According to the U.S. Census Bureau there are now more than 50 million Americans with disabilities. That makes them not only the nation’s largest, but also its fastest growing minority group, having increased by 25% between 1990 and 2000. Today almost 30% of American households (20 million) include a member with some sort of disability. The aging of our population and other factors make this a trend that is likely to continue, The Social Security Administration estimates that 70% of us will become disabled before reaching age 75.

About 20 percent of my current clients are families with children who have serious disabilities. I first set out to develop an understanding of these issues because I have a son with Down syndrome. I have since found that helping families create plans to provide for their children with special needs is the most rewarding work I do. We face some tough planning issues and useful financial information tailored to our specific needs is scarce.

Even though this is a huge and growing part of our society, it is not a market served by many financial advisors because disability and poverty tend to go hand in hand, Thirty-four percent of Americans with disabilities live in households with a total income of less than $15,000, whereas only 12% of other households have incomes that low. While almost 4 out of 5 non-disabled Americans between the ages of 8 & 64 work full-time, less than 30% of those with disabilities do so. Because many persons with disabilities depend on means-tested government programs they are, in effect, frozen out of the wealth accumulation process.

The role of a financial advisor in helping a family with a minor or adult child who has a disability is to help them avoid making terrible mistakes and to encourage them to create and maintain a flexible plan to provide appropriate long-term care. This effort is complicated by factors involving social policy, law and psychology. Let’s outline some of the key elements involved.

Creating an estate plan for a family with a disabled child is just like doing estate planning for a typical family, except that it must he done upside down and backwards, with one hand tied behind your back. To understand what I mean, just ask yourself how often an estate planning process starts with the recommendation that your most vulnerable child he disinherited? Despite the apparent contradiction, disinheriting a child with a disability is often a key element in creating an appropriate plan for their lifelong support.

Anything that pushes the value of a recipient’s assets over $2,000 makes them ineligible for many means-tested gov­ernment programs. If a person with a disability needs government assistance to pay for their basic support or depends on Medicaid as their health insurer of last resort, then making a direct gift to them is one of the terrible mistakes to he avoided,

Say, for example, a parent leaves half of a $1,000,000 estate to each of two children, one of whom is 5O years old and disabled. The adult child with the disability could see their entire share of the estate claimed by the state treasury as re­payment for benefits previously received, If anything were left after that first bite, the person with a disability would he ineligible for Medicaid and other means-tested programs until their assets are spent down to $2,000. Being without health insurance and unable to qualify for a plan in the private market, it night not take long for that to happen. But most par­ents able to provide a legacy would rather see real tangible benefits enjoyed by the heir instead of having the inheri­tance disappear into the state’s general use funds and the coffers of healthcare providers.

Better solutions incorporate a special needs trust (also known as a supplemental needs trust) into the estate plan. This type of trust holds assets that are not owned or controlled by the beneficiary, but that may he used to pay for things other than basic food, shelter and clothing. Trustees may be specifically prohibited from making distributions that would disqualify the beneficiary from government benefits, but they can make distributions for “supplemental needs” such as transportation, entertainment, vacations, etc. The family may not want to fund such a trust until capital is actually needed to provide support for the beneficiary, Other vehicles are more efficient tools for accumulating assets, and keeping funds out of the trust maintains more flexibility,

The use of special needs trusts and coordination of assets, income and expenses for a child with a disability is not just an estate planning issue. In fact, it becomes important whenever the person with the disability becomes eligible for means-tested benefits. That could he when they reach the age of majority or even at birth if the family in­come and asset base is low enough. Critical issues include both money management and legal guardianship.

However, it is in the context of the parents’ deaths that the special needs trust assumes the greatest importance, assuring that the person with a disability receives adequate care. Most parents of young children need significant amounts of life insurance. When one or more of the children has a disability, the need for life insurance increases, due largely to the fact that such a child’s dependency period is longer than a typical peer. For parents whose children have significant disabilities, term life is often the best way of preventing a tough situation from becoming a full—blown tragedy.

We usually assume that parents’ financial obligations end (or at least taper off) once the children are able to establish themselves as responsible, self-supporting adults. What if a child isn’t able to make that transition fully? Parents of a child with a disability may provide some financial support throughout that child’s life, so there is often a need for permanent life insurance to help fund the special needs trust after the parents’ deaths, too. An appropriate solution might he a combination of individual plans or, more typically, a survivorship life policy. Having such a policy in place and funded means a family can get the most out of their other assets, allowing them to spend down or annuitize their capi­tal. This is an area where a fee-for-service insurance advisor’s use of no-load and low-load insur­ance can be of great service.

With disaster prevention in place, the family and their advisor can focus on creating a “better case scenario” for the person with a disability. Parents can use the same big numbers generated during the life needs analysis as long-term savings goals. After all, parents of a child with a serious disability need a retirement plan that will provide decades of support for three people, the youngest of whom may “retire” forty or fifty years before other wage earners in the family, Thus, if an ordinary family needs a good savings plan in order to retire comfortably, then a family that includes a child with a disability needs a supercharged savings plan. Here too, an advisor who adheres to a strict fiduciary standard can be an important ally in creating and implementing low-cost plans.

No special needs plan is complete without a letter of intent, The letter of intent is a kind of operations manual for the care of the person with the disability and, while not legally binding, it can provide invaluable guidance for a new guardian.

The psychological issues involved may complicate the planning process. A child who is more dependent on them due to a disability might make some parents more motivated to take decisive action, but it can also compound others’ reluctance to face their own mortality. It can also he difficult for parents to make an unequal division of their estates, but in many situations involving both a child with a disability and typical siblings, equal is not fair. And sometimes there are situations in which no “blood relative” is both able and willing to provide appropriate care for the person with a disability.

I hope this basic outline has increased your awareness of some important issues faced by families of children with disabilities. Because of the overlap between this area of planning and elder law, a good source of help may be local attorneys qualified in elder law. Other good sources of information are advocacy and service organizations like the ARC, Easter Seals, and various support groups for specific disabilities.

Universal access to healthcare would make this sort of planning far simpler, if not obsolete. Until that end is achieved, parents, planners and other advocates will keep working to support and improve the lives of our family members with special needs. How we treat our fellow citizens with disabilities matters. None of us, after all, is more than a banana peel away from joining their ranks.

© 2007 Christopher Currin, CFP ®