Most people are uncomfortable facing their own mortality while developing an estate plan to meet the needs of their loved ones after they pass away. But for those who have a child or other family member with special needs, planning for that person’s long-term financial well-being can be especially difficult.
“Estate planning for families who have a loved one with special needs can be very emotional,” says Cathy Walker, senior manager of Trust and Philanthropic Solutions at RBC Wealth Management–U.S. “Clients are understandably concerned about what will happen to their family member when they’re gone, and they may feel a sense of urgency to develop a plan so they can have peace of mind that their loved one will be cared for.”
However, traditional estate planning can fall short for these families, who may unintentionally overlook important steps in building a strategy to ensure their relatives are protected and cared for in the future. Planning for a loved one with a disability—whether they’re a child with a physical or cognitive disability, an adult who’s been injured in an accident, or someone who becomes disabled later in life due to illness, addiction, dementia or medical complication—requires a comprehensive and tailored approach to help establish their long-term financial stability and quality of life.
Why planning matters
Almost 45 million Americans live with a disability, representing 13.6 percent of the U.S. population, according to data from the U.S. Census Bureau. Many of the families who care for these individuals don’t realize the importance of documenting their plans for the future, Walker says.
For example, it’s common for parents to assume that their child who doesn’t have a disability will care for the sibling with special needs. “The sister may want to take care of her brother with special needs, but she doesn’t necessarily know all the details, such as how much money she can distribute from their parents’ estate without messing up her brother’s government benefits,” Walker says. “Or, sometimes a well-meaning family member will leave money to a child with special needs without realizing how it can jeopardize their eligibility for benefits.”
Because there are so many rules governing disability benefits, and because a person’s need for benefits may change as they age, expert guidance during planning is crucial. For example, an attorney can set up a special needs trust to distribute payments that fluctuate based on the beneficiary’s need for government assistance. Walker recommends working with an attorney who specializes in planning for families with individuals who have special needs, along with a team that includes a financial advisor and a tax advisor.
In addition to managing the challenges associated with government benefits, many families also wrestle with how to distribute their funds among various heirs, including those with and without special needs.
“Everything doesn’t have to be equal,” Walker says. “Maybe parents need to put a little more into the trust for the beneficiary who has special needs than for their other children, or maybe they need to set up a life insurance policy to go into a trust for the child with special needs and do the rest of their estate planning separately. It’s a balancing act, but there are many ways to see that siblings also receive support or an inheritance.”
Cover all the bases
An estate plan addressing the needs of family members with disabilities will most likely have to be more detailed and extensive than a typical estate plan. Individuals who have special needs may not be able to manage their own care or make critical decisions as they age, so the plan may need to include written directives that go well beyond distributing money, including:
- The loved one’s long-term care and/or supervision (e.g. will they need to move to a long-term care home, or can they age in place with hired help?)
- Money management (e.g. who will manage the loved one’s finances?)
- Designated guardianship, if needed
- The loved one’s funeral arrangements
- The names of the individuals who are part of their support team
The plan should also include the legal documents (i.e. a will, power of attorney, medical directive and a trust, if applicable) that will help family members and caregivers clearly understand the family’s wishes.
To add a personal perspective about the details of the estate plan, families may also include a letter of intent. Though not legally binding, this letter can outline the life they envision for their family member and how to provide them with the best-possible care, summarizing details such as their likes, dislikes, habits and aspirations to help smooth their transition.
Five steps for effective special-needs planning
Every family’s plan is different, depending on their specific goals and needs. The following steps can be helpful in designing yours.
1. Develop a vision
What support does your family and child or family member need? What are the hopes and dreams for their and your family’s futures? Consider both short- and long-term needs, including medical and physical care, therapies, education, college or vocational training, community inclusion, housing and daily living expenses.
2. Create a supportive village
Build a strong team of professionals and family members who can work together to develop a comprehensive plan. Expanding your network of support resources, such as by tapping into local support organizations and nonprofits, is another practical step that may be helpful for the long-term sustainability of your loved one’s care plan.
3. Get familiar with aid programs
Research government benefits to understand programs such as Medicaid, Medicare, Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI). Your team can help you maximize your loved one’s benefits and preserve their eligibility. You may also wish to look into Supplemental Nutrition Assistance Program (SNAP) benefits, federally assisted housing, energy assistance and group homes.
4. Design a financial well-being strategy
Work with your team to create a comprehensive plan that integrates budgeting, insurance, estate planning and investment strategies. Consider the inclusion of special-needs trusts, Achieving a Better Life Experience (ABLE) Act accounts and other strategies to protect assets and provide for your loved one’s long-term financial stability. Having a plan also helps protect your family member from financial missteps, scams and fraud.
5. Monitor and revisit the plan
Review your plan annually and at important age-based milestones. Staying current with government benefit changes and qualification rules should be part of the ongoing monitoring process. It’s also important to understand and plan for how disability benefits change at age 18.
Despite the added estate planning complexities faced by families caring for dependents with special needs or medical conditions, those who begin the process early are likely to discover that there are multiple options and resources available to help ensure the needs of their loved ones are met, no matter what happens down the road.
Learn more about how to prepare effectively with RBC Wealth Management’s Wealth Insights report, Special Needs Planning: Securing a Future of Opportunities .