George, a special needs dad, shares his insights on why special needs planning today needs a paradigm shift in order to provide a more effective plan for parents.
Special Needs Planning - The Need for a Paradigm Shift
The current approach to special needs planning, which I term “Old School,” focuses primarily on funding life insurance as a means to fully fund a trust once the primary caregivers (parents) have passed away. The proceeds from the life insurance policy are passed on to the beneficiary - in this case a special needs child. The trust is usually setup in a manner so as not reduce or eliminate any of the public benefits (Supplemental Security Income (SSI), government-sourced disability benefits, such as Social Security, Medicaid, rehabilitative care and transportation assistance) that a child may be receiving now or in the future. While this in and of itself is important, it falls short in addressing other key issues that special needs parents have to deal with on a day-to-day basis. Among some of the key short comings of today’s plans are:
· Not addressing immediate financial needs - How to partially offset or fully cover the on-going cost of your special needs child TODAY (especially from early diagnosis to age 18) without depleting all your financial resources
· Money from a Special Needs Trust may not be used for support. These funds are used to provide for the things that are NOT covered by public benefits (entitlement programs).
· The resources to pay for any additional support services not covered under public benefit programs can be covered through disposable income, savings, or retirement accounts. However, this is usually not sustainable.
· Does not ensure that a special needs plan goes beyond the spending restrictions of current Special Needs Trust strategies, which inherently prevent trust assets from paying for services that are otherwise being covered through Supplemental Security Income (SSI) or Disability such as Social Security, Medicaid, rehabilitative care, transportation assistance, etc.
The lack of a comprehensive game plan to address the aforementioned issues in today’s special needs plans is problematic at best, especially in light of the fact that most families with special needs children:
- May not have the resources to fully fund a special needs trust from their current income. Instead, a life insurance contract is funded with a monthly premium for a larger cash payout when a parent passes away. However, during a parent’s living years, they will have to struggle with the day-to-day need to pay for the care of their child out of pocket (outside of what public benefit programs will cover).
- Have immediate ongoing costs that could easily last the lifetime of their loved ones … perhaps even through the retirement years of a parent. The failure of today’s plans on a fundamental level to address these issues leaves the majority of parents with special needs children in a position of little to no control over the choices and quality of the care their loved ones actually receive now or will receive in the future.
- Have to allow for the fact that their special needs children are living longer, fuller lives due to advances in medical science. This trend, though welcomed, has created significant financial challenges for parents, requiring them to plan not only for their individual retirement but also for the retirement of their special needs child, in the event their child never becomes self-sufficient.
- Public benefit programs such as Supplemental Security Income (SSI), or Disability such as Social Security, Medicaid, rehabilitative care, transportation assistance, etc., do not always cover other major costs such as ABA Therapy, leaving the parents to pay these costs out of pocket from their disposable income.
Understanding these issues and addressing them within the context of how special needs plans are designed today is difficult, if not impossible, for the majority of parents of special needs children that are not wealthy.
As things are today, parents seem to have two choices:
1. If parents become discouraged and overwhelmed and never create a plan, then the government happens. Yes, Uncle Sam and your respective state government have their own plan for your loved one, and it’s one you most likely may not have imagined for them. Once both primary caregivers are deceased, the government’s plan goes into effect.
2. Parents could implement what I term a “traditional” special needs plan, with all the restrictions in place, and hope that when they pass away their child can be fully taken care of from the proceeds of their life insurance contract. However, if both parent and child are blessed with long lives, which is very likely in today’s age of medical advances, this could stress the financial resources of parents to a breaking point should they have to continue to pay for the services of their child throughout their personal retirement – impacting and degrading the quality of their lives. The likelihood of parents paying for the care of their special needs child both while they are working and during their retirement is quite high under these circumstances.
However, there is a third option that most families are not aware of which does not require funding of a special needs plan from a parent’s disposable income.
The Solution: Turbo Charging a Special Needs Plan
In the second part of this post, I will introduce the Sustainable Special Needs Advisory Plan (SSNAP) as an alternative process to turbo charge a special needs plan in light of the short falls of the traditional plan.
What is SSNAP? To summarize, SSNAP is a planning process that greatly expands the financial options for families touched by a child with special needs by utilizing all of a their financial resources (Real Estate, IRA’s, 401k’s, pensions, bank accounts, brokerage accounts) within a comprehensive strategy to create the cash flow needed to cover ongoing treatment costs or spending gaps. Imagine not only being able to address the ongoing cost of care in the case that the primary caregivers (parents) are no longer around, but also being able to partially or fully cover the ongoing cost of care today without needing to use disposable income. Think about it… What would it mean to the mom or dad of a special needs child to know that they can now pay for the extra therapy, special drugs, or supplements? Or that you might even be able to switch to an organic diet without having to worry about the additional cost coming from your already stretched (to the max…) disposable income? This is a game changer for families… this is the value that the SSNAP process brings - empowering choice through financial freedom.
So, as the parent of a special needs child, why do I think there is a need for a paradigm shift in special needs planning? Well, to put it simply, parents of a child with special needs who are not wealthy are caught between a rock and a hard place. Parents are encouraged to setup a special needs trust to make sure their loved one is taken care of when they have passed on. However, most of these trusts, once set up, remain unfunded for the simple reason that most parents do not have the financial resources to fully capitalize a trust from the get go, and will rely on a life insurance contract to fully fund the trust once they have passed away. So, during their living years, they will still need to pay out of pocket for any services that are not covered by private or public benefit programs. Accessing public and private benefit programs can be overwhelming, especially with the increasing number of new diagnoses per year of children with special needs. Wait lists to receive care and benefits can be as long as two years in some instances. On top of that, some programs do not cover key services, like ABA Therapy.
For parents that can afford to do so, private medical insurance can be another option to offset ongoing costs after their deductible is met. Even so, regardless of whether a parent uses public benefits programs, private benefit programs or medical insurance to offset their costs, these resources rarely cover 100% of the cost of care, leaving any unmet gap to be paid for out of pocket by parents. When you add the need to ensure that you and your spouse are saving enough to meet your individual retirement needs to the pressure of figuring out how to pay for the additional cost of care over the lifetime of your special needs child, things becoming overwhelmingly stressful. So what can parents do today to relieve this stress on their already stretched disposable income during their living years?
Well, like many other American families, families with special needs children are primarily invested in Qualified Plans (401k, IRA, 403b, etc.), and these investments overwhelmingly are in the market, which inherently exposes them to market volatility. What the SSNAP Process does is redirect these investments in a compliant manner so that they are not in the market, thereby eliminating the cycle of years of gains followed by years of losses. There are no spending restrictions or penalties when employing this strategy, as long as it relates to the medical expenses of your special needs child. Also, this strategy does not conflict with government entitlement programs and works in conjunction with any established Special Needs Trust families may have. With this approach, parents are granted the one thing they value most when it comes to the care of their love ones - choice through financial freedom.
Gus Marwieh (@MarwiehAdvisory) is the founder and principal of Marwieh Advisory Services. His personal journey as a parent of a 6 year old autistic child led him to develop the process of creating a Sustainable Special Needs Advisory Plan. Gus is the Host of S.S.N.A.P Radio - a dedicated show to empowering families touched by a special needs child with resources to fully or partially cover on-going cost of care today without breaking their bank or derailing their retirement. Contact Gus at email@example.com, or by phone at (512) 730-0871.