There's an elephant in the room with many special needs families and it's putting millions of young and adult children in a precarious state.

MetLife's 2005 survey, "The Torn Security Blanket: Children with Special Needs and the Planning Gap," found that 88% of parents who have children with special needs haven't set up a trust to preserve eligibility of government benefits, 84% haven't written a letter of intent outlining an agreement for the child's future care, 72% haven't named a trustee to handle the child's finances and 53% haven't identified a guardian for their child. 

"Most parents are focusing on day-to-day needs, and often, long-term planning goes by the wayside," says Michael Beloff, CFP, a financial advisor with MetLife's Barnum Financial Group in Shelton, Conn. About 32% of parents spend more than 40 hours a week caring for their special needs child-the equivalent to a second full-time job, according to the survey. Many parents also continue to have difficulty finding comprehensive guidance related to special needs planning.

Getting it right, though, for the 35 million Americans with severe disabilities (a U.S. Census Bureau statistic) is getting more important in the face of rising health care costs, shrinking state budgets that are cutting benefits and services, and longer life expectancies for individuals with many kinds of disabilities.

An estimated 730,000 Americans age 21 or younger have an Autism Spectrum Disorder, according to a 2009 report funded by the Centers for Disease Control and Prevention (CDC) and the U.S. Department of Health and Human Services. Average life expectancy for individuals with Down syndrome, who are prone to early onset Alzheimer's disease, is now 56 years with many reaching their 60s and 70s, says the National Association for Down Syndrome.

Beloff's journey into special needs planning began nearly a decade ago as he started researching what he needed to do to protect his now 12-year-old autistic son. The financial advisor, who formerly practiced law, realized how little special needs financial planning information was out there and channeled his growing expertise into a niche practice. He joined Barnum in 2009 partly because of its corporate commitment to this market. MetLife's National Center for Special Needs Planning currently has approximately 200 specially trained Special Needs Planners affiliated with it.

MetLife's Web site has a special needs calculator that can give parents a preliminary look at how much money they'll need to save for their child's care and quality of life. Looking ahead with clients at what their children's capabilities and needs may be in the future is a key component of the planning process, says Beloff. He's also assisted them in getting a better handle on current medical expenses.

One of his clients, a business owner, was paying over $60,000 a year for non-covered Applied Behavioral Analysis (ABA) therapy for an autistic child. The client had too much income to deduct it as a medical expense and was ineligible for a Flexible Savings Account. Beloff discovered the client could fund a supplemental health insurance plan and deduct the premiums as a business expense-resulting in a $25,000 a year savings.

A big mistake more affluent parents may inadvertently make is disqualifying their special needs children from government benefits by providing them with assets and income that exceed eligibility limits. To qualify for Supplemental Security Income (SSI) and Medicaid, disabled children age 18 and up cannot have more than $2,000 in assets (cars and homes are exempt).

Even if parents don't need SSI and Medicaid for their children, they should consider making them eligible so they can participate in government-funded training programs, housing arrangements and transportation that could foster independence and self-esteem, says Minoti Rajput, CFP, founder and principal advisor of Secure Planning Strategies in Southfield, Mich.

Special needs planning had been in the back of Rajput's mind since her niece was diagnosed with autism in the late 1970s. Then in 1989 she discovered three clients had special needs children and no clue what to do. "That put a bug in my head that I had to do something," says Rajput, a pioneer in the field who has assisted over 800 special needs families nationwide.

Beloff and Rajput are big fans of special needs trusts, also known as supplemental needs trusts, which were established by the Omnibus Budget Reconciliation Act of 1993 (OBRA '93). Properly structured, a special needs trust can protect benefits and pay for anything except the basics covered by SSI (food and shelter). It covers medical expenses not covered by Medicaid, and also covers travel and an advocate or companion. With the trust, for example, you could take the child with special needs to a ball game, but you could not buy him a hot dog, says Beloff.

Parents often fund special needs trusts with permanent and term life insurance. Many of them use a second-to-die policy, which is even available to divorced parents and parents who've never married, says Beloff.

Rajput strongly advocates making a special needs trust stand-alone rather than burying it inside the parents' estate trust. Let's say a child's mother dies and then her grandmother dies, leaving money to help pay for her care. But since her special needs trust is inside her parents' estate and her father is still alive, it isn't activated yet. "You have the pot and coffee but nowhere to put it, no cup," she says.

Parents should seriously consider whether making the child's sibling the trustee and the ultimate beneficiary will pose a conflict. While trusts with over $1 million in assets often use a corporate or bank trustee, an option for special needs trusts with less assets is a pooled trust. Examples include the Planned Lifetime Assistance Network (PLAN) of Connecticut and the UJA-Federation of New York Community Trust for Disabled Adults. With a pooled trust, a portion of the assets may have to be donated to an organization, says Beloff.

Parents should do special needs planning early, before they start running out of money themselves, says Rajput, who recalls that many who attended her first workshop were in their 60s. She also notes that none of her clients who've passed away adequately prepared their other children for their role as guardian of their special needs sibling.

Both she and Beloff encourage special needs clients to draft a letter of intent, a non-binding planning tool that can include a child's rituals, family medical history, future job offers and other information. "It's basically a love letter to a future caregiver. ... There's so much tremendous knowledge locked in parents' brains," says Beloff.
 
Adulthood Challenges
Under the Individuals with Disabilities Education Act (IDEA), children under age 21 who haven't graduated from high school have the right to a "free appropriate public education." After that, parents in most states must prove their child qualifies for resources and find them on their own. "It's a much different world and parents usually are not prepared for that," says Beloff.

He encourages parents to get involved with their local service agencies before their children transition to adulthood. "These are the people who'll be looking after your children for the rest of their lives," he says. Since 2003, he has served as a director on Abilis, an agency for people with developmental disabilities and their families in lower Fairfield County, Conn.

Rajput is glad Michigan funds special needs education until age 26-the only state to do so, she says. A tough topic she's broached with clients is getting housing matters settled sooner rather than later. "Even if it's heart-wrenching, you may want to start a residential separation. Love is tough. But you don't want a child to go backwards when a parent passes away," she says. A client who wants to get her daughter set up in an apartment told her, "I want to be close enough to pick up the pieces when she falls. I can't do that when I die."

Some of the most difficult cases involve mental illness, says Rajput. "It's different from a financial planning view and how you approach parents." Parents are typically older, since illnesses such as schizophrenia and bipolar disorders often don't present themselves until adulthood. Constant tension may be present if the child won't acknowledge the disease or has alienated siblings. It's also harder planning for someone who isn't always disabled and may have assets.

Practice Tips
Beloff suggests financial advisors look to the Special Needs Alliance and the Academy of Special Needs Planners, attorney organizations, to learn about special needs and make contacts in the legal community. That's what he did. His marketing suggestion: Develop good, compelling content that you can present to school districts and agencies that provide services and education. He has also spoken about financial issues at events held by the National Autism Association, the Connecticut Down Syndrome Congress and other groups.

"After 20 years, I'm still learning," says Rajput, who has taken the time to study many different disabilities at length. Knowing the ins and outs with special needs trusts is also critical. "We're not trying to practice law, but it's hard to rely on attorneys alone. They don't specialize in financial matters, and these things go hand in hand," she says.

Admittedly, this isn't a field for everyone. "You have to be social service oriented and balance your practice with other clients to make money," says Rajput. Still, advisors should learn enough so they're comfortable querying clients about special needs concerns and directing them toward additional help.