In this video, Jack provides his personal insight into special financial considerations for children with disabilities and how to avoid common mistakes that affect eligibility for financial assistance. Continue below to read Jack's article on Special Needs Planning published in the Winter Issue of the CPA Journal.
The experience of special needs planning by Emilio “Jack” Morrone, CPA, CFP
CPAs often have a deep and trusting relationship with their clients. This is especially so valuable when there is a special need circumstance such as a cognitive or developmental disability in the family. An information void exists regarding the steps needed to navigate and understand the many varied elements of planning when there is a special need circumstance. The CPA planner can fill that void with thoughtful, patient, knowledgeable problem solving skills. They will have to understand the level of care, time horizon, services available and financial resources needed for the special need while also considering the everyday financial needs and goals of the family. Planning promotes a more positive outcome and reduces threats to success.
Appreciate the magnitude of the long-term financial need and duration.
Families may feel overwhelmed as a result of having a child with cognitive, developmental or intellectual disabilities, or complicated medical and health circumstances. Twenty-four hours of support for 365 days a year at $15 per hour totals approximately $130,000 a year in today's dollars. On top of care giving costs, there will be additional costs for housing, utilities, taxes and activities such as school, vacations or social events. Parents want to provide a full and stimulating life for their child as they age together. Presuming there are no health complications that shorten the life expectancy of the child, as the parent ages to their eventual mortality, the surviving child may live another 25 or more years without the support of their parents.
Access available benefits
Encourage the parents to apply for medical assistance (MA) benefits as soon as possible. With most cognitive disabilities the parent’s income and assets are not considered and the child will qualify for MA. In most instances the parent’s insurance is the primary payer of health care and prescription drug costs. MA will then pay for costs as a secondary insurer. Health Care costs can be significant and contribute to an already difficult situation and inhibit the ability to accumulate assets for the child's long term needs.
Benefits may be available through the Social Security SSI program depending on the parent’s assets and income. Qualifying for either or both of these programs may result in the adult disabled child having access to support such as group homes or day programs. Having access to these benefits provides a substantial reduction to the annual costs necessary for the support and maintenance of the adult disabled person. To maintain MA and SSI eligibility there are limits regarding income sync and assets. Typically the insured may not have assets greater than $2,000.
Balance the financial resources
Balancing the cash flow needs for the disabled child’s lifetime needs with those of saving for retirement is a daunting task, even with a disciplined savings program during the working years. While understanding that saving for the child's future is a priority, the CPA planner can encourage the parents to save for their own retirement. Failing to plan for retirement is a common error. Retirement planning will include a review of the parents’ own cash flow needs, long term care needs and life insurance to cover the child’s future needs. Amassing personal financial wealth, in or out of qualified retirement plans for cash needs are also considered available for long-term care costs. Too often what would have been a sizable inheritance for the benefit of the disabled child is lost to the end of life long-term care of the parent. Appreciating the financial magnitude of lifetime care may give rise to an evaluation and use of life insurance with a death benefit paid on either or both of the parents.
Avoid common mistakes
A transfer of assets outright to the disabled child could disqualify them from medical assistance or other welfare benefits for which they are eligible or entitled. Lapses in the benefit stream means that the costs become the responsibility of the disabled person and will need to be paid privately.
Seek out expert legal advice
Seek an attorney who is well-versed in the areas of the Pennsylvania Department of Public Welfare's laws, rules, and policies and can draft legal documents such as wills, trusts, guardianship, and beneficiary designations in a manner to protect them from being considered assets or resources of the disabled person. In the absence of this protection the erosion of the asset for the long-term support could be rapid.
My hope in sharing these insights is that it will help other CPA planners embrace their role as a trusted advisor in the area of special needs planning. These are first hand experiences and lessons learned. In 1990, my oldest son, Anthony, was born with significant developmental disabilities. In 1994, my youngest son, Dominic, was born, also with significant developmental disabilities. In the past 25 years my wife and I have navigated the complex world of parenting and planning. Their need for support will be life-long and last beyond my wife's and my lifetime. We are thankful for what we have learned and hope that others will benefit from our sharing.