NAPFA SPRING CONFERENCE

What’s so special about special needs planning?

By Mike Walther

Learn about “The Eight Essential Elements of Special Needs Planning” with Mike Walther on Thursday, May 5, at 1:30 p.m. at the NAPFA Spring Conference in Atlanta!

Traditional financial planning falls short of what families with loved ones with special needs require, so it can potentially deprive them of essential benefits. “Special needs” for financial planning purposes refers to an individual who either lacks, is expected to not obtain, or is losing the ability to understand basic decisions related to their personal care and finances, often due to an intellectual or developmental disability. These individuals are among the most vulnerable in society, and the planning required to help them live their best lives is complicated.

 

Different focus for families

Clients with loved ones with special needs tend to prioritize different planning topics than our typical retirement, college expenses, etc. focus. They primarily focus on the following issues:

These special needs topics are not addressed in the CFP® course curriculum, but they affect more than 10% of families. Many financial advisors are unaware that individuals with special needs are entitled to means-tested food, medical, and income benefits from the government if they are unable to earn at least $1,300 a month, as of 2022. Some families scoff at having their loved ones accept government aid. However, after we explain that the income benefit will easily exceed $500,000 over a lifetime; the food benefit provides another $70,000 of value; and Medicaid can pay for long-term care, their attitudes change.

Protecting means-tested benefits

Advisors must counsel clients about the challenges in obtaining and retaining their means-tested benefits. The initial applications of about two-thirds of applicants for Supplemental Security Income (SSI) are denied. Roughly half of those individuals eventually obtain the benefits. However, if they have as little as $1 more than $2,000 in their name (in addition to a car and a home), they will lose their income benefit. Few families are aware that the credit limit on a credit card is considered an asset by the government when assessing an individual’s holdings. Therefore, adding a child as a signer on a parent’s credit card account will almost surely suspend their access to SSI. 

Ensuring that the individual never has more than $2,000 of assets, while simultaneously providing a lifetime of financial resources, is technically challenging. Financial advisors must understand how to use special needs trusts and ABLE accounts to hold and grow the assets for the loved one’s future financial needs (see “When to use special needs trusts or ABLE accounts—or both,” in the March 2020 NAPFA Advisor). These accounts are unique in that the government generally ignores them when assessing the financial resources of an individual applying for means-tested benefits. However, the ABLE account becomes a countable resource if the balance exceeds $100,000.

Proper planning also can avoid mistakes with beneficiary designations. Gifts and inheritances made directly to the individual can disrupt the receipt of means-tested benefits and can lead to the government getting repaid for services from the individual’s assets.

Building a supportive team for our clients with experts in special needs planning and special needs law is essential. The rules are complex. Being aware of our clients’ additional planning needs when they have a loved one with special needs can elevate their trust in us as their advisors. Coordinating the advice and services from their team of experts will yield the best outcomes for their families.

Mike Walther, CPA/PFS, CFP®, CFA, is founder and president of Oak Wealth Advisors. He created Oak Wealth Advisors to provide families like his own, with a loved one with special needs, with fiduciary financial advice and special needs planning guidance.

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