As a financial planner, I often have people from all walks of life ask me for simple, straightforward and actionable steps they can take to organize their finances. For some families, this can be as simple as investing in a retirement plan, with the understanding that these choices should be reviewed periodically. However, when it comes to planning for a loved one with special needs or a disability, organizing finances becomes significantly more complex.
Managing the finances of a loved one with a disability involves unique challenges and tools that typical families may not encounter, such as special needs trusts (SNTs), ABLE accounts and specialized estate planning documents. In the ever-evolving landscape for people with disabilities, following a “set it and forget it” approach may be far from ideal. Instead, continuous and careful planning is essential to navigate these complexities effectively.
Special Needs Trusts
SNTs can be used to protect public benefits, support needs not covered by insurance and ensure long-term financial stability through family contributions or legal settlements. There are two types of SNTs: first-party special needs trusts, which are funded with the disabled individual’s own assets, and third-party special needs trusts, which are funded with assets from someone other than the disabled individual.
There are specific rules that must be followed when assets are distributed from these trusts. Improper handling of these assets can result in a loss of public benefits that your loved one may depend on for day-to-day living.
In addition to proper asset distribution, families should consider an ongoing investment approach for the SNT. Depending on the trust’s value, some may choose to have a financial institution manage the investments, while others may choose to self-manage and reduce costs.
Like any account with long-term goals, the longevity of the assets must be not only established but revisited frequently. If a beneficiary is spending assets faster than initially anticipated, it might be time to discuss a budget with a professional.
Like any account with long-term goals, the longevity of the assets must be not only established but revisited frequently.
Additionally, spending differently than the initial plan may indicate that it is time to reassess the investment allocation to ensure it remains appropriate.
ABLE Accounts
ABLE accounts (named for the Achieving a Better Life Experience Act of 2014), while different from SNTs, offer similar protections related to public benefits and ongoing disability expenses. An ABLE account can establish an eligible beneficiary to shelter funds that would otherwise be considered as a resource in public benefits calculations. This allows individuals with disabilities to set aside funds without jeopardizing their monthly income.
Just like SNTs, improper distribution or handling of ABLE accounts can quickly lead to complications. For example, if the assets in the ABLE account exceed $100,000, the account may be counted as a resource for monthly income calculations, potentially disqualifying the beneficiary from essential government benefits. Additionally, spending from the ABLE account must be related to qualified disability expenses (QDEs). If a distribution is used for expenses that are not QDEs, the improper handling may result in required repayment or other rectification.
Funds may also be transferred between SNTs and ABLE accounts. This should be done with proper research and the guidance of a professional who is familiar with state-specific regulations. If they are working, beneficiaries may also be able to contribute a portion of their monthly income to the ABLE account, but this should be done cautiously and with the help of a trusted individual.
It’s often necessary to work closely with an attorney on special needs planning. This includes establishing guardianship, determining long-term living arrangements and funding, drafting estate documents such as a will or a trust, and other planning opportunities.
Don’t ‘Set It And Forget It’
As previously mentioned, this is not something that should be done once and forgotten. The political landscape is constantly evolving, leading to changes in laws that protect individuals with disabilities. These changes can include increased monthly income limits for public benefits, new rules on how assets can be spent from an SNT or ABLE account, age restrictions for accounts, and of course, the expansion of planning vehicles available to your loved one with a disability.
In addition to legal changes, intrafamily dynamics may necessitate revisiting your estate plan: Have you discussed with your loved one if they still want to live as previously established? Is the guardian named in your will still the trusted individual who best fits their long-term needs? Are the fees at the financial institution currently managing the SNT still appropriate?
These are just a few questions that I challenge my clients with when they don’t feel it is necessary to revisit established documents. A simple annual meeting can provide a quick yet detailed review to ensure prior arrangements align with future goals.
A simple annual meeting can provide a quick yet detailed review to ensure prior arrangements align with future goals.
While financial planning can quickly become overwhelming, planning for someone with a disability comes with a unique set of constraints that should not be overlooked. There is much room for error with proper management of government benefits, personal accounts and estate documents. A regular review of these components can be the difference between proper and improper handling of these obstacles. I encourage everyone to set regular reviews to avoid future headaches.
Stephanie Selbach is an Advisor and Assistant Vice President at Wealthspire Advisors. She holds the Chartered Special Needs Consultant (ChSNC) and CFP designations.
