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Family members with disabilities need special planning

Nov 08, 2023 | RBC Wealth Management


Find peace of mind knowing your loved one with a disability or medical condition will have access to care over the long term, or if something unexpected happens.

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It’s not uncommon for families caring for loved ones with special needs to spend so much time ensuring the day-to-day needs of their child, spouse or sibling are met that they don’t consider how the academic, emotional, financial and physical support they provide will continue even after they, the primary caregivers, are gone.

However, the process of ensuring long-term needs of a loved one with a disability or medical condition are met can be complex, and delaying such planning can often result in more headaches and hurdles than are necessary. This applies not only to parents of a child with a disability, but to spouses whose partner suffers from something like dementia, too.

In fact, while a child is the traditional beneficiary in an estate plan, financial advisors are finding they are crafting estate plans for a growing number of families with someone who has age-related disabilities, such as Alzheimer’s disease or Multiple Sclerosis. Thirty million households provide care for a parent or other adult over age 50, and that number is expected to double in the next 25 years as more baby boomers age, according to AARP.

“Families are justifiably worried that if something happens to the primary caregiver of a child with special needs or an adult with a disability that care will continue, no matter how old that dependent is,” says Catherine Walker, a senior trust consultant for RBC Wealth Management-U.S. “Starting to plan early can give everyone greater peace of mind.”

Getting started

Families planning to leave an inheritance to someone with special needs should create a comprehensive plan that addresses not only the needs of their loved one, but of his or her future caregivers as well, says Robert Stern, a wealth planning consultant for RBC Wealth Management-U.S.

A plan should include: a will, financial power of attorney, a medical directive, and a trust. It should address the person’s long-term care and supervision, money management, guardianship or conservatorship, funeral arrangements and naming other people who want to help care for the person.

If the disabled child is young, parents might want to create a life care plan, or a road map with educational, living and career planning to help the individual transition to adulthood, Stern says. Parents may also want to write a letter of intent that summarizes details, such as likes, dislikes, habits and aspirations of the dependent in order to help smooth their transition.

Such a plan is best crafted as an addendum to an estate plan, Stern says, so that families and caregivers are working off of one document. Families should consult a special needs or disabilities lawyer to help plan and draft documents properly.

For families constructing a plan for children under 18, it’s usually wise to name someone you trust as a guardian or conservator. And it’s best to do it early, Stern says, because it becomes more difficult once the child is legally considered an adult (between age 18 and 21 in all states).

Not everyone needs a guardian, however. The process of naming one can be costly and involves going to court, says Laurie Hanson, an elder and special needs lawyer with Long, Reher, Hanson & Price in Minneapolis. For disabled people who work and lead an independent life, a power of attorney and health directive may suffice.

“Our goal is to maximize the independence of the person with the disability,” says Hanson. “We have all of these tools to help people.”

Special trusts for special needs

Families that intend to leave an inheritance to loved ones with special needs should be aware that such gifts could jeopardize other important benefits that the individual receives.

Bequeathing money, retirement accounts or other assets directly could disqualify the beneficiary from receiving government benefits, such as Supplemental Security Income and Medicaid.

To prevent this from happening, parents often plan to leave funds to another child with the direction that they use the funds to care for their special needs sibling. However, the child with the funds cannot legally be compelled to use them for the other’s care. 

Special needs trusts are one option open to parents, grandparents, friends or anyone else wishing to leave an inheritance or other assistance to care for someone. These trusts, by their very nature, may have restrictive distribution provisions and may require ‘Medicaid payback’ to the state when the individual passes away. However, special needs trusts funded with assets from a third party don’t require Medicaid reimbursement and allow the assets to pass to other beneficiaries upon the death of the special needs beneficiary, says Stern.

For a smaller inheritance or for families who don’t have a reliable trustee candidate, a pooled special needs trust might work well, suggests Walker. Such trusts are managed by a nonprofit organization, but their fees, services and contracts vary.

Benefits of pooled trusts include working with managers who are knowledgeable and able to deal with the Social Security Administration and Medicaid. There are drawbacks, however. Such trusts can be expensive — there’s usually a one-time enrollment fee, plus an annual fee. As well, many don’t accept real estate or other nontraditional investments, and some distribute assets only at certain times of the year.

Beyond trusts and estate plans

While estate plans are critical to ensuring a loved one with special needs or a medical condition is cared and provided for in the event of their caregiver’s death, there are other financial tools families can tap into as well.

The 529A ABLE (Achieving a Better Life Experience) Savings Plan lets families of disabled children save for certain disability expenses, including education, job training, healthcare and financial management, to supplement private insurance and public benefits.

Like 529 college savings accounts, state-administered ABLE accounts vary, but people can use any state’s plan. Since the 2014 law, most states have passed ABLE legislation and at least 18 have active programs.

“It’s really a great tool in some circumstances, but it only works if the person was disabled before age 26,” says lawyer Hanson. ABLE accounts also carry some restrictions, such as a one-account limit, contribution and account balance caps, and a Medicaid payback clause.

Despite the added estate planning complexities faced by families caring for dependents with special needs or medical conditions, those that begin the process early are likely to discover that there are multiple options and resources available to ensure the needs of their loved ones are met, no matter what happens down the road.

Kevin and Denise's Story

We invite you to watch Kevin, Denise and Kayla’s story and how we were able to help one family prepare for their daughter's future.

Trust services are provided by third parties. Neither RBC Wealth Management nor its Financial Advisors are able to serve as trustee. RBC Wealth Management does not provide tax or legal advice.

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.


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