Advisors need to incorporate the nuances of a special needs trust into their financial planning. For example, it's common to name a child as a continent beneficiary on a parent's IRA, but doing so with a special needs child could potentially disqualify them from receiving government benefits.
Finding an attorney versed in special needs trusts is an important first step toward creating an effective trust. "I'd start by looking at state and local bar associations to find out who the specialists are in this area," says Ted Kurlowicz, an estate-planning attorney and a faculty member at The American College in Bryn Mawr, Pa., which hosted a one-day special needs conference in March. "This is really a specialty area."
Partnerships between advisors and attorneys can work well if both parties know their roles and are on the same page. Tim Fabio, a vice president and financial advisor with J.P. Morgan Investments in New York, works in tandem with attorneys when it comes to his half-dozen special needs clients. Typically, the attorney has the primary relationship with the client and then brings in Fabio and his partner, Rob Decker, a CFP certificant, as investment specialists.
In some cases, the special needs client got a large settlement after suffering a debilitating injury. "Some of these families aren't well off, so they view the money like they just won the lottery," says Fabio. "They don't realize they have a disabled individual needing expensive long-term care. They have a tendency to use the money to support the family rather than the intended beneficiary."
In a sense, a special needs trust is only as good as the trustee appointed to oversee it. But finding the proper trustee isn't as simple as it sounds. "It's not a financial issue as much as it is a competency issue," says Victoria Hoffman, an Atlanta attorney and certified financial planner. The chosen person must be able to understand Medicaid, navigate through the social security maze and have a flair for money issues. Obviously, that's no small order. And, says Hoffman, financial institutions generally don't bother with a special needs trust unless it has sizable assets.
In many cases, parents of a special needs child choose one of their other children as trustee under the assumption they're willing to take on the responsibility and are able to get up to speed on the various responsibilities the job entails. McKeon, the Merrill Lynch advisor, has one client who established a $2 million special needs trust for his child funded by an insurance policy. He named his daughter as trustee, but never told her.
McKeon says special needs cases should often entail a three-part approach involving the advisor and a knowledgeable attorney, along with a nonprofit social services group providing advice and potentially acting as trustee, or at least co-trustee. These groups perform trust administration, and are specialists in dealing with regulations in their respective states.
Regarding McKeon's client, he planned to go over the existing trust with that person and an attorney he knows with expertise in special needs trusts to make sure it's crafted properly. Next, he and the client were scheduled to meet with a social services group, Planned Lifetime Assistance Network of New Jersey, to discuss a possible co-trustee relationship.
Other Needs
Special needs clients require more than just financial guidance. "As planners, you need to understand the psychology of people with special needs children," says Joan Sharp, founder and principal at Life Strategies LLC., a fee-based firm in New Castle, Del. "It's a hard situation for them to deal with, and it causes a lot of divorce."
Sharp believes that special needs cases will become a growing area as these situations become more mainstream. As such, she looks for other avenues that add value for clients such as finding programs ranging from dance groups for special needs children to support groups for their parents.