financial and legal planning for individuals with special ... · special needs families in america...

Financial and Legal Planning

for Individuals

with Special Needs

Presentation to:

Financial Planning Association of New Jersey

December 4, 2018

Our Discussion Today

• Introduction

• Why is Special Needs Planning Important?

• What is Special Needs Planning?

• How Do We Prepare a Financial and Legal Plan?

• What Do You Need to Know?

• Summary and Q & A Segment

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Profile: Who We Are

James J. Di Gesu, CPA, PFS, MBA

• Financial Planner and Wealth Manager for over…A lonnnng time!!

• Sr. Vice President of Wealth Health, a Personal Wealth

Management firm, located in Roseland, NJ

• Clients include professionals, executives, retirees, business owners

and their families

• Serves families with special needs children

• VP, Private Wealth Management, Bank of New York Mellon

• Sr. Tax Manager with KPMG and Deloitte

• Member of AICPA, NJSCPA, CIA NJ

• Graduate of Seton Hall & Fairleigh Dickinson Universities

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My Daughters:

Andrea & Michela

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Special Needs Families

in America Today

US Census Bureau Report

• Of 72.3 million families in Census, nearly 2 in 7 reported at least one

family member with a disability.

• Of 21 million families reporting at least one family

member with disability, 5.5% of families have

both adults and children.

• 1 in 26 American families reported raising children

with a disability.

• 1 in 9 children under the age 18 receives special

education services.

• Nearly 2.8 million families or 1.3% reported raising 2 or more children

with a disability.

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in America Today

More Statistics

• Per the American Community Survey, 12.6% of US population in

2015 have some form of disability.

• Nearly 54 million Americans cope with some form of disability.

• More than 41 million Americans or 15% of the population age 5 or

older have some form of disability.

• In 2015, 7.6% of children ages 0 to 17 have some form of disability.

• Over 20% of Americans ages 6 to 16 suffer from some of physical,

mental or emotional impairment.

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in America Today

Autism Statistics

• Autism effects 1 in 88 children.

• 40% of children with autism do not talk.

• Life time cost for an individual with autism estimated to be

over $3.2 million.

• Autism costs our nation $35 billion annually increasing yearly.

• There is NO known cause for autism.

• There is NO cure for autism.

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Reasons for Special Needs Planning

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Reasons to Plan

Results of 2008 Mass Mutual/Easter Seals Autism study of parents:

• 61% incurred debt to meet their financial needs.

• 50% concerned about the impact on their retirement plans.

• 47% worry financial drain impacts their ability to raise their

other children.

• 78% do not have a comprehensive financial plan.

• 56% have no financial advisor or expert.

• Only 13% believed their child would be financially secure or

independent.

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Reasons to Plan

Special Needs Families’ Lack of Planning

***Alarming Statistics From MetLife Survey***

• 69% are worried about providing lifetime care for their child

• 49% have not identified a Guardian

• 72% have not selected a Trustee

• 84% have not written a Letter of Intent

• 88% have not setup a Special Needs Trust

• 50% with life insurance lack confidence it is sufficient

• 63% have NO PLAN to meet expenses when they are gone!

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Reasons to Plan

• Increasing Population with Disabilities

• Increasing Demands for Services

• Increasing Life Expectancy • Increasing Costs of Care

• Shrinking Government Resources

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Reasons to Plan

Results of 2008 Mass Mutual/Easter Seals Autism study of parents:

• 75% of parents concerned about their child's:

Future Independence

Financial Security, and;

Quality of Life

• Parents want to provide financial, physical security for their

child as well as their other children.

• A strategy must be put in place for siblings and/or other future

caregivers.

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Why is Special Needs

Planning Important?

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Why is Special Needs Planning

Important?

• Today unlike 40 or 50 years ago, special needs children

remain with their family rather than becoming

institutionalized.

• Due to years of advocacy children with special needs are

entitled to access the educational system, i.e., Free

Appropriate Public Education (FAPE,1973 Federal law).

• Children remain within their communities and may stay

well after aging out of the educational system.

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Generally planning is determined by the child’s age.

Often one parent is the advocate involved with the child’s school, medical doctors, caregivers, etc.

Life Stages for Children with Special Needs

• Birth to Age 3: Early Intervention

• Ages 3 to 15: Grade School

• Ages 16 to 21: High School

• Ages 22 and beyond: Adult Day Programs


Important?

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Important? 1. Must ask the following questions, what are the

following:

a) The Parent’s Needs?

b) The Child’s Needs?

c) The Family’s Needs?

2. Questions must be asked in order to plan for the:

a) Parents goals and financial security.

b) Child’s future goals and financial security.

c) The integration of both a) & b), plus maximizing government resources to benefit

the special needs child.

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Important? Consider the following questions regarding the child:

• What are the child’s resources? Does the child have income?

Does the child have assets?

• Will the child be eligible for government resources, including SSI, SSDI, Medicaid Can depend upon their income and assets

Also depends on their age

• Does the child need caregivers?

• Will the child be capable of attending school, college or vocational school?

• Will the child be able to work and if so, what capacity?

• Will the child need residential living arrangements?

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What is Special Needs

Planning?

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Definition: Special Needs Planning is a process to secure a family and their child’s future financial security and quality of life.

1) Integration of traditional financial planning with the unique requirements of the special needs family.

2) Integration of traditional legal planning with those legal considerations and government benefits planning applicable to the special needs child.

3) Traditional financial and legal planning plus Special Needs Planning becomes the Comprehensive Special Needs Plan.

What is Special Needs Planning?

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Plan with a “Child-centered Approach” using 5 Elements 1. Family and Outside Support: Parents must ask family, friends and

professionals if willing to serve as a guardian, caregiver, trustee or advocate for child.

2. Emotional : Parents need to be reminded to take care of themselves, (mentally, physically, emotionally, spiritually, etc.) address their financial needs first and understand that life is dynamic and will change.

3. Financial: Address all the planning disciplines in a comprehensive basis.

4. Legal: Select attorney, prepare wills, guardianship, trusts, trustees, etc.

5. Government: What benefits is the child entitled to? Pre age 18, post age 18, State and local programs, DDD, SSDI, SSI, Medicaid, etc.


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For the special needs child the most pressing concerns may

be providing for their supplemental lifetime planning needs

1. What are the short term and long term cost of services and supplemental expenses?

2. What are the residential costs for current house or purchase or rental of residential property?

3. What is the probability of maximizing the child’s eligibility of government benefits?

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Special Needs Planning

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10 Questions You Must Consider Asking Parents about their Special Needs Child’s Future:

1. What kind of lifestyle is desired?

2. Where and with whom will your child live?

3. Who will make the financial decisions?

4. How will living expenses be met?

5. Who will make the health care decisions?

6. What type of care will be required?

7. What about the child’s education?

8. Will a guardian or conservator be necessary?

9. What will the impact be on other family members?

10. What unforeseen challenges could arise?


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10 Planning STEPS of the Planning Process: 1. Address the Family’s Needs, Child’s Needs & Goals

2. Identify Available Resources

3. Estimate Costs and Expenses

4. Choose Knowledgeable Professionals

5. Make Decisions About the Future

6. Use Financial & Legal Planning to Meet Needs

7. Create Financial Plan

8. Execute Legal Plan

9. Access Government Benefits

10. Monitor and Update Plan

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Creating the Special Needs Plan

The financial planning process remains the same as it would for

the traditional family with a few exceptions:

1. Cash Management

2. Insurance Planning

3. Home & Residential Needs

4. Education or College Planning

5. Investment Planning

6. Retirement Planning

7. Estate Planning

8. Wealth Distribution


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Traditional vs. Special Needs

Emergency Funds, Family

Needs

Cash & Debt Management Supplemental Expenses,

Protection of Government

Benefits

Wealth Distribution, Home

Purchase, Investment Mgmt,

College, Retirement

Personal Financial

Planning &

Investment Management

Gifts, Inheritances,

Transitional Plans, Lifetime

Residential Needs, Trust

Mgmt.

Life, LT Disability, LT Care,

Health, Home, Auto

Insurance & Risk

Management

All Insurances, State Health

Plans: Medicare and Medicaid

Wills, Trusts, DPOA’s

Health Care Proxy, Living

Wills

Estate & Legal Planning Selecting Guardians, Trustees,

Caregivers, SNT, LOI, Titling

of Assets

Traditional vs. Special Needs Planning

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1. Key to planning is building a foundation to achieve financial security.

2. Parents must plan for two generations:

1. Their own life expectancies.

2. Their child’s and his/her lifetime needs .

3. Personal financial resources – Income, savings and accumulated capital and assets.

4. Government resources – Maximize the benefits will increase the chance parents are able to financial support their child.

Planning Options

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1. Planning for death of a parent most important since the parents are the child’s security.

2. Families usually led to believe they have completed planning process if their wills and trusts are prepared.

Nothing can be further from the truth!

The estate plan does not guarantee the child’s security!

3. You must provide guidance to the parents of their vision for their child’s lifetime.

Planning Point: The goal must be to achieve financial

independence and security of the child during their lifetime

and especially upon the parents death.

Planning Options

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Planning Options

To Achieve Planning Goals:

1) It is critical to plan in a comprehensive approach.

2) Planning ensures coordination of Financial and Legal

strategy while integrating government benefits

3) Due to life changes and emerging goals, planning

SHOULD be a life long activity and commitment!

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Insurance Planning and

the Special Needs Trust

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1. Make no decisions or no plans, or;

2. Make gifts or leave assets to child, or;

3. Disinherit child, or;

4. Distribute assets to siblings, or;

5. Leave assets to future caregiver, or;

6. Establish SNT for child

Planning Options

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Requirements for the SNT

For the Special Needs Child:

• Funding of Special Needs Trust (“SNT”) at death.

• Allocation to SNT before other children receive assets or

divide assets equally between all children.

• Cap amount to special needs child consider funding

necessary amount with insurance.

• Distributions from the Trust.

• Special needs child CAN NOT control or have access to the

trust funds.

SNT Planning by Parents

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3 Questions to Ask Before Funding a Special Needs Trust

Q1: How Much Capital is Necessary? A1: You must calculate the cost of care over the child’s life expectancy. Q2: Can Parents/Others Assets Be Left to Trust? A2: Yes, but if estate assets are insufficient, the trust will be unable to meet the lifetime expenses of the child. A2: Also must consider allocation of assets between child with special needs and other children.

Q3: Can Life Insurance Proceeds Provide Cash to the Trust? A3: Yes the use of life insurance proceeds can be an ideal source to help meet child’s life-time living expenses.

Special Needs Trust

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Income Tax Benefits

1. How much insurance is necessary?

2. What type of life insurance is best for parents of SN child?

3. Should we buy multiple policies and types?

4. How should the life insurance be owned?

Can we use a trust or ILIT?

Can a child with special needs be named policy owner?

5. Who should be named Beneficiary Designation(s)?

Planning Point: Life Insurance is great tool for meeting the long-term

needs of a special needs child but must be done with care.

Life Insurance Decisions

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Income Tax Benefits

Avoiding Pitfalls and Common Mistakes

• Child with special needs should NEVER be named owner

• Use of ILIT as logical owner

• 3-year “Look Back” Period

• Overpaying for Term Insurance

• Proper Beneficiary Designation(s): SNT's

Life Insurance in SN Trust?

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Beneficiary Designations of Assets:

Be sure to review the ownership of all assets which pass

outside of the will, i.e., insurance, retirement plans, IRA’s,

401k plans, etc.

• Be sure to speak with grandparents and relatives regarding

gifts and inheritances

• US Savings Bonds

• IRA’s to Trust or SN Trust

• Roth IRA’s do NOT leave to child with special needs

SNT Planning by Parents

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Income Tax Benefits

Do NOT Overlook Other Forms of Insurance

• Disability Insurance

• Health /Medical Insurance

• Property & Casualty Insurance

• Umbrella Insurance

• Long Term Care Insurance

Other Insurance Coverage

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Investment Planning

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Income Tax Benefits

Comprehensive Financial Plan

1. Lifetime Needs Analysis (Capital Sufficiency)

2. Investment Objectives & Strategy

Investment Plan & Allocation

1. Determine the Investment Approach

2. Prepare Asset Allocation

3. Evaluate Investments

4. Select Investment Managers

5. Monitor Investment Performance

6. Provide Reporting to Trustee/Family

Investment Management of Special

Needs Trust

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Income Tax Benefits

• Independent RIA

• Customized Approach

• Can use Stocks, Bonds, SMA’s, Mutual

Funds, ETF’s, Hedge Funds, Real Estate,

Alternative investments

• No Proprietary Funds

• Review Fees, Expenses, Transaction Costs

Investment Management of Special

Needs Trust

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Estate & Trust Planning

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Profile: Who We Are

Lori Wolf, Esq.

• Member of the firm’s Tax, Trust and Estates Department.

• Counsels individuals, families

business owners in all aspects of Tax, Trust and Estate Planning and Business Su

ccession Planning.

• Emphasis on wills, trusts and sophisticated tax planning techniques and

corporate planning involving closely held businesses.

• Focus on planning for

families which have children with special needs and elder care planning.

• Active member of the Women President’s Organization.

• Earned a B.A. from Washington University in St. Louis, a J.D. from Washington

University in St. Louis

• Masters in Tax Law (L.L.M.) from New York University School of Law.

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Estate Plan Components

• Legal documents are cornerstones of estate planning and

special needs planning

Wills

Trusts

Durable Power of Attorney

Health Care Proxy

Living Wills

Beneficiary Designations

• The documents alone will not deliver the necessary results

• Collaborate with a Special Needs Attorney

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Why Everyone Needs a Will

• Distribute assets the way you want

• Designate trustee(s)

• Designate guardian(s) for minor children

• Provisions for minor(s) – control the timing

• Make specific bequests

• Provide for your child with special needs

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Government Benefits

• Supplemental Security Income (SSI): Means tested assets and income

Medicaid: Medical Insurance coverage if on SSI. Medical and means

tested. (Covers most group living arrangements.)

• Social Security Disability Insurance (SSDI): Non means tested

Medicare: Medical Insurance coverage, (Does not cover living

arrangements.)

• Disabled Adult Child Social Security (DAC): Non-means tested

(Disability must occur prior to age 22. Eligible if parent receives SS,

becomes disabled or dies.)

•

Government Benefits

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Government Benefits

Medicaid

1. A person can qualify for Medicaid directly without receiving SSI

2. Financial limits for person living alone:

• Income Limits: Maximum benefit ~$740 /month

• Resources Limits: Maximum value of assets, $2,000

Exempt Assets: Home, personal effects, auto.

Government Benefits

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Government Benefits

How Do I Provide Money to a Child to Enhance the Quality

of Life Without Causing Loss of SSI and Medicaid?

• Do NOT leave the money to the child with special needs

• Do NOT leave the money to someone you trust to spend properly

• Be sure to Leave the money to a SPECIAL NEEDS TRUST

Government Benefits

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Special Needs Trusts

Supplemental Benefit or Special Needs Trusts

1. Third Party Trust

2. Self-Settled Trust (d)(4)(A)

3. Pooled Trust (d)(4)(C)


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Requirements of Special Needs Trusts (SNT):

• Can be created by family members for the benefit of the child

• SNT can be established at any time

Immediately

Upon child reaching age 18

Upon death of parent

Planning Point: Generally stand alone SNT preferable to Testamentary SNT

• Child cannot revoke or change SN Trust

• Child’s own money should never be placed in a third party SNT

• Can provide flexibility when needs of child are unknown

• Trustee must use funds only to supplement NOT supplant

government benefits


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For Special Needs Child:

• Assets from SNT can supplement but can not replace government

benefits

• Can be an inter vivos trust to receive gifts or inheritance from

parents or others

• Parents need to communicate with family members to allocate

gifts/bequests to SNT and not to child directly

• SNT can be revocable or irrevocable

Planning Point: State law can affect structure and requirements of SNT

Special Needs Trust

Planning by Parents

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Assets of SNT’s can ONLY be used to Supplement Gov’t Benefits:

• Purchase of home

• Household and personal items

• Education, tuition, books, supplies, etc.

• Vacation, travel, entertainment

• Other

Assets of SNT’s can NOT be used for the following:

• Can NOT give cash to the child

• Can NOT give cash to the family of the child

Assets of SNT’s should be careful when using funds for the following:

• Food, Clothing and Housing Expenses

Special Needs Trust

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Selecting Guardians Who Should be Trustee? • Parent

• Corporate or other professional Trustee

• Successor Trustee

Responsibilities of Trustee • Invests and manages assets

• Distributes income and/or assets to the child

• Advocate for medical and financial entitlements

• Recordkeeping ability, knowledge of accounting and tax-planning

• Willingness to serve the duration of trust term

Attributes of Trustee • Acts in the best interest of the child

• Possesses integrity, impartiality

• Experience as a Trustee, has degree of financial savvy

● Has special sensitivity to a child with disabilities

Selecting Trustees

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Selecting Guardians

Parents Must Make The Decision:

• If < age 18 Designate Guardian in Will

• If child > age 18 Legal Guardian needs to be appointed

once child becomes emancipated adult

• If not court will appoint guardian

• Consider use of PofA & Health Care Proxy for child if

guardianship not appropriate

• Other Key Points:

Life-long Commitment of Caring

Guardian must be appointed by Court

Can be guardian of person, property or both

Protect and care for the child for life

Advocate for the child

Be accessible to the child and others

Selecting Guardians

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The Facts

1. Achieving a Better Life Experience Act (ABLE) was

passed December 2014.

2. Created tax-exempt account to be used for the benefit of

special needs individuals.

3. Desire to make available to the disabled a fund while

preserving their government benefits.

4. Similar to 529 college plan accounts.

5. Does not eliminate the need for Special Needs Trusts.

What is the ABLE Act?

54

Assemble Your Special Dream Team The PROS

1. Funds can be used to pay Qualified Disability Expenses (QDE) which

can included education, housing, transportation, support services and

more.

2. ABLE account supplements government benefits (SSI, Medicaid).

3. Interest earned is tax-free.

The CONS

1. Can ONLY deposit $15,000/year (gift-tax exemption) .

2. ONLY the first up to maximum of $100,000 is exempted for SSI

eligibility purposes.

3. ONLY individuals whose disability occurred before reaching age 26 are

eligible for the account.


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Unknowns & Flaws

1. Each state must establish regulations before financial institutions

can make accounts available. NJ has not established a date to

permit accounts.

2. ABLE accounts MUST be established in the name of the disabled

person which gives that person complete access to the ABLE

account:

If child unable to exercise good judgment or fiscal responsibility

ABLE account may not be ideal

Special Needs Trust preferable

3. Estate Recovery Laws and Payback Provisions: If any money

remains upon person’s passing, NJ is entitled to be reimbursed for

benefits paid out by NJ state on person’s behalf, before any money

can be distributed to heirs.


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What is a Letter of Intent?

The LOI is a vital document which allows parents thru the planning

process to communicate to caregivers their expressed wishes, hopes and

dreams for the future of their special needs child.

It is a guide for those people the parents select to follow their wishes in

meeting the needs of their child. Biographical, personal information, unique personality traits Important people in child’s life Personal care, diet, habits & daily routines Family details and information Medical care, medical history and medical professionals Education, schooling, social and recreational details Parent’s and child’s financial information List of financial advisors Estate and legal documents Current and future governmental benefits

Letter of Intent (LOI)

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Final Thoughts

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Assemble Your Special Dream Team

10 Steps You Can Take Now:

1. Review what has been accomplished to date

2. Calculate the child’s future financial needs

3. Financial advisor should coordinate with family

4. Prepare comprehensive personal financial plan

5. Make plans to maximize all future resources

6. Address legal matters, SN Trust, guardianship, etc.

7. Establish, plan funding and management of SNT

8. Understand eligibility for government benefits

9. Create Letter of Intent (LOI)

10. Implement family-wide communication of plan

What Can You DO Now?

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Question & Answer

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Thank You for Your Time!

Please feel free to speak with us about

scheduling a 1-on-1 consulting session.

Contact Information:

James J. Di Gesu, CPA, PFS, MBA

Wealth Health

5 Becker Farm Road

Roseland, NJ 07068

Tel.973.535.9577

Cell:201.414.4002

Fax.866.734.4227

[email protected]

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Thank You for Your Time!

Please feel free to speak with us about

scheduling a 1-on-1 consulting session.

Contact Information:

Lori Wolf, Esq.

Cole Schotz

Court Plaza North

25 Main Street

Hackensack, NJ 07601

TEL: 201.489.3000

FAX: 201.489.1536

[email protected]

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