News and Knowledge

Note to readers: In each issue of The OARacle, we provide a helpful resource on a topic of interest within the autism community. This month’s article focuses on special needs planning for families affected by autism. Special thanks to Theresa Waddell for her contribution.

No one plans to have a child with special needs. When this happens, parents often struggle not only with caring for their child, but also with realigning their hopes and dreams for that child’s future. Will he be independent? Will she have friends? Will he be able to form a special relationship with another person? What will her education be like?

Tax, retirement, and estate planning may seem almost irrelevant compared to the daunting tasks of caring for your child, negotiating the educational system, finding the right medical experts, and facing the seemingly insurmountable stacks of medical bills and insurance statements.

But taking the time to think about the future gives you a chance to hope and dream again. What do you want life to be like when your child is older? Perhaps, with the help of a loved one or a personal care assistant, he could own and live in his own home. She could go to college. You could retire comfortably in the knowledge that your child will have a high quality of life.

More than dreaming about the future, you need to plan for it. By planning, you will position your family and yourself to attain a more secure financial future. Below are some tips for families to help them create this important plan.

Find professionals who are experts in special needs planning — Ask people you know for referrals to financial advisors, attorneys, and CPAs who specialize in special needs planning. The first meeting with these professionals is usually complimentary, and it allows you to determine whether you are comfortable with the working relationship. Ideally, the professionals should work as a team. By communicating with each other, a family’s special needs professionals can ensure that all the pieces of a special needs plan are in place and working as intended.

Determine whether you should set up a special needs trust or a traditional support trust for your child — Needs-based government programs such as Supplemental Security Income (SSI) and Medicaid do not allow persons with disabilities to have more than approximately $2,000 in countable assets. As a result, some parents disinherit their special needs children and leave money to siblings or other relatives on their behalf, bequeathing “morally obligated gifts.” These legacies, by their definition, are not legally binding and can be attached through divorce, bankruptcy, or lawsuit. A special needs trust allows parents to provide for their child while preserving public benefits. However, if your child will not qualify for government benefits based on a strict interpretation of disability and calculation of income limits, you may still wish to set up a traditional support trust.

The following topics assume that a family has determined that a special needs trust is appropriate. Whether you establish a special needs trust, a traditional support trust, or no trust at all for your child, these general guidelines remain important:

• Prepare and update legal documents — All families should have legal documents such as wills, trusts, powers of attorney, and advance medical directives. These documents should be updated as your circumstances change. An improperly drafted special needs trust could cause the loss or reduction of important government benefits such as Section 8 housing, SSI and Medicaid.

• Review and revise financial assets — All assets should be reviewed to ensure that distributions made during life or upon death will not cause the loss of government benefits. Assets intended for the child with disabilities should be left to the special needs trust. Certain assets such as custodian accounts may need to be spent or shifted to preserve government benefit eligibility. You should also ensure proper primary and contingent beneficiary designations on all life insurance policies, 401(k) plans, tax-sheltered annuities, retirement plans, and investment accounts.

• Identify a future guardian, conservator and trustee for your child — The choice of guardian, conservator, and trustee is critical to the future care and well-being of your children with special needs. Emotional, personal, and suitability factors need to be considered. The laws pertaining to guardianship, conservatorship, and trustees vary from state to state. Since the administration of a trust is a highly specialized skill, you may wish to have co-trustees: a family member as a trustee appointer with the authority to hire and fire the corporate trustee and a corporate trustee such as a trust company or a bank trust department as administrator to the special needs trust. Administrative trustees of special needs trusts must be knowledgeable, skilled, and careful in managing fund assets and distributions, as improper distribution can result in a loss or reduction of government benefits.

• Develop a written Letter of Intent that will assist future caregivers — The Letter of Intent serves as a blueprint that provides valuable information about the daily life of your child in the event that a new caregiver has to step in and manage your child’s day-to-day activities. In addition to vital information regarding your child’s physical and mental status, the Letter of Intent should include your child’s likes, dislikes, hobbies, recreational and social preferences, allergies, medications, physicians, medical history, as well as your hopes and dreams for his or her future. The Letter of Intent should also detail your thoughts on a variety of matters such as dating, religion, sex, future living plans, and academic- and job-readiness skills. While it is not a legal document, the Letter of Intent is important for future caregivers and for your child.

• Develop plans to maximize community-based supports and available benefits — Every special needs plan should seek to maximize community-based resources such as parent support groups, states’ early intervention programs, swimming classes designed for children with special needs sponsored by states’ parks and recreation departments, Little League’s Challenger Baseball divisions, and other privately or publicly-funded or non-profit schools and programs designed to meet your child’s specific needs. I urge you to ask other parents and professionals about local resources. Identify social, recreational, vocational, and other community-based resources that will enhance your child’s life, empower him or her, and lead to an increased sense of fulfillment. In some states, for example, autism qualifies as a medical condition that allows the family to have a handicap parking tag, thus, parents can better ensure their child’s safety in parking lots. Disney World and other amusement parks issue a special pass to the families of individuals with autism or other special needs that allows them to avoid the long lines at the amusement rides.

• Coordinate planning efforts within your circle of family and close friends — By sharing your special needs planning details with family and close friends, you can avoid misdirected bequests from well-intentioned grandparents, aunts and uncles, siblings, and godparents. Assets should not be left to persons with disabilities, but rather to their special needs trust. In some states, the family of a minor child may be surprised to discover that, if their child inherits property in his or her own name, the parents will have to go to court to establish guardianship of their children’s assets. In addition, some courts may not allow the inherited assets to be spent until the child reaches the age of majority, a stipulation that may cause some children with special needs to be ineligible for government benefits.

• Provide funding to ensure lifetime care and quality of life — A special needs trust that has no assets is worthless. You should ensure that the trust is properly funded with assets, which can include your retirement accounts, your home, or a term or second-to-die insurance policy that pays benefits when both of you are no longer around to care for your child, to provide for your child’s supplemental needs.

• Review and update your plan regularly — As your circumstances, and your child’s prognosis, change, so should your plan. At a minimum, update the Letter of Intent annually. Some experts suggest doing this on your child’s birthday as a convenient reminder. An up-to-date, comprehensive plan will allow your family to maximize benefits from the legal, social, and financial resources that are available. The plan also provides the peace of mind that comes with knowing you have done everything you can to ensure your child’s future well-being.

The following examples illustrate the types of options available to families interested in special needs planning:

*All names have been changed

Ten years ago, shortly after Nicole* had given birth to their second child, she and Joe received the diagnosis of autism for their 2-year-old son Jonathan. They sought an attorney who helped them prepare a simple will leaving all their assets to be equally divided between the two children, with Jonathan’s share to go into a special needs trust that was to be set up at their death.

Nicole and Joe asked their close friends Martha and Bob to be guardians of their children should the need arise. At the same time, they aggressively pursued all available therapies, including ABA and dietary interventions, to help Jonathan. As the years progressed, they determined that Jonathan needed lifetime care.

Jonathan does not currently qualify for government benefits based on his family’s resources. With all his assets in a special needs trust and none in his own name, he would likely qualify for government benefits, which would pay for his basic needs including Supplemental Security Income (SSI), Medicaid, and Section 8 housing. Funds in the special needs trust will provide for Jonathan’s supplemental needs.

Martha and Bob have expressed concern over knowing how to care for Jonathan on a day-to-day basis. With a Letter of Intent, Nicole and Joe can provide clear guidance to their friends. They should also identify personal and corporate trustees to ensure that trust funds will be properly managed to avoid potential loss of government benefits. Finally, they should engage a financial advisor to help the trustees invest the assets to maximize the lifetime benefit to Jonathan. With a Letter of Intent and the help of legal and financial professionals, Martha and Bob will be able to care for Jonathan in accordance with Nicole and Joe’s wishes.

Charlotte and Ben had their legal documents prepared when their son Zack was born. Charlotte’s sister, who has children about Zack’s age, is a contingent guardian, a role she will have to assume if both Charlotte and Ben were no longer around to care for Zack, and her brother is trustee of a trust to benefit Zack and any other children they may have. Because they expected to be able to pass on a sizable estate to their children, Charlotte and Ben’s attorney had suggested the trust as a way to minimize the taxable estate, as well as to help their children make financial decisions in their adult years. They also established a Uniform Transfers to Minors Account (UTMA) and a beneficiary IRA from Zack’s grandfather.

At age three, Zack was diagnosed with PDD-NOS. He has responded well to therapies and continues to make significant progress. Currently six, Zack attends kindergarten at his neighborhood school.

Charlotte and Ben hope that, based on Zack’s progress, he will be able to go to college and work as an adult. Because of his trust, his UTMA, his beneficiary IRA, and his potential earnings, Zack may be ineligible for government benefits. While this would mean that Zack is financially independent, Charlotte and Ben are not certain that the irrevocable traditional support trust they created when Zack was born is appropriate. It requires the trustee to disburse funds to Zack starting at age 25 and ending at age 35, at which time Zack will be completely on his own.

They have discussed the possibility that one of Charlotte’s other sisters would be better able to care for Zack since she has older children, but Charlotte and Ben have not changed their will. They have not prepared a Letter of Intent and have not identified a corporate trustee. They are working with a financial advisor and have mentioned to her brother that they would want to continue this relationship.

Charlotte and Ben should review their legal documents with an estate attorney who specializes in special needs planning, and amend their will if they determine that a different contingent guardian is appropriate. A Letter of Intent would also provide guidance for Zack’s day-to-day care. Finally, their financial advisor suggested a special needs trust funded by a term life insurance policy that would allow them time to evaluate Zack’s ability to become fully independent, without compromising other assets.

Theresa C. Waddell, CMFC is a Senior Financial Advisor with Waddell & Reed, Inc., a national financial services organization founded in 1937 located in Vienna, Va. She joined W&R in 2000 and earned her Chartered Mutual Fund Counselor designation in 2002. Prior to working with W&R, Theresa was a CPA and auditor for two international non-profit organizations and a Big Eight public accounting firm. Theresa lives in Arlington, Va., with her husband and their three sons, two of whom have special needs. She is an active member of the Virginia Society of CPAs, Toastmasters, and the Autism Society of America Northern Virginia Chapter, and is learning ASL and cued speech. For more information about Waddell & Reed, visit its Web site, e-mail Theresa or request more information by mail at Waddell & Reed, Inc., 8133 Leesburg Pike, Suite 520, Vienna, VA 22182, 703-556-4800.