Special-needs planning is about much more than ABLE accounts and trusts

One of Scott Adams’ clients recently finished building a 4,000-square-foot house that will serve as the family’s retirement home. The structure, however, is more than a typical home — it has extra-wide hallways that can accommodate their daughter’s power wheelchair, and it has accessible sinks and other features to make it as comfortable for her as it is for them.

“They’ve built a house that they’re living in — they’ve built it for their retirement,” said Adams, private wealth adviser at the Leawood, Kansas-based Special Needs Planning Center. “The plan we developed for them is that their daughter will live in that home for the rest of her natural life.”

That was ultimately the answer to one of the first things Adams said he asks clients.

“We ask the question of, ‘What do you want to have happen with your child?’ And we get a deer-in-headlights look,” he said. “That is not a discussion they’re having, at all. Some parents think the state will take [their adult children] and put them in a home.”

When it comes to special-needs planning, the answer is seldom easy. Very few people qualify for a state-sponsored living facility, and even if they do, it can take time to get on a list, Adams said.

The decisions about whether a special-needs child would benefit from guardianship and conservatorship in adulthood and if so, who will be their guardian and oversee their trust, are important.

“When families come in to talk to us, that’s the crux of what they’re looking for. And they don’t have solutions, and it terrifies them. And the older they get, the more pressing that becomes,” Adams said. “We’ve lost parents. We’ve been through this process.”

The issue is a close one. He and his wife have three adopted children with special needs, in addition to their three biological children, which led him to co-found a firm dedicated to the area.

Most of the firm’s clients are affluent. However, “you don’t need an enormous amount of money” to modify a home so that it can accommodate a special-needs child into adulthood, Adams said. One family turned their garage into an accessible apartment. Their child will be able to live in it, and the rest of the house can later be rented out to help fund a special-needs trust that can help pay for a caregiver, he said. Adams is helping the clients who recently built the new home to identify potential roommates who help their daughter and provide social support.

LEVEL OF AUTONOMY

This area of planning is about much more than establishing ABLE accounts or special-needs trusts — and the distinction between those options can symbolize the level of autonomy people with disabilities have.

“There’s no software to do what we do,” said Andrew Komarow, whose Connecticut-based firm Planning Across The Spectrum specializes in the area. “It’s not just about selling whole life insurance.”

One of the major considerations for a client who has a child with autism is how to approach driving, for example. People with autism can be safer drivers than others, but they nonetheless benefit from driving education that addresses their specific needs.

“Driving is usually a key to independence and living as an adult,” said Komarow, whose firm provides resources on that subject.

Komarow, who has autism, is not an opponent of guardianship or conservatorship — the latter of which pertains to oversight of a trust. In some cases, those options are in the best interests of a child. However, he said, people should start with the assumption that someone is competent and might benefit from a guided decision-making model.

With guardianship, “you are not saying the person can’t make their own decisions, with help. What 18 year old doesn’t ask their parents for help?” he wrote in an email. “What you are saying is, legally, this person can’t make their own choices. They can’t get married. They can’t own a business, can’t have their own documents. Even if it was for a day, you lose your right to the Second Amendment for 20 years.”

Adams also favors guided decision-making in many cases.

“My oldest son is his own person,” he said. “We are not going to take guardianship.” 

MORE RESOURCES AVAILABLE

Since the American College of Financial Planning launched its Chartered Special Needs Consultant Professional Program, about 500 advisers have received the designation.

In the U.S., about one in five people have a disability, and that will likely increase as the baby boomer population ages, according to the American College. About two-thirds of people who are caregivers report being worried about having enough retirement income, and more than half said they don’t know how to build a financial plan for special-needs dependents.

With training, advisers are better equipped to understand the unique dynamics of families with special- needs children and how to help them plan for their children living into adulthood. Further, it’s vitally important to grasp the possible roles of life insurance, trusts, ABLE accounts and government benefits, including Supplemental Security Income, Medicare and Medicaid, according to the American College’s program.

A lack of resources led former PNC Wealth Management executive Daria Placitella to found Hope Trust, an online planning and trust administration service. The recently launched firm creates comprehensive plans based on answers to a questionnaire. The firm has about 40 clients. It recently reached a deal to provide services to some BMO Harris Bank clients, and it also has relationships with NFP and Equitable.

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Advisers and health care providers can access the plans it generates if they have permission.

“It relieves and empowers the individual and also relieves a lot of stress on the family,” Placitella said. “It’s like the back office for a family with special needs.”

The service is available to financial advisers and can provide them with tools they otherwise might not have, she said. Even knowing to ask clients whether they’ve applied for any government benefits is a step forward for many, Placitella said.

“If you’re a financial adviser and you’re able to ask the appropriate questions … that is going to resonate with the client more than anything else you can do,” she said. “You’re providing advice that is near and dear to their heart.”

ABLE vs. TRUSTS

ABLE, or Achieving a Better Life Experience, accounts became available in 2016. Assets in the accounts are owned and controlled by the beneficiary, unlike with special-needs trusts. However, limits on ABLE accounts are much lower; annual contributions are capped at $15,000, and the accounts can hold $100,000 before Supplemental Security Income can be affected. A downside is that people must have been affected by a disability prior to age 26 in order to be eligible, meaning that many are automatically excluded.

As of the end of March, there were more than 90,000 ABLE accounts opened, representing more than $759 million in assets, according to data from ISS Market Intelligence. Most states have ABLE systems, and there is one adviser-sold program, the Virginia ABLEAmerica.

Meanwhile, special-needs trusts have no limit on total assets, but the beneficiary does not control disbursements, and there is a $2,000 cap on assets the person can hold outside of the trust.

Advisers, including Komarow and Adams, recommend corporate trustees rather than family members, to avoid complicating oversight and potentially straining relationships.

Last year, there was a total of about $3 billion in pooled special- needs trusts, which are structured as master trusts with individual subaccounts, according to an estimate from the Special Needs Financial Services Institute. There are more than 100 such pooled trusts administered by nonprofits, which are well known to special-needs lawyers and others in the field, but often not among financial advisers, according to the group.

Some trusts have multiple investment options that can reflect how much money a beneficiary needs and when, while other trusts have only one investment strategy, said Lisa Cohen, CEO of Capital Motion and the Special Needs Financial Services Institute. The trusts are taxable, so they tend to avoid investing heavily in securities that will generate big capital gains, she said.

“The responsible approach is to look at the beneficiary and their needs and set up a spending plan,” Cohen said. That can include providing beneficiaries with debit or prepaid cards, or moving some of the assets to ABLE accounts.

“Paired, these products each provide unique benefits,” Cohen said. “You don’t need to make a decision about one or the other.”

The trusts can be funded with donations, rollovers, an inheritance or current assets, she noted. 

There isn’t good, comprehensive reporting from pooled special-needs trusts, but generally, they appear to be underutilized, Cohen said.

“This market is enormous and is just underserved,” she said. “This is a deeply personal issue that financial advisers have a limited tool set right now to address.”

DON’T UNDERESTIMATE COMPLEXITY

For advisers who want to help clients with special-needs families, having a trusted lawyer and a local nonprofit to work with can help, Komarow said.

“They should not underestimate the complexity. They should also realize that they’re not only working with an underserved population, but it is also one of the least profitable areas you could be in,” he said. “A lot of what people need isn’t financial planning.”

It can take parents two or three years to build a plan for their children, Adams said.

“No one should dabble in special-needs planning … It’s very complicated, and the rules change,” he said. However, “we would really like more advisers to focus on this field, because families desperately need it.”

[More: Working with autism, from experience]

Correction: This story has been updated to reflect the correct title for Scott Adams, private wealth adviser at the Special Needs Planning Center.

Related Topics: ABLE accounts, Trusts