Special-needs loved ones require special estate planning: Financial pros, trusts can help so placement of assets won’t hurt eligibility for benefits [The Indianapolis Star]

Dec. 26--The first few years after their twin boys were diagnosed with autism, David and Ann MacLaren had little time to think about long-term financial planning. When Mark and Matt reached high school last year, the MacLarens began to consider how their children would support themselves as adults.

Even though the twins, now 15, are on the high-functioning end of the autism spectrum and may be self-sufficient one day, the Fortville family knew they could not count on that. They also wanted to make provisions for their daughter, 8, who is visually impaired.

Financial planning is difficult enough. But planning when you have a special-needs child can be that much harder. Sometimes, the children need help managing their finances, well into adulthood. And sometimes, even the adults can make big mistakes, such as giving the children a gift that can push the children over the threshold where they are no longer eligible to receive government care.

To help avoid problems, the MacLarens consulted Kevin Clasen, a special-care planner in the Indianapolis office of Massachusetts Mutual Life Insurance.

"Your biggest worry as a parent with kids with disabilities is 'What happens when I am no longer around? How are the kids prepared?' " Ann MacLaren said. "Now we feel a little bit more prepared. If something happens, at least we've thought about it."

At Easter Seals Crossroads, Scott Fogo, director of autism services, frequently hears from families requesting help. These families range from those with a child with a new diagnosis to those with aging parents, who are concerned about what will happen after they die.

While experts advise families to start financial planning as soon as possible, they recognize it's not always feasible. The first concern usually is how to tap into services now and then how to pay for them.

Some families may fear they do not have the funds to allow them to see a specialist, but that's never the case, Fogo said.

"When it comes to financial planning, you don't have to be Rockefellers," Fogo said. "The common denominator, regardless of wealth or absence of wealth, is the concern about the child for the future."

In the absence of knowledge, however, concern can lead to financial disaster, experts say.

To be eligible to receive government benefits, those with special needs must not exceed a certain income level. A gift from a well-meaning relative directly to a child with special needs can result in loss of benefits.

One way to avoid this problem and provide for the future is to establish a special-needs trust in the name of the child. The family then designates someone to oversee the trust, such as a sibling or other relative.

"If you don't put it in a special-needs trust and the child inherits money through the normal process, the government is going to come back and say, 'You inherited $20,000. That takes care of what we would have given you,' " Clasen said.

Generous gifts in the child's name can cause problems when a family tries to tap into Medicaid waivers, which provide a variety of services, including respite and residential care. A family's assets do not affect a child's eligibility, but a child's assets could.

State law places the threshold of riches for a child at $1,500. Because the bar is so low, Gordon Homes, a special-needs financial planner with the MetLife Center for Special Needs Planning, recommends that his clients never create a savings account for their children with special needs.

"One of the easiest solutions is to have an account that you think of as being for your child with special needs, but their name is not on it," Homes said. "Parents may work 12 years or longer to get a myriad of benefits in place. It only takes one well-intended and inappropriately arranged gift or inheritance to offset the whole thing."

Since 1988, The Arc of Indiana, a community-based organization for people with disabilities, has offered a pooled special-needs trust, geared for families who don't have a lot of money to earmark funds for their children with special needs. More than 4,000 families are enrolled, with a little more than $36 million in the trust, said John Dickerson, the organization's executive director.

Families investing in this pooled trust write a letter of intent, describing how they would like the money to be spent. A staff of three then works with the beneficiary to decide on legitimate expenses.

Money can go toward extras that government benefits might not cover, such as cable or cell phone bills. Because Indiana Medicaid offers limited dental benefits, an adult with special needs may have to tap into the trust for needed dental work.

There are off-the-wall requests, but they're rare, Dickerson said.

"Sometimes we have to say, 'No, we can't do that' -- say, if someone calls up and says 'I really want a red Mustang,' " he said.

Planning for the future of a child with special needs isn't only about setting up a special-needs trust. It also consists of deciding how much money one can funnel toward that child and how best to spend it.

"We start with a life-care plan," Clasen said, "meaning how do we quantify what this will take financially."

He pointed out that 529 plans that offer tax credits for money saved for college do not make sense for many children with special needs. Whole life insurance plans -- which may not make sense for families with typically developing children -- often do work well for such families. Whole life insurance provides a payout when both parents die, which can infuse a special-needs trust with critical dollars.

A quest for an appropriate life insurance plan started Fred Siktberg and his wife down the road of planning for their daughter Annette about five years ago. Now 26, Annette has mental processing and motor skills deficiencies that allow her to work only simple jobs.

But her parents worried about what might happen after they are gone. They've established a special-needs trust, which offers some security.

"You try to do the best you can for your children and make sure they have every opportunity that is available to them," said Siktberg, who lives on the Northeastside.

No matter how limited a family's resources are, it makes sense to consult a planner with expertise in this area, said Easter Seals' Fogo.

"They're expecting families that are doing the best they can, making ends meet, and trying to look toward their kids' future," he said.

Call Star reporter Shari Rudavsky at (317) 444-6354.

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