FINANCIAL PLANNINGfor a Loved One with Special Needs

FINANCIAL PLANNINGfor a Loved One with Special Needs

Presentation toThe Colorado Bar Association, Elder Law Section

September 18, 2008

Hal Wright, CFPHal Wright, CFP®®

Financial AdvisorFinancial Advisor(303)770-5511, xtn 119(303)770-5511, xtn 119hvwright@wradvisors.comhvwright@wradvisors.com

© 2008, by Hal Wright – All rights reserved

2

This material is intended to provide general information and is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal advisors.  

The material herein is believed to be accurate at the time of publication (03/2008), but is subject to changes in tax laws and situations outside of the control of Waddell & Reed, Inc.  It is important that you retain legal counsel for the legal aspects of special needs planning and to prepare your legal documents. You should also consult with your tax advisor on the tax implications of your planning options specific to your situation.

Hal Wright offers Securities and Investment Advisory Services through Waddell & Reed, Inc., a Broker/Dealer, Member FINRA & SIPC and Federally Registered Investment Advisor.  Insurance products are offered through insurance companies with which Waddell & Reed has sales arrangements.

Waddell & Reed is not affiliated with nor do they endorse any of the companies or organizations mentioned herein.  Waddell & Reed has not reviewed any of the products or services they offer.

3

Why I Am Here

Meg Wright – Meg Wright –

Arapahoe High School Class of 2004Arapahoe High School Class of 2004

One of the fears of a parent of a child with special needs is:One of the fears of a parent of a child with special needs is:““what will happen to my child when I’m gone?”what will happen to my child when I’m gone?”

4

The Architecture of “Special Needs” Planning

Life PlanningSpecial Needs

FriendsA Job

A Home

LegalWillsTrusts

Guardianship and alternativesPOAs, HCDs

FinancesBenefit EligibilityFinancial Support

Trust Funding

ResourcesPublic Assistance

“Private Pay”

5

Financial Planning for a “Special Needs” Family

• For the loved one with “special needs”– Public benefit eligibility – Lifetime financial support– Trust funding and management– Healthcare and health insurance– Guardianship or alternative protective mechanisms– Residential environment, perhaps home ownership– Employment preparation, placement and post-placement support– Asset titling, bequest and and beneficiary designations– Legal documents (referred to an attorney)

• For the family– Creating, managing and protecting wealth to provide support– While preserving other goals such as parents’ retirement– In fairness to other children

6

Government Services vs. a Quality of Life

Basic NeedsBasic Needs

• ShelterShelter• Basic healthcareBasic healthcare• FoodFood• Job assistance if they Job assistance if they

can workcan work• Someone to manage Someone to manage

their supporttheir support

Quality of LifeQuality of Life

• Participation in the Participation in the communitycommunity

• A homeA home• Desired healthcareDesired healthcare• Rising above povertyRising above poverty• Opportunity to be with Opportunity to be with

family members, possibly family members, possibly in other cities (travel)in other cities (travel)

• FunFun• Someone to care for them Someone to care for them

for as long as they livefor as long as they live

The Government willThe Government willmeet basic needs – meet basic needs – ““eats and sheets”eats and sheets”

Most families will want moreMost families will want morefor their loved one than the for their loved one than the Government providesGovernment provides

7

Projecting the Resources to Support the Child

The Life Plan

Determines

$

The desired standard-of-livingAnd the income to support

$provided

byGov’t

$provided

byFamily

$provided

byChild

8

Estimating Required Financial Support

• Three categories of expenses– Personal expenses

– Expenses for special needs

– Expenses for professional guardians, fiduciaries, care managers or companions when the family cannot provide such support

• Will vary through the different stages of life

• Estimating expenses with confidence requires: – A comprehensive life and resource plan

– Predictability of Government benefit availability – what and when

– Medical certainty or sufficient experience to validate the life plan

• The more difficult planning challenge is faced by families whose child may be capable of semi-independent living

9

Estimating Financial Support – for Special Needs

A. Special NeedsState

Services* Private

Support**Comments Includes

Case management       resource planning and coordination

Caregiving and Supervision      in-residence supervision,

personal care, assistance

Professional Services     

speech, occupation,physical therapy;behavior intervention; nursing

Environmental Adaptation     

home modification, vehicle modification,assistive technology

Medical/Dental/Vision/Hearing        

Social, Day Programs        

Residential Services      Government-provided residential

environment

Employment Services      evaluation, training, job placement,

post-placement support

Transportation Services        

Respite Care        

Total Special Needs        

10

Estimating Financial Support – Personal Needs

B. Personal Expenses 

PrivateSupport**

Comments  

Housing*      

Transportation        

Healthcare/Drugs/Dental/Vision        

Utilities        

Food*        

Personal and Clothing        

Furnishings and Household Expenses      

Hobbies/Recreation        

Private Insurance Premiums        

Travel        

Gifts        

Education/Self-Improvement        

Employment, Business Expenses      

Pets        

Debt Repayments        

B. Total Personal Expenses        

11

The Circles of Life-time Support

The Circleof

FamilyAnd

Friends

Guardian

CareManager

The Professional Circle

CaseManager

Advocate

Trustee Conservator

Personwith POA

CompanionRep

Payee

Who do you wanton the Team?

How will theywork together?

12

Financial Support – for Professional Services

Private Support**

Comments

Non-licensed Companions and Assistants

Attorneys

C. Professional Fiduciaries, Advisors, Guardians, Care Managers, Companions

Guardians (Full or Limited), Conservators

Trustees, Asset Managers

C. Total Guardians, Trustees, etc.

Bookkeepers, Money Managers, Rep Payees

Financial Planners, Investment Advisors, Accountants

Care Planners, Care Managers

13

Family Decisions for a Special Needs Trust

• Trust Funding– When to fund– Which assets to earmark or transfer– Selected investments or investment manager– Tax structure

• Trustee considerations– Corporate vs. family trustee– Successor trustees; flexibility to appoint and remove

• Beneficiary protection is inversely related to long-term flexibility• Establish checks and balances

– Reports to family, guardians and trust protectors– Compensation and reimbursement of expenses

• Trust protector• Remainder beneficiaries including charities

14

Determining Trust Funding Requirements

• Distributions– May vary over time

• Number of years– Depends on life expectancy

• Investment returns– Depends on asset allocation and investments– Trust expenses

• Asset management fees• Administrative fees• Taxes

• Inflation• Remainder value

– Serves as a margin of safety

15

Home Ownership

• HUD and CHFA housing assistance for people with disabilities– HUD Section 8 vouchers for mortgage payments– Low interest loans through CHFA

• Down payment assistance• Renovation and rehabilitation assistance

– Must qualify; income range approximately $15K-$40K– Contact The HERO Alliance, 720-941-8901 www.heroalliance.org

• Inconsistencies between IRC, SSA, Medicaid and HUD regulations require careful planning– SSI and Medicaid eligibility– Guardianship and other forms of protection– Private ownership vs. trust ownership– Companions for semi-independent living

• As assistive technologies develop, semi-independent community living for those with moderate impairment is increasingly a possibly

16

Employment

• Government programs– Colorado Division of Vocational Rehabilitation

– Social Security transition-to-work programs

– School transition programs under IDEA, e.g. – SWAP

• Private resources for skill assessments, skill training, job search, application assistance, job coaching and post-placement assistance– Employment Link, a 501(c)(3) non-profit, see www.emplink.org

– Ability Specialists and other private providers

• Behavior managers or psychologists for social skills

• Community colleges and vocational schools for the mildly impaired

• Over 100 college programs for people with moderate impairment

– E.g. – Eastern New Mexico University at Roswell

– See www.thinkcollege.net

17

Helping Families Understand the Tax Rules

• Income tax on parents– Deductions, credits and the dependent exemption

• Income of the person with a disability– Public benefits – SSDI, SSI– Trust distributions– Earned income credit– Child support– Award of damages from tort claims; structured settlements

• Trust taxation• Gift tax

– Trust funding• Estate tax

– Life insurance included in taxable estate• Generation skipping transfer tax (for grandparents)

18

Considerations in Divorce

• Permanent disability requires life-long child support or a funded trust – Can the parents agree on a life plan? – Expect significant changes in financial support over the child’s lifetime– Retirement, death or disability of either parent– Impact of child support on SSI and Medicaid eligibility

• Establishing, funding and managing special needs trusts– Single trust with corporate trustee or common trustee of his and her trusts

• Life and disability insurance to protect child support– Trust ownership or the spouse receiving child support as owner– Policy premiums included in child support estimate

• Guardianship for the minor child and the adult child if appropriate• Allocation of tax liabilities for future support, e.g. – gift taxes• Coordination of individual estate plans• Common law marriage• Pre-nuptial agreement for subsequent marriage

19

In Closing

Thank youfor making life better

for someone with a disability