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A Plan for Parents of Disabled Children
Building the Road to Long-Term Care

By Barbara Whitaker

Sue and Ron McDonough of Carol Stream, Ill. had just moved into their new house three years ago when the financial advisers and life insurance agents began calling - the fallout from the purchase of their home.

But when Mrs. McDonough asked them for advice on how to provide for their 2-year-old daughter, Megan, who has cerebral palsy, she heard a reaction she didn't expect.

"Ninety-nine percent of the time that ended the phone call," she said, adding that the situation seemed to be "overwhelming to the typical life financial planner."

In some ways, the McDonoughs can sympathize. They have found the financial aspects of raising a disabled child, and planning for her future, to be daunting, even though a life insurance company eventually offered advice.

Just getting children through college is a big-enough hurdle for families, but at some point parents can usually kiss an adult child on the cheek and send him on his way. But disable children sometimes must be supported their whole lives, often long after their parents have died. Making such long-range financial plans seems nearly impossible, but there are smart moves that parents can make to ease the job and avoid the pitfalls.

"It's not the traditional Money magazine financial planning where you buy your house, have your children and plan for their education," said Cynthia R. Haddad, a certified financial planner with Bay Financial Associates in Waltham, Mass. "Planning for these families is planning for two generations."

Parents should, if possible, develop a long-term savings plan just as they would for a child who was going to attend college. And the sooner such a plan is created, the longer the money has to grow. Theresa Varnet, a lawyer in Chicago specializing in estate planning for families with disabled children, said parents should begin when their child "is 4, 5, 6".

If it appears the child will need assistance well into adulthood, parents can create a trust, often financed with life insurance, to provide for the child after their deaths. However, these trusts can be a problem if not set up correctly.

In most cases, money should not be left directly to the child, whether in an ordinary trust or through a will. If it were, it could push the child's assets over the eligibility limit for receiving financial assistance from the government. A person with less than $2,000 in assets who is incapable of earning more than $500 a month is entitled to receive Supplemental Security Income. The Federal Government pays $470 a month in S.S.I., and subsidies in some states can bring the amount to as much as $600. If a person does not receive at least $1 in S.S.I., he will not be eligible for Medicaid in most states.

To avoid going over the asset limit, Ms. Varnet recommends setting up what is commonly referred to as a special-needs or supplementary-needs trust. It spells out that funds in the trust will be used for expenses, like recreation and clothing, that are not covered through government programs.

But families also have other alternatives. Parents who do not have enough money to set up a trust can enter pool trusts, also know as master cooperative trusts. They enable many families to jointly invest in a single trust that will eventually make payments to the children; the money is paid on a percentage basis according to the amount each family invested. These trusts are set up by organizations like the Arc, based in Arlington, Tex., and the National Alliance for the Mentally Ill in Arlington, VA.

Parents are even joining together to provide housing for their children. Dr. Stanley D. Klein, co-founder and editor of Exceptional Parent magazine, said more families were pooling money to buy properties and turn them into group homes and condominiums, similar to retirement communities.

While estate planning is important, Rick Berkobien of Arc said parents with a disabled child should guard against buying too much insurance or making other inappropriate financial decisions.

"There are some organizations that exist now that will provide you with a will, a trust and legal advice," Mr. Berkobien said. He added that parents should be cautious about using some of these package deals.

The most important task for parents, he said, is to get good financial advice. He suggested looking for a lawyer who is certified in estate planning and who has expertise in families with disabled children.

Typically, a simple will and special-needs trust can cost $500 to $1,200 depending on the region and the complexity of the family's finances.

The McDonoughs' planning began with a financial-needs analysis that looked at everything from cash flow to net worth to risk management. It also considered the college education needs of their two other children, ages 7 and 9.

In the end, the McDonoughs learned that they were operating in the red. Although they had tried to shore up their finances by taking out a home equity line of credit, money designated to pay off $7,000 in credit card debt, it was used instead for therapy sessions needed by Megan, who is now 6.

"Our well-laid-out plans went astray," says Mr. McDonough, an electrical engineer.

Working with the financial advisers, Mr. McDonough borrowed against his 401(k) plan to pay off his credit card debt and to put his monthly finances back on track.

The insurance company also recommended a type of life insurance policy that covers both Mr. and Mrs. McDonough and will pay out when the first spouse dies. Known as first-to-die or joint-life policies, they tend to cost about one-third less than what a couple would pay for term life insurance.

Another common policy used by parents of disabled children is second-to-die or survivorship-life policy, which covers two individuals and pays out on the death of the second. The premiums are about half the cost of buying term insurance for both people.

For the McDonoughs, it won't be easy. Although their monthly budget is under control, they know that their daughter will eventually need an electric wheelchair, cost about $10,000, and that they will need to adapt the family van to accommodate it. That will cost an additional $3,000 to $5,000.

Three years into the financial planning program, Mr. McDonough said that every month "still seems like uphill battle" for the family.

"I can't say it's making it any easier today than it was three years ago," he said. "But it's getting us through. We're hoping by doing this now that, if nothing major comes along, we'll see that light at the end of the tunnel."

Getting Started: Help for Families

For parents who are raising a disabled child, financial decisions can be especially difficult. But through good financial and estate planning, they can avoid many of the pitfalls. Here are some groups that can help you get started:

· The Arc, formerly the Association for Retarded Citizens. This organization based in Arlington, Tex., publishes a planning handbook for families and can help find local resources. (800-433-5255) · Exceptional Parent. This magazine for parents with disabled children, publishes an annual resource guide as well as specialized articles in its regular issues. A one-year subscription is $28. (800-247-8080) · The National Parent Network on Disabilities. This federally financed organization provides information, training and support for parents. It offers centers in every state (703-684-6763) · The National Alliance for the Mentally Ill. Based in Arlington, VA., this group also provides information and assistance to families. (800-950-6264)