Six years ago, Jackie and Alan McDonald wondered how they would pay for their son Brendan’s college education. Today they stay awake at night worrying about how they will afford to take care of him for the rest of his life.
Brendan was 16 years old when he was driving too fast to a friend’s house near his Charlotte, N.C., home. The road curved and Brendan hydroplaned across the slick road, finally crashing into a tree. The impact left him with numerous broken bones, internal injuries and, most devastating of all, brain damage.
Now 22, Brendan has short-term memory problems. Multitasking is a huge challenge. While his mother hopes he will someday be able to live independently, doctors say complex tasks such as driving a car will forever remain outside his capabilities. This summer Brendan will start classes at the local community college, but the McDonalds have no guarantee that their son will ever be capable of finding gainful employment.
And so Jackie, 55, and Alan, 62, find themselves trying to plan, not just for their own later years, but for the rest of their son’s life, an estimated 50 or so years.
They are not alone. The McDonalds are among the parents of an estimated 717,000 developmentally disabled adult Americans (including those with Down syndrome and autism) living with caregivers over the age of 60.
“We were told that we’d need $1.8 million to [support him] for the rest of his life,” Jackie McDonald says. “I don’t know who has that kind of money. I remember when I heard that figure, I said, ‘Who in the world prepares for something like that?’”
No one prepares for it, but once it’s needed, planning is crucial. Government programs such as Medicaid and Supplemental Security Income (SSI) can help defray some of disabled adults’ expenses. But SSI barely covers the rent in a group home; the federal monthly benefit is currently $637, with some states providing additional funds. Money you set aside can help save your child from a life of poverty. On the most basic level, it can provide extra funds to live comfortably and participate in hobbies. Or, if you plan early and well, it can fund a more comfortable lifestyle in a private-pay assisted living facility, where fees can run $3,000 a month.
No matter how old you are, it’s never too late to start saving for your child’s future. The first step is creating a financial and legal plan for the child.
“It is better to have your plan than what I call the government’s plan,” says Ryan Platt, a MassMutual certified special care planner with Hinrichs Flanagan in Charlotte, N.C. “In that case the child becomes a ward of the state. The state will determine where they will live, who will take care of them and what type of lifestyle they will lead. It is usually not the situation that parents would like to leave their child in.”
“One of the hardest stresses we’ve had to deal with is making sure he’s taken care of once it’s our time to go,” says Jackie McDonald. “A year ago we set up a trust to help prepare for his future. Now we know Brendan is protected in case something happens to Alan or myself. That helps me sleep at night.”
Making a special needs financial plan
How do you begin? While securing your disabled child’s financial future can seem like a daunting task, professionals trained in dealing with the specifics of special needs trusts, including eldercare attorneys, can help. The Academy of Special Needs Planners and the Special Needs Alliance both can put you in touch with qualified experts.
Here is a checklist of what should be in your plan:
1. Establish a trust. In order to qualify for government benefits such as SSI and Medicaid, your child can never show that he has more than $2,000 in the bank. A special needs trust allows you to set aside money for your child’s future expenses without putting his government benefits at risk. There is no limit to how much money a trust can manage. A trust is protected from creditors, including credit card companies, and cannot be considered an asset as part of a divorce proceeding if your child marries.
There are essentially three kinds of trusts: a first-party trust funded by the disabled person; a third-party trust funded by a relative or other interested party; or a pooled trust, which is managed by an outside trustee, often a nonprofit agency.
A first-party trust is best if the disability happened later in life, after your adult child already gained assets such as a home. It protects his personal funds while guaranteeing access to government benefits. The caveat is that a first-party trust must reimburse Medicaid, after the disabled person dies, for the medical bills it covered.
A third-party trust can be funded by parents or anyone except the beneficiary. This trust does not have to reimburse the state and can be willed to another party when the disabled person passes on.
A pooled trust is often used when a current trustee cannot find a family member to take over the trust in case of his or her own illness or death, and cannot afford to hire a private trustee. The pooled trust is managed by a nonprofit organization skilled at trust maintenance.
2. Name your successor. Every trust is managed by a trustee who determines how the money will be spent. In most cases this is a parent. But a trustee should choose a successor earlier rather than later. This way the trustee-in-waiting will learn what goes into managing the trust and will be ready to take over in the event of your illness or death.
“A trustee doesn’t have to have any specific professional expertise, but the person does have to be good with money,” says Karen Greenberg, director of Prosperity Life Planning, a not-for-profit corporation dedicated to teaching families how to plan for disabled children’s futures. “They have to have a good heart and an understanding of the child’s special needs.”
If your named trustee can be relied upon to look after your child’s well-being but isn’t good with the financial stuff, consider a co-trusteeship, says Harry S. Margolis, an elder law attorney and cofounder of the Academy of Special Needs Planners, which keeps planners up to date on current law and helps connect clients with planning professionals. In this scenario, a trust company is hired to handle fiduciary responsibilities such as managing investments, filing tax returns, making disbursements and budgeting.
In addition to naming a successor trustee, designate a successor guardian as well. The guardian is responsible for making medical decisions for the disabled person.
3. Create a letter of intent. Ensuring that your child’s daily needs are met after your passing is just as important as protecting his or her financial future. Compile a list of doctors’ names and medications as well as the names of friends and enjoyed activities. Outline your child’s daily routine so that the normalcy of daily life may be maintained.
If the plan is for your disabled child to move into a group home or other facility, make that transition happen before your death rather than after.
“When your child is in their 20s or maybe early 30s is the best time to place the child in an appropriate setting,” says Greenberg. “This is better than waiting until a parent dies, or needs to go into a nursing home themselves, and then all of a sudden you tell the child with the disability, ‘Oh by the way, tomorrow you have to live in this other place.’ That’s scary.”
4. Write a will. If you don’t have a will, you put your child’s benefits at risk. The courts will then likely divvy up your estate equally among your survivors with no accounting for your child’s special needs trust or the $2,000 rule regarding federal benefits. In your will, leave money to your child’s trust instead of obligating your other children to care for their sibling. This way your children feel like they can spend their inheritance guilt-free, and it also can help avoid disputes between siblings over who should pay for what care.
“The problem with a morally obligated gift is that the other children get an inheritance, but it is not totally theirs,” says Margolis. “It can also create ruptures in the family, especially if the children that inherit do not agree on how to care for their disabled sibling.”
5. Consider a second-to-die life insurance policy. This kind of policy, which only pays out after the death of both spouses, is cheaper than a standard policy, Platt says. And buy a policy earlier rather than later. The younger you are when you start, the cheaper your premiums will be. Remember to name the trust as the beneficiary.
6. Ensure that your child remains asset-free. Check over all your assets—life insurance policies, IRAs, annuities, pensions—and make sure your child’s trust and not your child specifically is named as the beneficiary, Greenberg says. Inform all family members to do the same and to make sure that they do not bequest anything in their will to the child directly, but rather to the trust.
“Sometimes there is a well-meaning aunt who thinks, ‘I’ll leave $10,000 to my nephew, who has a disability. I think that will help him a lot,’” Greenberg says. “That $10,000 could throw that child off benefits, and not really provide any difference in his quality of life.”
7. Budget for your child’s future. The major factor in determining how much your child will need is figuring out where he will live. Private-pay assisted living facilities can cost $3,000 a month, but costs can be minimal if a family member offers to take him in. Estimate an annual cost and then multiply that by your child’s life expectancy, says Margolis. For example, a person with autism has the same life expectancy as the general population—78 years. But the average person with Down syndrome lives to only 60.