Fortunately, help in calculating your “special needs goal” is available from financial planners with expertise in disability issues, as well as from special needs calculators, which are accessible free of charge on the Internet. Here are two such calculators:

MetDesk Special Needs Calculator: click here

Merrill Lynch Special Needs Calculator: click here

Using one of these calculators, either on your own or with the help of an advisor, is an excellent way to begin making concrete plans for your child’s future. Based on information you provide about anticipated income and expenses, the calculators offer a realistic estimate of how much your child will need in lifetime financial support. Financial planners suggest re-running this type of calculation periodically, particularly as your child nears adulthood, to ensure the estimate reflects the most accurate, up-to-date information about needs and circumstances.

The first step in determining the amount you must set aside in an SNT is to consider your goals and your expectations for your child’s future. If you haven’t yet created a Letter of Intent or an Advance Care Plan for your child, this is the time to draft such a document. Sample forms and software for this task is available through our office. The Letter of Intent or Advance Care Plan should address factors such as your child’s medical condition, guardianship needs, ability to work and desired living arrangements, all of which will drive your special needs calculation.

Once you’ve considered the “big picture,” you’ll need to identify your child’s future income sources and living expenses. The online calculators identify relevant categories for you (e.g., public benefits income. transportation costs).

Next, you’ll need to tackle the most arduous part of the process, placing a dollar value on each category. You can start by listing any current income or expenses likely to continue into your child’s adult years. You’ll need to consider income from sources such as life insurance proceeds, gifts, inheritances, and legal settlements, as well as from employment and public benefits such as Supplemental Security Income and Social Security Disability Income.

On the expenses side of the column, broad categories include, but are not necessarily limited to:

- Housing: rent, a mortgage, utilities, insurance, taxes, maintenance.
- Transportation: car payments, auto insurance, fuel, repairs, public transportation costs.
- Medical care: doctor visits, therapy, prescription drugs.
- Care assistance: respite, custodial, nursing home care.
- Special equipment: wheelchairs, assistive technologies, durable medical equipment, computers, service animals.
- Personal needs: grooming, hobbies, entertainment, vacations.
- Education and employment costs: tuition, books, supplies, tutoring.
- Future asset replacement costs: for a car, major appliances, electronics, furnishings.

Prior to running the calculation, you may need to indicate your child’s life expectancy and the number of years remaining until your retirement. Once you’ve input all required data, the calculator automatically will run an analysis of your funding needs based on preset assumptions about the rate of inflation and your after-tax investment returns. Both calculators indicate the amount of annual savings required to meet your goal. The Merrill Lynch calculation includes a lump-sum savings goal that must be met by retirement, as well as a year-by-year cash-flow analysis indicating any shortfalls or surpluses for a given year.

Financial planners advise that running alternative calculations can help you plan adequately for worst- and best-case scenarios. One variable to consider is your child’s ability to earn income. For example, if he or she is able to work more than expected, earned income may cover more expenses, but SSI payments will likely be reduced. As your child’s disability advances, he or she may need to leave the workforce, potentially increasing SSI payments but also adding new expenses.

Another critical factor is the impact of higher or lower investment returns on the amount you must set aside. If your child is very young, you may plan to invest aggressively, pursuing a higher rate of return than if he were nearing adulthood. The reason “an investment rule of thumb” is that you generally can take somewhat greater risks with a longer-term investment because you have more time to recover from dips in the market. If you anticipate a lower rate of return for any reason, you will need to compensate by setting aside more in savings.

As you can see, to some extent this is more of an art than a science. You can make your best guess or work with a financial planner who specializes in this field and who can bring to bear her experience with many families in similar situations.

Once you have a realistic estimate in hand, you’ll need to consider how to fund this need without sacrificing such financial goals as college for your other children and retirement for yourselves. You also need to balance the needs of your special needs child with your wish to benefit your other children, as well as cover your current expenses. You may not be able to completely fund the dollar amount resulting from the above calculations, but having a target can assist your planning.

Many parents find that a second-to-die life insurance policy is the easiest option to fund an SNT because the premiums are often lower. However, a joint first-to-die policy might make more sense for many parents, especially if one parent is the primary wage earner and one parent is the primary caregiver for the disabled child. With a first-to-die policy, if the wage-earner parent dies first, the policy will provide funds needed for the caregiver parent to be able to continue providing the care; if the caregiver parent dies first, the the policy will provide funds needed for the wage-earner parent to hire a replacement caregiver.

In short, how much you fund your SNT and how large an insurance policy to purchase will be a question of balance among your current needs, your retirement funding, the needs of your other children, if any, and the anticipated needs of your special needs child.

Finally, be sure to create or update your estate plan and determine which of your assets you’ll leave to the SNT. Also advise relatives of the need to direct gifts and bequests to the SNT, rather than the child, to avoid the risk of disqualifying the child from eligibility for public benefits.

For many parents, the majority of their savings is held in some kind of a retirement account, often an Individual Retirement Account (IRA). At age 70 ½, an IRA account holder faces the Required Beginning Date, when he or she must take mandatory distributions from the IRA. These payments are determined by the government and are known as Required Minimum Distributions.

If the parents have a child with special needs, it is often important for the parents’ estate plan to direct Required Minimum Distributions following the parents’ death into a special needs trust (SNT) that has been set up for the child. For income tax purposes, it is sometimes best to stretch these distributions out over as long a period as possible, particularly if the IRA is a large one.

How long the distributions can be stretched out depends. Typically, if an IRA account holder names a “designated beneficiary,” the designated beneficiary’s age determines the amount of the distributions. If there is no designated beneficiary, a “five-year rule” for distribution applies, meaning that the account must be paid out in full within five years after the death of the account owner.

Unfortunately, some SNTs may not qualify as a “designated beneficiary” under the IRS rules. As long as all of the SNT’s remainder beneficiaries are individuals, required distributions are allowed to be made based on the age of the eldest remainder beneficiary. However, sometimes SNTs are drafted so that entities that don’t have life expectancies — such as a charity — are potential beneficiaries. In such cases, the five-year rule applies and IRAs can’t generally avoid the income tax consequences of expedited withdrawal.

The rules governing IRA distributions to SNTs are exceedingly complicated. This is all the more reason to consult with an attorney such as Evan Farr, whose practice focuses on planning for adults and children with special needs.

Special needs trusts are designed to supplement, not replace, the kind of basic support provided by government programs like Medicaid and Supplemental Security Income (SSI). Special needs trusts pay for comforts and luxuries — “special needs” — that could not be paid for by public assistance funds.

This means that if money from the trust is used for food or shelter costs on a regular basis or distributed directly to the beneficiary, such payments will count as income to the beneficiary. This can affect eligibility for government benefits such as Medicaid and SSI. One of the trustee’s most important jobs is to use discretion in making distributions from the trust, so as not to jeopardize the beneficiary’s eligibility for these government benefits.

If the beneficiary receives SSI, here are some basic expenses that should not be paid through a special needs trust without consultation with a special needs attorney.

- Cash given directly to the beneficiary for any purpose
- Food or groceries
- Restaurant meals (except if given as an occasional gift)
- Rent or mortgage payments
- Property taxes
- Homeowners or condo association dues
- Homeowners insurance if the insurance is a mortgage requirement
- Utilities such as electricity, gas, and water
- Utilities hookup or connection charges

However, many of these payments will only cause a one-third reduction in SSI benefits. The trustee may determine that the benefit of the trust making these payments far outweighs the loss of income.

If you are a trustee of a Special Needs Trust, or have a disabled family member and are thinking about creating a Special Needs Trust, please give us a call.  The Farr Law Firm helps families with special needs every day.

While all employers of a certain size must comply with federal laws, some are going further, seeking qualified candidates through VR programs and other agencies. VRs help implement “supported employment,” providing resources such as assistive technologies to help employees succeed at work. Several companies have received attention for creating “disability-friendly” work environments with their own “supports,” including specialized training and technologies adapted for individuals with special needs. Reported benefits of such efforts have included higher retention rates, more cooperative work environments, increased productivity and even reduced production costs. Employers also may be eligible for various tax credits.

Parents of children with special needs must be concerned with ensuring that medical and financial decisions will continue to be made in the child’s best interest once the child reaches age 18 – the age of legal capacity. In most states, once a child reaches age 18, he is presumed to have capacity to make decisions and the parents’ legal authority ends. Parents of children with special needs have various options, each with advantages and disadvantages depending on the situation, to establish a new legal authority to continue making important decisions for the child.

If the child is incapable of making personal or financial decisions once reaching the age of majority, a parent — or anyone else who is not a minor, incapacitated, and does not have a substantial conflict of interest — can petition the court to be appointed the adult child’s guardian (for personal, legal, and medical decisions) and conservator (for financial decisions). The downside is that guardianship and conservatorship requires a court process, which can be expensive and time consuming, as well as emotionally difficult for the person with special needs and the family. In order to protect against abuse, the individual who is the object of the guardianship or conservatorship proceeding (the “ward”) will be represented by an attorney and the court must determine if the disabled person is incapable of making decisions.

In cases where someone is appointed to make financial decisions, the court may require that person to be bonded, file annual financial statements and request the court’s permission before dealing with the property of the person with special needs. While this is meant to increase oversight and protection, it decreases family control.

There are ways to avoid the time and expense of a guardianship and conservatorship process while accomplishing the same basic goals If the person with special needs has sufficient capacity to understand, he can appoint an agent using a durable power of attorney over medical or financial matters, or both. Depending on the type of power of attorney, the agent will have the authority to make financial and property decisions or medical and personal decisions on behalf of the adult child, all without court intervention or direct oversight.

If the adult child receives either Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), and is incapable of managing the funds, the Social Security Administration allows another person to receive the funds to use on the child’s behalf. However, this option also requires the filing of an annual report showing how the money was used.

Another option for parents to consider is establishing a special needs trust. The trust allows a person with special needs to shield assets for certain purposes while maintaining eligibility to receive SSI and Medicaid benefits. The trustee invests and manages the trust assets without the need of a financial guardian or conservator.

The Farr Law Firm helps families facing these issue decide which approach or a combination of approaches best fits their particular situation. Factors to consider include the nature of the child’s special needs, the source and type of the child’s assets and whether the child has sufficient capacity to understand the options.