Christine Salerno is like many other single working mothers with small children, but her days are often packed with even more emotional highs and lows: Her 4-year-old daughter, Lily, with soft brown eyes and a wide smile, was found to have Rett Syndrome, a rare neurological disorder, last year.
Lily’s case is relatively mild, but she still has limited use of her hands, has difficulty swallowing and can verbalize few words.
Salerno has spent many late nights researching the types of services and therapies that will help Lily now, but she also needs to think hard about her care decades into the future.
“She has 10 therapists and 15 doctors, and I manage all of this,” said Salerno, 41, of New York City. “This is a lifetime thing. They have reversed Rett Syndrome in lab mice. I can be as hopeful as I want, but I still have to prepare.”
Planning for family members with special needs can be overwhelming, particularly when so many decisions may have lifelong consequences. Beyond figuring out the intricacies of government programs, parents fret over guardianships, how governmental services may erode, and what legal documents they need.
And soon there will be a new savings account to consider, known as a 529A or ABLE account, which will permit people with disabilities to keep more money in their own names without losing means-tested benefits.
Here are tips for families beginning to plan for individuals with special needs.
Saving for retirement takes on new meaning when you also need to budget for an extra person. You may need to take precautions that money set aside for your child won’t be consumed by long-term care expenses for you or a spouse, for instance.
“I call it ‘retiring for three,’ ” said Mary Anne Ehlert, a financial planner in Lincolnshire, Ill., who had a sister with cerebral palsy. “One child is going to need some support throughout the parents’ retirement, so the parents’ retirement funds need to accommodate that.”
Though it varies by state, one important benefit is likely to be Medicaid. Although it is often regarded as a program solely for the poor, Ehlert says it serves as a “golden ticket” because in addition to covering health care for people over 18 with disabilities, it also provides entry to other programs and services that help with, for example, learning tasks for a new job or life skills. It may also help pay for group residences, she added.
Many families supplement what Medicaid provides by putting money into a special needs trust; those funds can then be used to help pay for the individual’s expenses without jeopardizing government benefits.
The ABLE or 529A account, a tax-advantaged savings vehicle, is expected to become available in the year ahead, and will allow people to save more. Typically, any more than $2,000 in cash savings or other assets will disqualify people with disabilities from public benefits like Medicaid and Supplemental Security Income, also called SSI, which provides a monthly check for disabled people with low incomes.
Modeled after 529 education savings accounts, 529A accounts are expected to be easier and far less costly to set up than special needs trusts.
But since 529A accounts have several limitations, they are not likely to replace the need for trust accounts for many families, though they may serve as a nice supplement. While anyone can contribute to the 529A, including the person with disabilities, total contributions are capped at $14,000 a year.
Contributions are not tax-deductible, but the money grows tax-free, as long as withdrawals are used for disability-related expenses, like education, assistive technology and personal support services, health and wellness, among other things. But “it can’t be used for Disney World, it can’t be used for the movie theater,” said Brian Rubin, a lawyer on special needs in Buffalo Grove, Ill.
The 529A accounts are likely to be most attractive for disabled people who work and want to save more than $2,000, or for families who need a place to deposit gifts or inheritances from family members. Once the account balance exceeds $100,000, however, the individual’s SSI benefits will be cut off (Medicaid isn’t affected). Spending ABLE account money on housing may reduce SSI payments, too.
There’s another drawback: After the individual dies, any money left in the account may be claimed by the state’s Medicaid program for expenses incurred after the account was opened.
The accounts will be administered by the states, most of which are either working on or have passed laws to create the accounts, according to Sara Weir, president of the National Down Syndrome Society.
There are a few types of special-needs trusts, but “third-party” trusts are frequently used by families who want to supplement what the disabled person receives through government-run programs.
The trusts can sit empty for years, families can add money over time, or they can fund them with life insurance and estate proceeds. And they are quite flexible: The money can be spent on just about anything, as long as it’s for the beneficiary, and any remaining money can be left to family.
But creating them can cost roughly $2,000 to $5,000, according to Richard A. Courtney, president of the Special Needs Alliance. And hiring professional trustees to manage the trust – instead of relying on family members – can also be costly. States have their own fee schedules, but a professional trustee to handle investing, distributions and other administration can cost at least 1 percent of the amount managed, lawyers said.
Pooled trusts – where assets are professionally managed alongside other peoples’ funds in the pool – are an option for families with less money or little family to help oversee the process, lawyers said. Though the rules vary, any remaining funds after the beneficiary dies may be paid back to the state or organization running the trust.
Many families use life insurance to “fill” the supplemental trusts. Term insurance is generally the cheapest option, but because it covers only a set period of time, Ehlert believes that most people will eventually need some sort of permanent policy. A “survivorship universal life” policy that pays $1 million after the second spouse dies may cost roughly $289 monthly for 20 years for someone who is 30 years old, but $658 if you buy it at age 50.
“People have to look at the needs and circumstances first, and the product second,” said John W. Nadworny, a financial planner in Winchester, Mass., whose practice focuses on special needs.
Families probably agonize most about whom to appoint as a guardian to look after their child, as well who will serve as a trustee to oversee any trust accounts. Several lawyers who focus on special needs suggested splitting roles to build in a system of checks and balances: Have a guardian who will advocate for the individual, and a separate trustee to handle the money.
Though hiring professional trustees can be expensive, appointing family members to oversee the money comes with its own risks and challenges, which many do not anticipate.
“It’s not a question of affection and loyalty, it’s a matter of whether they have the capacity, the aptitude and the time,” said Tara A. Pleat, a lawyer on special needs in Clifton Park. “Most people accept the appointment without realizing how much work needs to be done.”
Relying on professionals who have only dabbled in this area is risky; you don’t want to jeopardize losing access to government programs because of a poorly drafted will or trust. Many families may find the most comfort working with professionals who have been though the process with their own family, and many of them have. The Special Needs Alliance and the Academy of Special Needs Planners have directories of lawyers and others who can help.
And if you work with a financial planner, find one that does not have anything to sell but time and expertise. Otherwise, you may end up buying too much insurance or other products you do not really need.
Dee and John Reeves, both 71, of Antioch, Ill., thought they had a solid plan in place for their 43-year-old son, Sean, who has Down syndrome.
But decades later, they realized they had to make several changes. They worked with Protected Tomorrows, an advocacy service that Ehlert created, which grew out of her financial planning practice. Besides helping with money matters, Protected Tomorrows can assist with public benefits and other life planning programs, like the two-week sleepaway camp it found for Sean.
“Even after I am gone, I have to make sure that he is safe,” Dee Reeves said. “You can’t come back and fix it for them.”