Frank discussion with client crucial to protect their loved one's future
Advisers have to take lead in special-needs planning
By Lavonne Kuykendall ; Investment News
Financial planner John James is the parent of a special-needs child, but for years, he didn't fully comprehend the planning needs of families like his.
“About 15 years ago, I set up a special-needs trust [for a client] and thought that is all you need; we don't need to talk about it anymore,” said Mr. James, whose firm, Quantum Financial Planning Services Inc., is in Kirkland, Wash.
That all changed during a routine meeting to update that couple's financial plan.
Mr. James said that he asked the mother of the special-needs son, Peter, to go into detail about the serious issues that they were handling.
“Two hours later, I learned more about Peter than I had in the last 15 years,” Mr. James said. “I said: "We can't proceed with your financial plan until we get Peter taken care of.'”
It is crucial for special-needs families to plan carefully to provide for future care and to avoid running afoul of complex eligibility rules for programs ranging from Social Security to assisted-living homes for the disabled.
BETTER DIAGNOSIS
The number of older Americans with disabilities is skyrocketing, too.
In 2010, there were 641,000 adults over 60 with developmental disabilities, and that number is expected to double by 2030, according to a study by the University of Illinois' Department of Disability and Human Development. The average age of a disabled person being cared for at home is 38, according to the same study.
Yet most advisers with whom Mr. James talks don't even know which of their clients have family members with special needs, because they've never asked.
And in many cases, those who do ask fail to get the kind of detailed information that they need to customize a plan for that family.
Experts in the field admit that because it is such a complex issue, it is very difficult for most non-specialists to wrap their arms around it.
Mr. James acknowledges that he made mistakes because of his inexperience in dealing with special-needs families and has since become a licensed advocate through Protected Tomorrows Inc., which trains advisers in this area.
A central consideration in choosing to work with disabled people is that the adviser must not be afraid to be intrusive, said Mary Anne Ehlert, founder of Protected Tomorrows and president of Ehlert Financial Group Inc. in Lincolnshire, Ill.
Typically, well-meaning advisers don't dig deep enough to get a clear understanding of the family member's disability and what kind of care they will need, Ms. Ehlert said.
“Someone who is bipolar is not the same as someone with a developmental issue,” she said. “With Down syndrome, the family [often] is nurturing and other siblings are supportive. Someone with a mental illness may have different relationships or be more difficult, and you may not find a sibling who will step up.”
AWKWARD CONVERSATIONS
Such nuances have a big impact on future living expenses, but many advisers find asking these questions distressing, Ms. Ehlert said.
“That is a very uncomfortable place for the adviser to go,” she said.
The same awkwardness arises when it comes to how much professional assistance the child will need with daily tasks, Ms. Ehlert said.
“[The adviser] can't make the assumption that everyone needs one-on-one support,” she said.
“It is much easier to talk about managing money, asset allocation or life insurance than it is to talk about an autistic child,” Mr. James said. “It's hard to know what to ask or what to say.”
Frequently the parents aren't eager to discuss the issue, either.
“One planner referred a client to us who had a 27-year-old daughter with special needs,” Mr. James said. “They hadn't told the adviser about her because they didn't want to talk about it.”
The couple had applied for Medicaid and SSI for their daughter when she turned 18, Mr. James said.
However, the couple made some big mistakes when they filed the paperwork, and were turned down.
It most likely wouldn't have happened if they had good financial planning advice, Mr. James said.
“There's a huge financial difference in planning for a special-needs child who has Supplemental Security Income and Medicaid,” he said.
A central part of the planning process is establishing a special-needs trust, which allows the family to set aside assets to help provide for the individual while shielding the money from strict asset limits set for government benefits such as SSI and Medicaid.
Ms. Ehlert and others said that such trusts can be tricky to set up, and they suggest careful vetting to find an experienced special-needs attorney.
Once the trust is established, advisers must make sure that assets are properly titled to the trust, or the trust is meaningless.
TRUST ISSUES
“We see that type of mistake all the time,” said Scott Adams, co-founder of The Special Needs Planning Center in Kansas City, Mo.
The firm focuses on families with special-needs children.
Another mistake that advisers need to avoid is to consider the planning process finished once the trust is set up, Mr. James said.
“The financial planner assumes that once they buy a big enough life insurance policy to put into the trust, that will solve all the problems,” he said.
In the case of Mr. James' clients with the special-needs son, the adviser overlooked the fact that the parents hadn't settled on an independent trustee to manage the trust.
That important process took another 18 months of research and hard work.
An inheritance for a special-needs child also can become a serious financial nightmare, Mr. Adams said.
“Those are usually not [handled] correctly,” he said.
“The stakes are enormous. If the child inherits more than the allowed assets, that one glitch could cause the child to lose their health insurance and other benefits,” Mr. Adams said.
lkuykendall@investmentnews.com
# http://www.investmentnews.com/article/20120408/REG/304089998#
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