selecting a trustee: a professional trustee or a family member. The appeal of a family member is that they don’t charge fees and usually have an intimate knowledge of the beneficiary’s needs. However, administering a trust is a complex and important responsibility. A professional trustee has experience in the financial management—investments, tax planning and record keeping—required by the execution of a trust.