WSJ Special Needs planning article - October 9, 2008

[Guest guest]

An Estate Plan Built for Special Needs

By RACHEL EMMA SILVERMAN

Gabe Molitor is no ordinary trust-fund kid: He has epilepsy and Asperger's

syndrome, a form of autism. His mother, Shelby Valentine, recently set up what's

known as a special-needs trust, which will provide funding to pay for some of

her 30-year-old son's expenses when Ms. Valentine and her husband are no longer

able to care for him.

Nuttle/WpN for The Wall Street Journal

Miami lawyer Barry set up a special-needs trust for his son, , who

has autism.Ms. Valentine and her husband, who live in Calistoga, Calif., are

serving as the trustees while they are alive and have named their two daughters

as successor trustees. " It was such a relief, " says Ms. Valentine. " It gives him

a better quality of life after we are gone. "

Parents of children with special needs often face years of expensive care for

their children. Now a growing number of financial-services companies, lawyers

and financial planners -- often calling themselves " special-needs planners " --

are springing up to help parents provide for kids with disabilities, especially

when parents are no longer alive to provide care. These professionals guide

families through the intricate maze of federal and state programs for disabled

individuals, and help set up trusts, insurance policies, retirement plans and

estate-planning documents.

Families with special needs have been in the spotlight recently with the

vice-presidential candidacy of Alaska Gov. Palin, whose infant son has

Down syndrome, a chromosomal disorder. The financial crisis has also added

urgency to families' concerns about how their children's money will be managed

when they're not around to oversee it.

More than 41 million Americans, or almost 15% of the population age 5 and older,

have some type of disability, according to 2007 Census survey data. Some 6.2% of

children ages 5 to 15, or 2.8 million kids, have disabilities, the Census Bureau

found. And individuals with disabilities are living lo

nger than ever before.

That means that many disabled children will outlive the parents who support

them.

At least two professional groups -- the Academy of Special Needs Planners and

the Special Needs Alliance -- provide referrals to lawyers familiar with

special-needs planning, and other resources. Financial-services firms such as

MetLife Inc. and MassMutual Financial Group also have divisions devoted to

special-needs planning.

Special-Needs Trusts

Experts often recommend that families create a " special needs " or " supplemental

needs " trust as the centerpiece of their plan. Such trusts will provide funds to

pay for certain expenses that enhance a disabled person's quality of life --

from residential treatment programs to movie tickets or haircuts -- while not

cutting off access to government benefits, such as Medicaid or Supplemental

Security Income (SSI), which is administered by the Social Security

Administration.

Where to Go for Help

A growing number of financial-services companies, lawyers and financial planners

are offering services for families with disabilities. Here are some resources:

Academy of Special Needs Planners specialneedsanswers.com

Professional group of lawyers knowledgeable about estate planning, government

benefits and other disability-related concerns.

MassMutual SpecialCare www.massmutual.com/specialcare

Program provides financial products and advice for special-needs families.

Agents get special training in disability planning.

MetLife MetDESK www.metlife.com/desk

MetLife's Division of Estate Planning for Special Kids offers products,

financial advice and resources for families with disabilities. Web site also

features a cost-of-care calculator.

Special Needs Alliance www.specialneedsalliance.org

Nonprofit group that provides referrals to experienced special-needs lawyers and

other disability resources.

Government payments can cover much of a disabled person's expenses. But in order

to qualify for them, individuals cannot have assets in their own names that

exceed

$2,000 (not including a home, a vehicle and basic personal items). In

1993, Congress permitted special-needs individuals under age 65 to have trusts

funded with their own money -- such as assets from a legal settlement or an

inheritance -- and still have access to government benefits. More common,

however, are so-called third-party trusts, in which parents provide funding for

trusts that benefit their children.

Funds transferred to a trust are not considered to be assets of the

special-needs individual, as long as there's an independent trustee who controls

distributions of the money and the disabled person can't just grab cash from the

trust at will. A trust also insures that a qualified individual will be watching

over the money, a particular concern for families since many disabled

individuals cannot manage money on their own, says Carris, a senior vice

president at the trust division of Regions Financial Corp. in Fort Lauderdale,

Fla.

Barry , a Miami lawyer, set up a special-needs trust for his autistic son,

, who is now 14 years old. The trust will be funded by life insurance when

Mr. dies, and can be used to pay for expenses beyond what Medicaid or SSI

would pay for, including " travel, companionship and cultural experiences " and

" purchase of small visual and/or audio equipment for entertainment purposes, "

such as iPods or DVD players, according to the trust document. A special-needs

trust " gives me -- and it gives every parent -- peace of mind, " says Mr. ,

who says medical and educational expenses for his son run between $50,000 and

$100,000 a year.

Rules governing special-needs trusts are complicated and vary by state and by

the source of the funds. Relatives or parents themselves can be the trustees of

the funds, although some experts recommend naming a financial-services company

or a trusted adviser, such as a lawyer or accountant, to help manage the money

and make distributions.

Ideally, the trustee should communicate regularly with the disabled p

erson and

be able to work closely with doctors, therapists and a maze of government

agencies. Trustees also need to be very careful when making distributions. For

instance, they should avoid paying money directly to the person with special

needs, since that may disqualify him or her from government benefits, says

Hook, a Virginia Beach, Va., lawyer and president of the Special Needs

Alliance.

Coordinating Estate Plans

It's also crucial for grandparents and other relatives to retool their own

estate plans to leave gifts or inheritances to the special-needs trust, rather

than to the person with disabilities directly, in order to preserve eligibility

for government programs. Beneficiary designations on retirement accounts and

life-insurance policies should also go to the trust.

" You've got to make sure that the relatives' estate plans are coordinated, " says

Sebastian V. Grassi Jr., a Troy, Mich., estate-planning lawyer. He created a

special-needs trust for his 19-year-old daughter, who has cerebral palsy.

Setting up a special-needs trust can cost $4,000 or more, depending on the

trust's complexity. Trust companies often charge about 1% of assets annually in

management fees, depending on the size of the trust.

Another option are " pooled " trusts, in which funds from many special-needs

families are bundled together and managed by nonprofit groups that focus on

disability issues. Families typically use pooled trusts if they can't find

appropriate individual or bank trustees, or if they have a small trust account

that would benefit from bunching with other families.

Letters for Caregivers

There are some other key steps families with special needs should take. Parents

should create power-of-attorney or guardianship documents for finances and

health care, naming themselves as their child's agent or guardian when their

child turns 18. Without this formality, parents of kids over 18 may not be able

to have access to their child's medical records or make health-care or financial

decisions, says

Boston lawyer Harry S. Margolis, the co-founder of the Academy

of Special Needs Planners.

It's also smart to create a " letter of guidance, " a document spelling out

everything another caregiver should know about their child's special needs,

including medical diagnosis, treatment and medications, specific likes and

dislikes, and food preferences or aversions. " You know things about your

children that no one else on this earth knows, " says Gilfix, a Palo

Alto, Calif., lawyer who does a lot of special-needs planning. " This includes

little things, like what breakfast food makes them happy or what breakfast food

makes them really angry. "

Ms. Valentine, a client of Mr. Gilfix, recently wrote a letter of guidance for

her son, Gabe. The document describes how Gabe is a huge San Francisco Giants

fan, so any caregiver should make sure he gets tickets to home games. He doesn't

like ice cream or cake, but likes pizza. His epilepsy medication affects his

teeth, so the letter recommends that he get his teeth cleaned regularly. " He

actually loves the dentist, " she says.