According to the Wealth Counsel's 4th Annual Industry Trend Survey, published in January 2011, one of the top ten reasons clients plan their estate is to provide for a special needs family member. In 2010, the U.S. Census Bureau provided data which calculated the total number of disabled individuals in the U.S. to be 54 Million, or 19 percent of the civilian, non-institutionalized population. According to the same data, five percent of children ages five to 17 are disabled; 10 percent of people ages 18 to 64 are disabled; and 38 percent of adults 65 years or older are disabled. Although the words "disabled" and "special needs" have distinct meanings, we use the words interchangeably because the issues of safeguarding government benefits is so important in either situation. One family's adult child was disqualified from Medicaid when he unexpectedly received a $10,000 bequest from an automobile insurer as the result of an accident. It took six months to re-qualify him for the benefits he needs; long enough to require the parents to obtain a home equity line of credit to be used for the high cost of their child's medicines.
As financial advisors to parents of special needs children or disabled individuals or even clients concerned about their own incapacity in the future, it is important to be able to speak with your clients about the steps they can take to prepare for the future and to educate them about the estate planning tools that are available to them to properly plan.
Caring For A Disabled Loved One Or Special Needs Child
The first step that every person caring for a child with special needs or a disabled loved one should take is to build a network of experts to advise them. A team of experts can be their lifeline in a crisis and can assist them in accessing the resources available to them and their loved one. First and foremost, your client will need to begin working with an attorney who specializes in trusts and estates planning, and preferably one that has familiarity with planning for individuals with special needs.
When we first began working with our clients who had a daughter with special needs, we explained to them that a properly drafted estate plan was critical because it would provide for their daughter's continued care if something were to happen to the both of them and they could no longer care for her. Their eldest child was too young to care for his sister, and their other family members were mostly living overseas. This couple needed a plan to provide for guardianship and care of both of their minor children as well as one that serves to safeguard their disabled child's eligibility for government benefits.
The government benefits available to individuals with special needs vary by locality, but may include disability pay, food stamps, or subsidized housing, just to name a few. If a parent wants to ensure a particular living situation for their child after the parents' death, that can be addressed during the estate planning process too. Some clients express concern about government funds allocated to housing or a fear that an individual will only be able to live in a state-run housing facility. Given the choice, many clients prefer to select a higher-standard of residential care. To that end, we craft special language in a trust to provide for a better living arrangement, even if the person's monthly benefits check may be reduced by an amount equal to the payment made for the better housing.
Estate planning options to provide for individuals with special needs include, in part, having the parent create his or her own revocable living trust with special needs provisions benefiting the loved one (to take effect after the death of the parent) or a separate special needs trust for the loved one (to take effect immediately). The decision of what document is best for the situation is determined after consultation with an attorney and consideration of various factors such as how the trust will be funded, whether a grandparent (or other relative) wants to make gifts to the disabled individual, and whether or not an inheritance is anticipated.
A trust document is a great vehicle, because it allows a client to be specific and detailed in their desires. For the clients whose daughter had special needs, we drafted a separate Article within the individual revocable trust which provided for the daughter's care and for the intended continuation of her eligibility for government benefits. Also, we added a provision uniquely tailored to the child: the daughter's disability was quite severe, and left her unable to communicate with her parents, except they could see her light up whenever they played music for her. We specially drafted a provision in her trust that instructed a successor trustee to pay for music therapy and MP3s/CDs to feed her love of music and to comfort her. This is just an example of the flexibility in drafting that is available through a revocable trust.
A useful exercise that you can suggest to clients is to think about long term planning such as writing out their loved one's daily schedule. What would a third person need to know if the client wasn't there to care for the incapacitated individual? Is there a specific morning routine that helps stabilize the individual's daily life? A particular afternoon snack the child needs to eat? This exercise will also help to inform the estate planning process. If you are interested in helping clients with pressures facing a family with a special needs individual, consider certifications that will allow you to develop a specialty with special needs and long term planning.
It is also not uncommon for us to meet a client whose child is not typically developing and is quickly approaching the age of majority. Frankly, once the child enters the teen years, the parent finally has the time to think about the future -- the early years are often incredibly stressful with little time to think about estate planning. If your client's special needs child or disabled loved one is over the age of 18, consider suggesting a conservatorship or guardianship. Conservators and guardians have court-ordered authority and responsibility to manage the affairs of those who cannot make their own decisions about finances or health care. (If your client's child is approaching 18, the parents will want to begin the process at least six months prior to their 18th birthday).
Planning For Incapacity Or Disability
If you're working with a client concerned about their own well-being as they age, and wondering who will care for them if they can no longer take care of themselves, their fears can be lessened with the execution of proper estate documents. Recently, an 82 year old woman came to our firm, accompanied by two young women who were her friends, but not related to her. The elder woman was single, living alone and had never been married. She didn't have any children or siblings, and her closest relative was a cousin out of state. She had been receiving help from the two young friends informally, but as she aged she wanted a legally enforceable document expressing her wishes.
The most important step that any person can take in planning for their future incapacity or illness is to have an attorney prepare an advance directive, health care power of attorney and durable general power of attorney. Where loss of capacity is a concern, time is of the essence to execute these documents as quickly as possible.
A joint advance directive/health care power of attorney allows a client to provide explicit directions regarding their health care. Through this document, your client appoints an "agent" or "attorney in fact" to stand in their shoes, so to speak, and make decisions on their behalf when they are no longer capable of communicating their own wishes. The agent will have a duty to follow the instructions that are contained in the documents. To overcome HIPAA privacy requirements, medical facilities and the staff will need to know that they are authorized to speak with an agent before sharing medical information with them; a properly drafted health care directive will provide the necessary consent. It is important to remind your client to keep the health care power of attorney current; in our state of Virginia, the advance directive provides even more flexibility than was previously offered even two years ago.
In addition to giving instructions as to medical care, the advance directive will also provide for your client's final wishes. This includes whether a person wants their life extended by artificial means (i.e., life support), if a person wishes to be an organ donor, and other practical considerations.
A durable general power of attorney is a similar document, which relates to financial decisions. Again, a person will select an agent, or co-agents, to act on their behalf and make financial decisions for them. A general power of attorney is very broad and provides extensive powers to the appointed agent. The powers generally include, though are not limited to, handling banking transactions, access to safe deposit boxes, buying and selling property, purchasing life insurance, settling claims or lawsuits, and filing tax returns.
All too often we see clients who believe that they are accomplishing succession planning by simply adding an individual to their bank account as a joint-owner. Joint ownership is not a good idea for many reasons and clients should be aware of the often unintended consequences. While the joint-owner will have full access to the bank account during one's life, they will also own the remainder of the account upon the owner's death, by right of survivorship. It is better to give the agent the authority to access the bank account during the principal's life and have that power lapse upon the principal's death.
Further, a general power of attorney may be a "springing" or effective immediately. Many of our single and elderly clients prefer the springing power of attorney, which limits the agent to making financial decisions only after the client requests, in writing, that the agent takes an action, or after the client becomes incapacitated. This appeals to clients who may be reluctant to give up control over their financial assets until it is absolutely necessary for them to do so. Many married couples will benefit from a non-springing durable general power of attorney which allows the agent to take financial action immediately. Thus, this type of power of attorney is best for those who have less concerns regarding abuse of authority by their spouse or other agent.
Another tool that your client should have in their estate planning arsenal is long-term care insurance, which provides emotional security, knowing funds will be available for proper care, and financial security, knowing that his or her healthcare needs will not wholly deplete their assets in the case of a long term illness. There is no time like the present to consider insurance options. The longer your client waits, the more likely it is that they will lose eligibility for certain plans or the cost of the plan will increase. If a client already knows that illnesses like Alzheimer's or Parkinson's run in their family and that long term care may be a reality for them, then they will want to address this option as soon as possible.
Encourage Your Clients To Prepare An Estate Plan
Financial planners and estate planning attorneys can work hand in hand to ensure the successful transition of wealth from one generation to the next. Families impacted by an individual with a mental disability, incapacity or other special needs, need to see an estate planning attorney as soon as possible. Setting up powers of attorney is quick and easy and relatively inexpensive. Creating a revocable trust with special needs provisions requires more time and is more costly, but can mean the difference of whether or not a loved one obtains the necessary government benefits available to them at the time of your client's death.
Lori K. Murphy, shareholder, and Lauren K. Keenan, associate of Bean, Kinney & Korman, both practice in the areas of wills, trusts and estates, often with an emphasis on clients addressing special needs concerns. For more information on their practices, or to contact them, please visit http://www.beankinney.com.