Providing Financially for your Special Needs Family Member
By Chuck Yanikoski
If you have a child, sibling, or other family member who is cognitively or physically disabled and unable to provide for him/herself financially, you have a more complex retirement situation than most. There are two basic strategies that can work: impoverish your family member so that he or she will qualify for government benefits, or enrich him or her enough not to have to depend on government benefits.
(For simplicity, let’s assume that the disabled dependent in question is your child – very similar issues apply if it’s a sibling or someone else you care about.)
“Impoverishing” your child sounds cruel, but in many cases, perhaps most of them, it’s the most practical answer. By federal law, special needs children are provided for through local school districts. But once they reach age 22, each state decides about the level of care that’s provided, and it varies dramatically.
Disabled adults are generally entitled, starting at age 18, to Social Security disability benefits (SSI). But these top out at $674 a month (in 2009) and are reduced if the recipient earns any money from work. Eligibility also ends if the recipient accumulates more than $2,000 in financial assets. States supplement federal benefits with medical care, housing, and supervision for the disabled, but it varies by state and by individual case from almost nothing to full residential care.
In general, though, if you want the state to take care of your disabled child, you must impoverish that child. She or he cannot own any substantial financial assets, or have any regular source of significant income.
The consequence is that your child will be at the mercy of the state for as long as he or she lives. This is far better than not having any care at all, but it is hardly ideal. The adult disabled population will grow significantly in coming decades, and even in good economic times, there will be tough competition for resources. So if relying entirely on state benefits is, or has to be, your plan, you need to do it right. Make sure you understand the financial rules, which your state agency for the disabled can explain to you.
Setting your child up financially so that he or she will not need much in the way of state aid is better, if you can afford it. If your child is likely to outlive you, you might want to think about caring for her or him in three stages:
1.While your child is living with you: your child probably does not need his or her own assets, and will probably benefit from SSI payments, and perhaps from state-provided transportation, respite, and other benefits you may be offered.
2.If/when your child needs placement elsewhere: your child, as an adult, is not legally your responsibility any more, and the state will do what it can. But generally there are limits to what the state can pay, and if you want the best placement for your child, you are more likely to get it if you can pay for all or some of it yourself.
3.When you are gone: you will no longer be able to supervise the care your child receives. Perhaps you have a well child, or someone else in the family who will do it for you, but you are lucky indeed if you have someone who will do as a good a job as you. So the more you are able to pay for her or him to receive caring guardianship and to live a good life with good care in a good residence, the more confidence you can have.
The more you and your child age, therefore, the more beneficial it is to find ways to make him or her financially independent of state care.
Sometimes you can have it both ways. If you and/or other relatives have enough money to help your child some, but not enough to make her or him completely financially independent, assets can be placed into a supplementary “special needs trust,” so that your child does not actually own them. The child then qualifies for government benefits, but the funds in the trust, under the direction of a trustee, can be used to supplement those benefits. But whether and how such an arrangement would work depends on what state your child lives in. It is also somewhat risky in that future laws and regulations could negate your intentions, especially after you are gone and can no longer do anything about it.
Whatever strategy you choose, you should consider three main financial and legal instruments: life insurance (especially “second-to-die” life insurance, if you are married), special needs trusts, and guardianships. These topics are too complex to explain in any detail here, but in general terms, there are four main steps to take: creating a plan, drafting the right documents, funding the plan, and administering the plan over time.
You’ll need specialists to help you. Unless you have already started working with an attorney on these matters, check out the Special Needs Estate Planning Guidance System, sponsored by the National Alliance on Mental Illness. It is not a substitute for an attorney, but it presents an organized way for you to think through some of the issues and apply them to your own situation. Then, when you do approach an attorney, you will understand what you need to do, and what the attorney is talking about. To try it, go to: www.nami.org .
If you are married, talk over these issues with your spouse before meeting with an attorney – many spouses are surprised to find that they have very different ideas about how their child should be provided for.
Finally, make sure that other people in your family understand whatever arrangements you set up. A well-meaning relative could leave money directly to your child and thereby disqualify him or her from receiving government benefits.