Why Having A Plan For Those With Special Needs Is Important (30:41)

Transcript

Brian Leitner: Welcome to Your Life, Simplified. My name is Brian Leitner, and I’ll be the host of this podcast. Today’s podcast is all about special needs planning, and I have two guests with us, two senior wealth advisors from Mariner, Kirk Boster and Cory Allen. Gentlemen, thanks for being here. The show is about special needs planning. You both have an affinity toward this topic. Can each of you spend a minute or two talking about what you do and how you got involved in special needs planning?

Kirk Boster: Well it’s interesting for me because it’s coming up on about 12 years ago that our first child was born, and our daughter surprised us by being born with Down Syndrome. As you can imagine, there was a little bit of head spinning that was going on, and my wife and I suddenly found ourselves in the world of special needs and what all that meant. It’s something that’s very near and dear to my heart.

Cory Allen: I got involved with special needs planning when I realized that in our local area the needs were underserved. The financial planning quality and the options for families with special needs in terms of financial planning, we’re just not there. And so that really guided me in my journey. Having a disability myself and having moderately severe hearing loss was part of that as well. And so I made it my goal, professional goal and personal goal, to work with families with special needs as much as I possibly can.

Kirk: It’s interesting, Corey, that you mentioned that, because there is such a broad definition of special needs, and it does not discriminate across classes or ethnicities. Anybody could potentially be a part of this community.

Cory: Exactly, Kirk, and age as well, as needs or disabilities can happen throughout life. So it’s a not only something that happens with families with young children, but it can happen later on in life all the way up to the end of life.

Brian: You guys, those are great points. I know we’ve talked a little bit about what this podcast is going to be about, and I know the focus is on kids, but you’re absolutely right. You could have a special needs planning at birth, but you can become disabled obviously as you’re older, right? You can develop, whether it be multiple sclerosis or some other type of disease that can have an impact on your life, whether that be physical, mental and those types of things. So, we talked a little bit about the need for special needs planning, and then the question becomes how is it different when you have a special needs child or family member including an adult. How is it different than working with families that don’t have that special needs and don’t have that concern? What are different things that families with specialties should be thinking about?

Cory: So you start with a traditional financial plan, retirement, insurance, taxes, state planning, but you have to adapt your plan to the needs of the individual or the family member who has special needs. That is the biggest difference between traditional financial planning and special needs planning. It’s really an offshoot of the traditional financial plan, because the same elements of financial planning are still there. But there are different factors you have to consider, whether it’s longevity or different means-tested benefits and estate planning techniques that you have to focus on in a special needs planning situation versus a traditional financial plan.

Kirk: And one of the big differences that pops up in my opinion is, depending on the severity of the special needs that you have, parents may be required to plan not only for their own lifetime but for the lifetimes of their children as well.

Brian: And what’s interesting is that’s if you only have one child with special needs, right? Because you may have a few different children that have special needs, you may have additional children that may not have special needs. So providing for both of them presents, maybe additional challenges as well that people need to sit back and think about where to start. Let’s, for the purposes of this episode, focus on a special needs child. Where do you start the planning? When do you start the planning? What does that look like? Maybe just to begin to shape this conversation.

Cory: Planning should really start at birth or even diagnosis if it’s known prior to birth that there’s going to be a special need, a disability taking place. Sometimes the disability doesn’t take place at birth as we discussed. So it may come along 15, 20, 30, 40 years later. So it’s important that the planning begins immediately.

Kirk: Yeah, and from the beginning, you may be dealing with parents who are going through a very emotional time. And we heard at one point this idea that the grief process for someone with a child with special needs is slightly different than that of your typical grieving process where you have an event and you dropped down and then you start to build yourself back up over time. You have setbacks along the way, but when you have a child with special needs, it’s more of a circular or a spiral experience, if you will. You get hit initially, and then you start to recover and, then something else may pop up down the road, and you are right back to where you were, and you keep working your way back up that spiral. So that is something definitely to be aware of.

Brian: Kirk, that’s a great point. I mean, we always joke. If you have kids or even if you don’t have kids, you may have heard this. But there is no manual for raising kids, right? I think that certainly young parents, they’re trying to figure it out as they go, and then you throw something in the mix as it relates to special needs, and it could be something that you’ve never heard of before and a child has just been diagnosed.

Kirk: Also what parents may be dealing with when they have a child with special needs, is really the coordination of benefits. And depending on the type of special need you may have, speech therapy, occupational therapy, physical therapy, other types of support groups that are around you. So, trying to juggle all of those things when you have a new child, can be really stressful for parents.

Brian: That’s a great point, Kirk. Think about the school system itself, right? So, there is a requirement of schools to be able to provide an education to those with special needs and the resources and then trying to coordinate those resources within the school and then potentially with outside resources, whether that be OT, speech therapy or other types of therapy. So the coordination is just one piece of it. But then the other is trying to figure out all these different types of therapies that are out there. Which one is going to be right for my child and how do I figure out the best way to get them that therapy? Whether providers are around the corner, or an hour away or do parents even have to think about relocating to find that other town or state that not only offers these services, but perhaps, just as important, what are the resources that state may offer families with special needs?

Kirk: You’re touching on an important point, which I’m sure Cory, you can jump in on this, but it varies so much from state to state. How those states use their funds, what kind of services you can receive, depends on which state you live in. It really is an area where we’re an advisor can help point the parents in the right direction.

Cory: You’re right, Kirk. It’s critical that the advisor understands the different resources that are available in each state. It does vary greatly from state to state. There are many programs and services that you can use for assistive technology, waiver programs that have to be administered a certain way. So, you just have to understand those and work with attorneys and work with the client if you’re a financial advisor on understanding what those options are and how to utilize them. And conversely, for those diagnosed later in life or suffer a traumatic injury later in life, no process was previously needed. So where from birth, there is a process through the school system and through the different resources available, it’s very, very different for someone who traumatically needs the services and support. So, no terms that would have been learned in school and transition period that would have taken place during school exist. So it’s very important that either parents or the individual who suffered an injury have an advisor who can coordinate the benefits and understand what their options are when that occurs.

Brian: So when we think about some of the details of the financial planning for folks who have special needs, one of the things that come to mind is cash flow, right? Just immediately. A variety of different therapies may be needed for a loved one and at Mariner, we want to make sure that we’re by giving them the best advice and life skills possible. But the reality is, those caring for loved ones with special needs, they still have the traditional goals they want to accomplish, like retirement, maybe it’s education, travel, it could be a host of different things. And to be able to balance those goals with the cost of some of these therapies, we just need to understand how much individuals can afford to spend on therapy and accomplish everything else that’s most important to them. So no different than a comprehensive financial plan. We need to understand what is most important to that individual in terms of what they want to accomplish so they can begin to prioritize and still build out a larger financial plan.

Kirk: Yes, you’re right. And parents with special needs still do want to retire. I can speak for myself. That is still a goal, and you still will have college as a goal for all your children perhaps, depending on what type of special need you have with your children. So definitely the balancing act of, how do we allocate funds toward some of your more standard financial goals with the additional items that you have to perhaps pay for. And I think making sure that you’re using health savings account dollars where you can for certain types of medical benefits, that’s how we can help parents. And also, Cory, I think as you know, just being aware of other benefits that are out there is a big step in helping some of these folks.

Cory: Absolutely. Because there are many other benefits at the state, local, even federal level that will help pay for some of the supports and services that you need. So those need to be factored into your financial plan so that you understand what is being paid for and what you need to come up with out of pocket. And then we can build your financial plan around that.

Brian: Guys, these are great points. Cory, you mentioned the state aid that might be available. What resources might you be able to mention now as it relates to state aid? Is there one place that listeners can go who are interested can go to learn more?

Cory: Every state has a website that will lay out all the different benefits, and they are quite extensive. I do recommend talking to a financial planner who understands the different states’ websites. The Kansas website versus the New Jersey website are going to look a lot different. So you need to know where to look and where to understand all the benefits and resources that are available to you.

Brian: And so, after we think about maybe the cash flow aspect, thinking about risk management or insurance and what that looks like, to make sure that folks are able to provide resources for their loved ones well after they’re gone. What is your experience been in that space, guys?

Kirk: Well life insurance is a huge part of any financial planning and making sure that you can replace income if something were to happen to one or both of the income earners. But as you can imagine, it takes on additional significance if you have another life who you’re planning for after your own. So not only making sure that you have enough to cover current bills, but to go on for a lot further, whether that’s all of the special accommodations that you may require for the rest of that person’s life. Making sure that that’s all factored in when you run that type of insurance analysis.

Cory: This is critical because you see individuals purchasing insurance that many times is not appropriate. And what I mean by that is, that, traditionally we think of buying term life insurance to cover our mortgage. We’ll use term insurance to make sure our kids get through college in case something happens to us. But when you buy term insurance, by definition, it will expire at some point. And so whole life or universal life insurance tends to be the right contract or life insurance policy for individuals who have a loved one that they want to save for and create a pool of assets for later in his or her life. So understanding what kind of insurance is needed, in addition to just having it, is very critical.

Brian: To break that down a step further, for those listeners who aren’t familiar with life insurance, the two different types, one being term, maybe it’s for 10 years, maybe 20 years, maybe 30 years. And after that period of time there is no more insurance, and there is no more a premium to pay. So with permanent insurance, as long as the individual continues to pay that premium, the benefit will be paid out when the insured’s life comes to an end. And that could be on mom, that could be on dad, or that could be over the course of both of their lives. And ultimately when that pays out, those proceeds could be used for the benefit of that individual with special needs. Maybe this is a great transition to the estate planning conversation with those as special needs. So Cory, can you talk a little bit about the planning that you walk folks through as it relates to the estate plan with those as special needs?

Cory: Sure. The estate planning process is very similar in terms of the documents that you’ll use. You’re going to have your will, healthcare power of attorneys, regular power of attorney or financial durable power of attorney, and potentially some trust documents within your estate planning documents that will pass into special needs planning. What is different is the language within those documents. Oftentimes in special needs planning, language needs to be added to either the will or the trusts or even the power of attorneys that are very specific to that individuals’ special needs situation. And so it’s very important that you work with an attorney and a financial planner who have that understanding of what needs to go into these documents.

Kirk: To me, as with all aspects of financial planning, when we talk about special needs planning, all the same elements are there, but heightened. You need to make sure that your insurance plan is in place or your retirement planning is in place with that extra emphasis on what you need to take care of, and estate planning truly is that that way as well. You have to make sure that it’s written in a certain way that if you have multiple children, that you’re planning for one with special needs, that you have all the provisions written correctly to not make them ineligible for federal benefits and to make sure it’s all flowing properly.

Brian: Just a quick note to our listeners. If you have a topic that you want to hear on this podcast or you have a question about your own personal financial situation, please don’t hesitate. Go ahead and send us an email at [email protected], and we’ll have an advisor reach out to you directly. And now back to the episode.

Brian: What’s in the will? I know most people know what a will is, but maybe not everyone understands the detailed contents of that will and why it’s important.

Cory: In the will, you really want to make sure, especially in a special needs planning situation, that you have stated who the executor of your estate will be, who your personal property is going to pass to, that you have an understanding or you’ve written exactly where your assets are going to pass to upon your death. It’s very important that you have that set up appropriately. Oftentimes, the will passes assets into a trust, in many cases, especially in special needs planning, and especially if the special needs trust has been established. You’re going to have those assets pass directly into a special needs trust, so they do not become the individual property of the person with the disability. So the will is very critical in passing the assets and the direction and making sure that assets do not go to the person whom they should not go to.

Brian: So a couple of things to think about there. If I hear you correctly, Cory, from a planning perspective, you may not want the assets to go to that individual with special needs, because if that person has a certain level of assets, he or she may not be able to receive some of the state benefits that the individual may qualify for. And by receiving those assets, he or she may actually be disqualified for these benefits, correct?

Cory: That’s right. So state and federal benefits, even local, the individual may not be eligible for other services, waivers and things of that nature. So it’s very important that assets pass directly into a trust versus directly to the person.

Kirk: Traditionally, the way that has been avoided is by using a special needs trust or a trust with a special needs language written into it to make sure that that is held in trust, that those assets would be not held by the person.

Brian: I think where I’ve seen some mistakes. A lot of folks will think that my will controls all of my assets, and it will dictate exactly who’s going to get those, like we alluded to. But the reality is, there are other assets that pass by contract of law. If you think about retirement accounts, whether it be IRAs or 401(k)s or 403(b)s or insurance contracts, those pass outside the will. So it’s really to make sure that, as part of a comprehensive estate plan, you understand exactly how things are going to pass, whether they be through your will, your estate or these other contracts that, again, supersede what the will states, because the beneficiary of documents that pass by contract of law will supersede whatever might be inside of your will. So that’s an important thing to mention here.

Cory: Absolutely. And that could result in assets passing directly to an individual and a circumstance that puts assets in his or her name and then completely disqualifies the individual from the benefits that they’re relying on. And when you receive a significant amount of assets, in the hundreds of thousands perhaps or more, there’s going to take quite a long spend-down before the individual gets those benefits back.

Brian: And I think a couple of the other mistakes that we see are things that aren’t taken into account. Probably first and foremost, before any of this, is simply communication. I’ve been in situations where the grandparents want to pitch in, so maybe they start setting up an account for that child or adult child and maybe they set up, whether it be a UTMA account or just another set of funds for that individual, because they’re trying to take care of that individual. They’re trying to contribute, but the reality is, they may be doing them a disservice because they don’t know exactly how the law works in their particular state. And so something as small as making a gift to that child of several thousand dollars could ruin the state plan but not only that, a future benefit stream of income from some of the state aid that we’re referencing.

Cory: I’m glad you brought that up, Brian, because I worked with a client who had forgotten about an account that they had set up for their child even before they were born, and the assets eventually passed into the child’s name, and 25 years later, they realized that they had not spent down that account earlier, and this person was now collecting SSI. SSI being a supplemental security income, and SSI got wind of the account, and they temporarily turned off the benefit, and so they had to spend that cash down before they would get back on an SSI.

Brian: So it doesn’t have to be just the grandparents giving them a gift. But in many of the estate plans, we see maybe grandpa and grandma, the way their will is written that it ultimately goes to their daughter or son, and if their daughter or son is not alive, those benefits may not pass to the spouse. They may pass directly to the children. And again, that’s just something to think about. Whereas if some planning has been put in place or needs to be put in place, that even the coordination of grandpa and grandma’s assets, if they have the possibility of passing down to that individual with special needs, that needs to be taken into account. And so some of the best financial planning that we see for folks who have special needs kids, is not just one generation, but it is multi-generation and is a real approach. It’s a real conversation, so everybody on board truly understands what the impact is. Everyone understands what the goal is, what the tax law is and the best way to help support that individual going forward.

Cory: Those are great points. I would also add, along the lines of communication, that an estate plan should have an accompanying document called a letter of intent or letter of instruction. And this is a letter that the parents or the grandparents or whomever the guardian is, can draft and create a set of instructions to be followed for a future guardian or a future trustee relating to the needs, wants, wishes and personality of the individual with the disability. And this particular letter is fantastic to have within the file. It’s not a legal document, but it goes in the file, and it allows the family to have continuity and understanding of the needs. So it could be something as simple as just the favorite food or the favorite television show or certain triggers that would set this person off for having a medical condition, medical problem or an emotional problem. The letter of intent is just as important in many cases as the actual estate planning documents.

Kirk: That letter of instruction, as you mentioned, is not a legal document. It is one of the most important that you can have, because you think about the people whom you have named to be the guardian for your children. What do they need to know to be able to make your child’s life as easy as possible and more importantly if your child is not able to easily communicate or if he or she doesn’t communicate verbally? Being able to give clues as to when this happens, here’s the best way to turn the situation around.

Brian: That’s great point. We talked about all those therapies, and families are more transient than they ever have been. Should something happen to mom and dad, maybe the child is going to go live with loved ones in a different state, and that family may not understand or know that child all that well. Maybe they don’t know all the therapies the child is receiving. Again, communication and some of these documents that we’re referencing, could come in very handy, and could make all the difference in the world. So there’s a financial planning component, and there’s also what really needs to happen to make this transition successful should something happen. So we talked about the estate planning and the need for a special needs trust and making sure that it’s a coordinated effort with the entire family, with an attorney who has deep knowledge in special needs planning, as well as the financial planner. There’s a relatively new type of account that was created just a couple of years ago called the 529 ABLE accounts. Kirk, can you talk a little bit about this account and why somebody might want to contribute to it?

Kirk: You know, we talked about the special needs trust being a way you can shield assets or protect assets that a person may use to allow that individual to continue to get federal benefits. If you’re familiar with a 529 college savings account, it’s a very similar concept. It’s designed for folks with special needs where you can contribute to this account, and the funds can be used, not just for college, but for any reasonable need. There are definitions that you have to follow, but you enjoy the same tax-free growth that you can enjoy with a 529 college savings plan. And it really has turned into a very useful tool for a lot of families. The bottom line is, this is another way relatives can contribute to the child without harming the child financially down the road.

Brian: So Kirk, just to get clarity, similar to the 529 college savings plan, when you put funds inside of this account, it grows tax-free and then ultimately can be used to provide for some of the services that we referenced earlier, whether that be therapies, in addition to school and other things. Any drawbacks to these plans? Cory? Anything you want to mention here?

Cory: A couple of drawbacks you have to consider when funding the plan. First of all, there’s a cap of $15,000 a year, so you can only put a certain amount in. If you want to save more money for a special needs beneficiary, you usually have to use the ABLE account in tandem with a special needs trust. In addition, if you fund the account to a certain limit, in particular $100,000, if you cross that threshold and you have beneficiaries collecting SSI, the supplemental security income, you’re going to have that particular benefit turn off for a period of time until your account falls back below a $100,000. Finally on Medicaid, if there’s a Medicaid situation and the beneficiary is receiving any Medicaid, Medicaid becomes the primary beneficiary of the account.

Cory: So if you finance the account, and then the beneficiary of the account passes away, Medicaid will recoup and recover anything that they paid out in terms of benefits to that individual. And lastly, these are new accounts, so it’s important that you understand that they are new and that they are still working out some kinks. You need to understand exactly how they work, and just be cautious going in. I would advise anyone who’s starting an ABLE account to talk to a financial advisor, so that you understand exactly what the plan does and doesn’t do and how it meets your needs.

Brian: Great points on the ABLE accounts. Maybe my last comment is that, while the ABLE accounts are new and another opportunity that we should consider, because of their limitations, it doesn’t replace the need for a special needs trust, depending upon your situation. And for those of you who are listening want to learn more about estate planning and the exact components of a will and who an executor or trustee is and what they do, make sure to download and listen to our estate planning podcast that walks you through an estate plan in complete detail. So guys, as we wrap up the show and bring it to a close, I’m going to ask you two the same question we ask all of our guests. So we’ll start with you Kirk. What is the worst financial decision you’ve ever made?

Kirk: Oh, always happy to talk about this, Brian. For me, I distinctly remember when I was midway through college, and I was taking the full amount of federal loan available, and my mom said to me, “Maybe you don’t take that full amount? Maybe you pay more now, work a few more hours instead of having to deal with all that debt later.” And I remember being steadfast in my opinion that I don’t care about what happens later. I’m worried about right now. So yes. Thanks mom.

Brian: So when did you call her, and let her know that maybe she was right?

Kirk: I’m just going to assume she’ll listen to this and understand it at that point if that happens.

Brian: Hey Cory, worst financial decision you’ve ever made?

Cory: My worst financial decision is eerily similar to Kirk’s in college. I decided it’d be a good idea to get myself a credit card. And after college I decided that I didn’t quite have enough credit card limits. So I got myself another credit card. And the reason was that I felt that my future earnings would be much higher than my original entry level salary out of college. And I proceeded to max out the credit cards and realized that this is not a path I wanted to continue going down. So another one of those situations where some good advice from mom and dad would have been helpful. And I’m pretty sure there was some along the way, but at the time when you’re a young and straight out of college, you know everything.

Brian: It is funny that I’m talking to two individuals who learned valuable lessons in credit, and today you’re both successful wealth advisors helping others make those decisions. The reality is, it’s been awhile. I won’t mention your ages, but it has been awhile since you both graduated from college. Thanks again for joining us. I appreciate your insight and expertise. I want to thank everybody for listening and, as always, if you have questions regarding what you heard today or other financial planning questions or even ideas and topics that you would like to hear, please feel free to email us at our email address at [email protected].

Brian: Thank you for listening to this podcast. We know that your time is incredibly valuable, and we hope you find this podcast a worthwhile investment of your time. Thank you for listening.

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The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. It is not intended to be personal legal or investment advice or a solicitation to buy or sell any security or engage in a particular investment strategy.

The views expressed are for commentary purposes only and do not take into account any individual personal, financial, legal or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. The opinions are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon.

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