At some point, many families will confront a medical or personal-care expense that's beyond what they ever could have imagined.
It might be a child or grandchild born with special needs. Or a beloved husband or wife diagnosed with a debilitating disease.
Facing these challenges, ordinary estate planning flies out the window. You need a specialist who understands not only the financial needs but also the complicated emotional state of all the family members. A spouse's illness might eat up the family savings. A child with special needs could absorb all the parents' time and money, at the expense of healthy children. Parents might disagree about who should become the future caregiver or trustee of the child with special needs.
"The challenges of raising children with special needs often break up marriages," says Michael Walther, a financial planner and founder of Oak Wealth Advisors in Deerfield, Ill. "I'm sorry to say that it's usually the husband who checks out. Mom becomes the primary caregiver." And all too often, caregivers haven't made a financial plan.
Where to begin?
Your first move, when dealing with any type of disability, is to search the Web for national and local groups dedicated to the disease or disability you're facing. These groups have a wealth of knowledge about benefits. There's also a helpful list of resources at Oakwealth.com.
Families with modest incomes should apply for Medicaid. Every state handles the program differently, says Sherri Schneider of Family Benefit Solutions in Buffalo Grove, Ill. Parents with higher incomes or assets might not qualify, but children and adults with disabilities can get Medicaid independently — regardless of parents' wealth — starting at age 18. They also can qualify for Supplemental Security Income, or SSI, a federal program for people with disabilities and limited resources.
Trusting in a trust
A huge concern is how to pay for care if you die before your child does. Typically, the best plan is to create a special-needs trust. You might fund the trust with money you're leaving in your will, current savings or a life insurance policy. It's critical that the trust be drawn by a lawyer who knows the disability rules. To qualify for, and keep, their Medicaid and SSI, children and adults with disabilities have to have virtually no money in their own name.
Parents, relatives or friends can contribute to a third-party special-needs trust. Because the money never belonged to the child, it won't interfere with his or her government benefits. The trust can cover "extra" quality-of-life needs, such as personal care, gifts and travel. If the child personally comes into money, from an inheritance or an insurance settlement, that can go into a "self-funded" special-needs trust. The child continues on Medicaid or SSI, but when he or she dies, the government reaches into the self-funded trust to recover its money. That's why no one should leave money directly to the child. It should all go to the third-party trust.
As for insurance, caregivers need a "permanent" policy that covers them for life. Whole-life coverage is a good choice — its premiums and benefits are guaranteed. Universal-life policies permit a variety of payment schedules that might or might not be enough to fund the policy in later years.
Please, don't let a special-needs planner or adviser at a financial services company talk you into buying more insurance than you need. (You might be shown a "financial plan" that is nothing more than a sales document.) Your policy should fund only the "extras" that you want the trust to pay.
If you're leaving a modest amount of money, consider trusts offered by nonprofit organizations for people with disabilities, such as The Arc or the National Plan Alliance. The organizations manage the trust and work with the family on a general plan of care, says Marty Ford, The Arc's head of public policy. For larger sums, check the Special Needs Alliance for a lawyer who has experience with these trusts.
For a spouse with a disabling disease, you also need a care plan, including insurance in case you die first. Check the National Academy of Elder Law Attorneys. Ask for a lawyer who can tell you if your spouse qualifies for Medicaid's nursing home coverage. Pay special attention to your spouse's health care proxy and living will, says Martin Shenkman, an attorney in Paramus, N.J. The care you want early in the disease might differ from what you want later. Your spouse should control personal medical and financial decisions as long as possible, he says. Sign forms while your spouse still can.
Jane Bryant Quinn is a personal finance expert and author of Making the Most of Your Money NOW. She writes regularly for the Bulletin.
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