Preserving And Protecting: Planning For Individuals With Special Needs

The facts and figures are staggering: Nearly 54 million Americans cope with special needs and the rising associated expenses, according to the National Organization on Disability (2007). The increase in cases of certain disabilities may be on the verge of creating a national health crisis. Autism, for one, costs $35 billion a year to care for those afflicted, according to a Harvard School of Public Health study from 2006. The Harvard research also indicates that the lifelong bill for one autistic individual, from birth until death, could reach as high as $3.2 million.

Because government assistance only goes so far when it comes to special-needs care, early planning is essential. While each family’s situation is different, most plans center on these primary objectives:

? Protecting the assets of the person with special needs
? Providing additional income to facilitate a better quality of life
? Preventing the loss of government benefits
? Balancing the needs of other family members and beneficiaries

If you have special needs, or if you are the spouse, parent or grandparent of an individual with special needs, there are specific planning techniques you may want to consider. Here is an introduction to some of these techniques and the steps you might follow:

1. Choose your professional advisors. The right advisors take the time to understand your situation and help you define your vision for your loved one. They should also help you understand what to expect during the course of your loved one’s life and introduce you to resources that can provide useful, ongoing assistance. Your team of advisors may include an accountant, a life care planner (who can make recommendations to help address the individual’s medical, physical, psychosocial and environmental needs) and a trust and estate attorney (whose knowledge of state-specific requirements, special-needs law updates and how to obtain additional benefits are all critical to the planning process).

Your advisory team should work together to evaluate available financial resources, analyze various planning strategies, conduct periodic plan reviews and develop a plan that can help protect your family’s assets while assuring that your family member receives the most resources possible to improve his or her quality of life.

2. Consider your financial planning options. Supplemental Security Income (SSI) and Medicaid are often the primary sources of funds for individuals with special needs. In most cases, losing these government resources could be devastating, making protection of benefits an important component of any financial or estate plan. In many states, without proper estate planning, your loved one could be disqualified from receiving government benefits if he or she inherits or otherwise receives property. Additionally, without proper planning and drafting of estate planning documents, the government may claim reimbursement from the individual’s estate for benefits provided to the individual prior to his or her death.

3. Establish a trust. For many people, the most effective way to provide for a loved one with special needs is to set up a Special Needs Trust (SNT), which supplements government benefits such as SSI and Medicaid. The trust may be funded with proceeds obtained by the beneficiary through a gift, court proceeding, inheritance, life insurance claim, or settlement of a medical malpractice or personal injury case.

4. Select a trustee. Choosing who will serve as trustee of the SNT is an important decision. The individual or institution appointed must have the time, skill, judgment and objectivity to perform a wide range of duties. These duties may include the investment management of trust assets, distribution of income and principal for qualified purposes, administration, custody, bill paying, record keeping and preparation of trust tax returns. You also might consider selecting a corporate trustee to provide professional fiduciary services as trustee or as managing agent to an individual trustee.

5. Fund your SNT. If you don’t transfer or earmark specific assets for your SNT, your beneficiary will receive no supplemental benefits. Therefore, the question of funding is critical. SNTs can be funded with a variety of assets, such as cash, investments and life insurance. Life insurance often makes the best source of funding since it requires a smaller initial outlay and allows you to put current assets toward other goals, such as retirement. In addition, life insurance proceeds are received income-tax-free and may be received estate-tax-free.

6. Balance your family’s needs. When planning for the financial care of a family member with special needs, it’s important to remember to equally address the needs of the rest of the family as well. Make sure that your plans for one family member don’t build resentment among other family members or interfere with your broader family goals.

7. Communicate your plans. In addition to creating and funding appropriate plans, it can be helpful to discuss these plans with all family members. First of all, well-meaning relatives could make gifts that jeopardize your carefully thought-out plans. A direct gift in excess of $2,000, for example, could negate all your planning efforts. Instead, with an open communication channel, family members who wish to help out could be encouraged to make those gifts to the special-needs trust. Second, open communication can help ease siblings’ fears of being left out of your plans or the planning process.

Amid rising health care costs and rigid public-aid requirements, a long-term plan that aims to enrich the life of your loved one has never been more essential. Use this article to start assessing your needs and making the right planning choices today.

Graeme H. Patey is a Financial Advisor with Smith Barney located in Cleveland, Ohio and may be reached at 216-523-3015 or www.fa.smithbarney.com/graemepatey.

In order to qualify for SSI, the limit for countable resources is $2,000 for an individual and $3,000 for a couple. Data Source: Social Security Online, the official Web site of the US Social Security Administration. June 2007.

Life insurance is medically underwritten. You should not cancel your current coverage until your new coverage is in force. A change in policy may be subject to additional insurance and investment-related fees as well as increased risks, and may also require a medical exam. New surrender charges may be imposed with a new contract or may increase the period of time for which the surrender charges apply. Surrenders may be taxable. You should consult your own tax advisors regarding tax liability on surrenders.

Citigroup Inc., its affiliates and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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Smith Barney is a division and service mark of Citigroup Global Markets Inc. Member SIPC.

Graeme H. Patey specializes in developing customized financial strategies. He employs a consultative approach on the financial and investment needs of high net-worth individuals and financial services to businesses.

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Tags: individuals, Needs, Planning, Preserving, Protecting, Special