A Financial Plan for a Special Family

by Priscilla Brandon

John and Roberta Green of Wakefield, Rhode Island, contacted us this past summer with Roth IRA question that had far-reaching implications. It's a great example of how for some families retirement planning needs compete with more-pressing concerns-in this case providing for a disable child.

It turns out that John and Roberta Green (not their real names) have unusual challenges to meet before settling into their dreamed-about retirement home. After a few e-mail exchanges, we suggested the couple visit Cynthia Haddad, a financial planner at Bay Financial Associates in Waltham, Mass. (The firm maintains a helpful Web site, www.specialneedsplanning.com.)

Haddad's expertise is helping families who have children with special needs, and the Greens have a 16-year-old son, Ian, who will need their assistance throughout his life.

"This is a big shift in perspective for couples who expect, as a matter of course, to help pay for children's college educations", says Haddad, "because normally once the kids are through, it's over and Mom and Dad can focus on retirement". Not so for families such as the Greens.

Setting Priorities in the Face of Multiple Needs After meeting twice with the Greens, Haddad has a number of suggestions. All are aimed at building on already laudable accomplishments.

Currently, John is an underwater acoustical engineer with the Navy and Roberta works part-time so she can be at home with Ian and their two daughters, Karen, 13, and Ashley, 8.

The Greens have more-than-adequate funds set aside for emergencies and a good handle on college savings for their daughters and their own retirement. They are struggling with how to address Ian's lifetime needs.

Providing for Ian. Haddad recommends the couple set up a special needs trust. This kind of trust, rather than a more traditional support trust, is the linchpin for Ian's future security. Unlike a support trust, which typically provides for the care and support of dependents, a special needs trust is completely discretionary.

The trustee owns and manages the property for the benefit of the beneficiary and has absolute control over whether and when to make distributions. Only a special needs trust-stating that the trust is intended to supplement, not replace, government benefits-will not affect the beneficiary's eligibility for government benefits.

Haddad figures Ian needs about $400,000 set aside now to cover his future needs. That is way too much for the Greens, considering family income and other demands on their resources.

After discussion and rejiggering assumptions to bring them in line with reality, Haddad recommended that the couple buy $275,000 of first-to-die permanent life insurance, naming the trust as beneficiary.

The Greens may get assistance paying premiums since relatives have said they are willing to help. "That's a good way for them to leverage gifts to Ian," says Haddad.

To make their plans work, the Greens are counting on Ian's ability to qualify for Supplemental Social Security Income (SSI) benefits and Medicaid once he's 18 or can't be covered under John's employee health-care policy.

With that in mind, Haddad advises the family to start spending the money already in uniform gifts to minors' accounts for Ian. While the total is only a few thousand dollars, the assets could postpone or disqualify him for government benefits.

Protecting family income. Since John is the primary wage earner, Haddad suggests he buy 20-year, level-term life insurance to supplement the group-term policy throughout his job. This would protect the family's standard of living should he die prematurely. After that period, Roberta should be able to meet her needs from retirement savings. John should also consider a supplemental disability insurance policy.

Starting an estate plan.

The couple ruefully admit they haven't written wills or named a custodian for the children-despite having a family member ready and willing to take on the responsibility. After reviewing the consequences of having no wills, general powers of attorney, health-care proxies and living wills in place-the Greens vowed not to procrastinate any longer. Haddad also suggests they name a successor guardian for Ian, in case he requires guardianship after age 18.

Haddad urges the couple to prepare a letter of intent-a nonbinding document setting out their wishes and intentions for their son. Its aim is to give family members, professional advocates and others who may become involved with Ian later on the benefit of the Greens' knowledge of his abilities, habits and needs. They should review and update the letter periodically.

In addition, John is reviewing his beneficiary designations on retirement plans and group life insurance to make sure they are in line with the couples' wishes.

Moving Ahead The Greens returned from the final visit with Haddad determined to address Ian's needs first. They also came away with a clear sense of direction and a prioritized to-do list.