For example, life expectancy for people with Down syndrome rose from 25 years in 1983 to 60 years today. The incidence of autism among children ages 3 to 17 rose nearly 300% from 1999 to 2008, and the disorder is thought to now affect one in 50 children. The same time period saw the incidence of any kind of developmental disability jump 17% percent, the Centers for Disease Control and Prevention found.
More than ever, parents are looking for ways to ensure a high quality of life for their special needs children well into the future, just one of several family issues that may make investors feel they cannot save for retirement.
Caregiving may leave time for little else, and creating a long-term strategy looms as a daunting task—and misconceptions seem to grow in tandem with the demand for advice and planning services. The most common, says Channing Schmidt, senior advanced marketing counsel, Securian Financial Group, are that getting the right plan in place will be expensive, and that the matter of caring for a child with special needs is best left to family members.
Financial advisers are in a good position to help manage the planning process and develop a plan that covers every foreseeable eventuality, Securian feels. A program that provides guidance for financial advisers and their clients helps ensure that the child’s finances are handled correctly over the years and the parents’ instructions for care are followed.
Many families think this is going to be a very expensive endeavor, Schmidt says. “It won’t be cheap, but they might be surprised that it is not as expensive as they might have thought,” he tells PLANADVISER. Schmidt recommends families look at their own financial plan and work with an estate planning attorney to make sure the estate plan has provisions for the special needs trust. “There is a subset of attorneys who specialize in working with these trusts,” he says. “Talk with someone very knowledgeable and has the track record to make sure everything is done and done the right way.”
A good place to start is by asking for referrals from other parents of kids with special needs, Schmidt says. Next, make sure recommended providers have the investment philosophy that will look out for the long-term and short-term interests of the child.
Choosing a trustee for any trust is critical. “The first inclination is to put a family member or trusted friend in charge of the trust,” Schmidt says, and it’s common for most parents to struggle with this decision. “Sometimes it’s a sibling, uncle, cousin,” he says. “But a lot of the time, those people have great intentions but no special ability to handle investments.”
For this reason, Securian suggests finding a corporate trustee who will be familiar with government aid, should the child with special needs be receiving benefits, and who has the investment expertise to handle some important financial decisions. “Usually they have much more experience than a family member would,” Schmidt points out.
The parents write the letter of intent—with assistance from trusted advisers and caregivers—that clearly describes how the child should be cared for. It helps the trustee and future caregivers understand the parents’ wishes as they make critical decisions about the child’s welfare and lifestyle.
Another misconception is that disinheriting the child—essentially leaving it to other family members—is the best way to ensure the child’s future will be funded. But Schmidt points out that family situations can be altered by divorce or marriage or credit issues. “Managing a large sum of money more often is best left to professional asset managers,” he says. “A corporate trustee helps ensure continuity over the decades and can help carry out the parents’ wishes as described in the letter of intent.”
Including the Family
Many families would like a family member to be part of the planning, which is understandable. Schmidt says that the corporate trust can have on its committee a family member, social worker or any other member the family feels should be included in the decision-making for input on dietary, health or other issues. Often, he says, only family members have information about the special needs person’s life or preferences.
Another funding possibility is to put some money toward a life insurance product, such as a second-to-die insurance policy. Schmidt explains that this type of policy covers two lives, usually husband and wife. The death benefit is not paid out until the death of the second spouse, so the money can go into the special needs trust. It takes a sliver of money that the couple could be saving for retirement and pays out when the child needs it most. “It is usually going to be a little less expensive than a traditional life insurance policy,” he explains.
While it can be a strain for a couple to plan for the child’s future needs while also planning for their own retirement, Schmidt is adamant that the parents prioritize and place their needs first. Using the in-flight analogy of putting on your own oxygen mask before you put on your child’s mask, he says parents must be able to handle their own retirement first. “This is definitely something that comes up,” he admits. “It is a stress to have to put aside assets for the child.”
A special needs plan has more than simply the financial component, Schmidt says. “Parents are well advised to create a team of experts and caregivers who understand the child’s financial and lifestyle needs and will help establish a plan for living that matches the parents’ wishes.