By Jerilyn Klein Bier
Ideally, financial planning for children with special needs should be initiated as soon as parents recognize that their children have disabilities that may require extra support and perhaps a lifetime of care. That being said, many elderly parents have yet to adequately plan for dependent children who have already settled into middle age.
Richard Micliz, a CFP with Primary Financial, a Penn Mutual agency in Edison N.J., met a widow 10 years ago whose primary goals are to provide ongoing care for her dependent adult son and to let him remain in the family home for the rest of his life. The son has had a cognitive impairment since birth, but is physically able and has the same life expectancy as a typical adult male. The client is now 80 and her son is in his mid 50s.
According to Micliz, the client’s home is paid off and she is living comfortably on Social Security retirement benefits and payouts from her late husband’s pension (which will cease upon her death). She also has some investments. Her son receives Social Security disability income.
Prior to meeting Micliz, the client had done a minimal amount of estate planning and purchased some insurance. But she didn’t have a central advice station to coordinate the legal, investment and insurance pieces and she had never gotten her arms around the long-term financial needs for her son, said Micliz, who has worked with many clients who have dependents with special needs.
“In any financial planning engagement, we plan for the knowns first and then what we try to do is to reduce the impact of the unknowns,” he said. “With special needs planning, everything becomes more emphasized and more critical because now we’re planning for two generations.”
After meeting the client, Micliz began crafting a financial plan. He also helped the client put together a letter of intent. Letters of intent, which aren’t legally binding documents, explain the day-to-day life of dependents. This includes their likes and dislikes, hobbies and activities, routines, and “things that make their life smooth on a day-to-day basis,” he said. “The things that only a caregiver knows.”
A letter of intent makes it easier for others to step in and provide the support the dependent is accustomed to receiving from the primary caregiver. Yet as important as these documents are, they don’t receive as much attention as they should, said Micliz.
He also brought in an estate-planning attorney and tax counsel from outside firms. These professionals, well versed in special-needs planning, helped set up a special needs trust (known as a supplemental needs trust) for the client’s son. The trust is currently being funded by life insurance contracts. Micliz and his team are also coordinating the benefits that’ll pass to the trust when the client dies.
For this client’s situation, insurance is “the cleanest, highest leverage opportunity that we have,” said Micliz. But her advanced age has made it challenging to get adequate amounts. That’s why carefully designing a financial plan that also leverages her other resources is critical, he said. To determine how much is needed to fund the trust, he factors in anticipated cost of living adjustments for her son’s lifestyle, food and health-care costs.
Beyond helping with his client’s financial situation, Micliz is also focused on providing education, acting as an advocate, and developing a relationship with the client’s other children. The siblings are co-trustees for their brother’s trust.
Micliz and his team have informed the siblings of potential intricacies, including taxation and probate, the handling of the estate and managing the transition in care for their brother. The team has also defined the scope of the arrangement and the expectations on both sides. Every decision they make concerning their brother must “go through the test of whether it’s in his best interest now and in the future,” said Micliz.
It’s also been important to figure out how to provide the son with a sustainable level of income without disqualifying him from government benefits. Gifts from good-hearted family members and friends can inadvertently jeopardize those much-needed benefits.
Micliz’s client has gotten very emotional in meetings, which he says is a description of how important it is to her that her son’s future will be secure when she is no longer around.
“Our message to families like this is that we strive to reduce the financial burden,” he says, “so that they can focus on what really matters, which is the care of the individuals involved.”