Financial Planning for Special Needs Individuals

When it comes to planning for the long-term care of special needs individuals, the process to set up and manage a trust or other care relationship must account for a number of atypical planning scenarios.

From sorting out government benefits to deciding whether to seek power of attorney over a special needs adult, loved ones involved in this planning process must balance the needs of the special needs person with their long-term financial outlook—and limit their own personal liability by handing over aspects of special needs planning to trusted professionals. 

Here are five key differences in financial planning for special needs individuals. 

1. Funding the Right Account

Before you can provide financial support to an individual with special needs, you need to set up the right accounts and other infrastructure to ensure that support well into the future. 

The first step in this process is determining which type of account is best-suited to the individual: an Achieving a Better Life Experience (ABLE) account, or a special needs trust. In some cases, the individual might not be eligible for an ABLE account, which is designed to support individuals whose disability originated before the age of 26. There are also Social Security criteria that must be met. In other cases, it might be possible to establish both a special needs trust and an ABLE account for an individual. Each circumstance calls for an individualized approach, as financial management is not one-size-fits-all.

If you don’t qualify for an ABLE account, you’ll likely want to establish a special needs trust. But in cases where the individual may qualify for both, there are a number of variables to weigh in this decision related to account implications on taxes, contribution limits, investment strategies, and distribution strategies to protect government benefits. An ABLE account used in conjunction with a special needs trust can be a way for the individual to pay for expenses that would not normally be allowed within the constraints of the trust.

Many trustees underestimate the complexity and long-term implications of these decisions—and poor stewardship can ultimately do the beneficiary a disservice. For that reason alone, it is wise to partner with a financial planner who understands the ins and outs of these decisions.

2. Prioritizing the Development of Independent Living Skills

Many school-aged special needs individuals are well served by an Individualized Education Plan (IEP) that helps them develop professional, social, and other life skills that support their independence as an adult. This IEP is essential to maximize their ability to socialize, self regulate, and live independently. At age 21, when an individual transitions out of the educational plan, a transition plan to adulthood is established. In adulthood, the priority shifts from an educational plan to a vocational plan. This enables a disabled individual to hold a job, build and maintain friendships, and pursue their interests to the fullest extent possible.

3. Assessing the Need for an Agent

In many cases, a special needs individual may be perfectly capable of managing their care and making financial decisions. However, in other cases that individual may not be able to do one or both of these things. If you feel your special needs loved one is unable to make choices for themselves at adulthood, you may want to apply for a full guardianship. Another alternative is to name a third party agent to act as fiduciary for a disabled person who will make medical, financial, and other important decisions in their best interest.

Each case should be evaluated carefully to determine the best course of action. In some cases, you may choose to seek a power of attorney or guardianship. In other cases, you may seek an alternate fiduciary arrangement which gives a third-party control over financial decision-making while preserving the individual’s ability to participate in their own personal decision making.

4. Drafting a Letter of Intent to Guide Future Care

A letter of intent (LOI) is an important document that covers the care guidelines you expect the guardians and trustees of your special needs loved one to follow. This letter is designed to outline responsibilities and expectations in the event that you, the legal guardian, are unable to execute these wishes in the future.

An LOI is a very important document that is best utilized by taking time to outline guidelines for care as comprehensively as possible. It should cover a wide range of care considerations, including medical coverage, financial management, educational plans, living arrangements, and other aspects of care you deem important to your loved one’s quality of life.

Typically, the creation of an LOI is part of a larger estate planning process.

5. Administering Entitlements to Maximize Government Benefits

Many individuals with special needs will qualify for government benefit programs once they become a legal adult. However, these benefits can be affected by the number of assets or amount of income at the individual’s disposal.

A poorly managed estate plan can disqualify an individual from some or all of their government benefits, reducing the total amount of financial support they receive over their lifetime. For example, if you pay rent and other living expenses out of the wrong account, you could end up losing a larger chunk of money than you would through efficient management of these entitlements.

Strategic management and proper administration of an estate can preserve the individual’s eligibility for benefits. This is an important service to discuss with your advisors: Some advisors may be reluctant to involve themselves in matters such as public benefits and entitlements. Instead, they may prefer to partner with another financial planner that specializes in this area of need. In this case, the trustee might want to seek out a relationship with a different advisor for a special needs case versus a traditional wealth management client.

Although special needs planning can seem relatively simple on the surface, the different moving parts involved in financial planning, special needs trust management, and other essential services can turn it into a highly complex process—one that should be handled only by an expert with direct experience serving special needs clients.

Find out how Prudent Investors can play a role in supporting the financial planning for special needs individual in your life—speak to a member of our team today.