Top 10 Mistakes Parents Make in Special Needs Planning
By Ryan Platt
10. Communication is Absent. Never Created a Letter of Intent
It is common that parents and caregivers do not take the time to document their child’s medical history, daily activities, therapists, schools, professionals involved in their child’s life, organizations they are a part of, their child’s favorite things (i.e. music, movies, books, blankets, toys, activities, etc.), behavioral issues, sensitivities, diet and, most importantly, the hopes and dreams for their loved one’s future. You have learned quite a bit about your child and how he or she interacts with the world, and we want to ensure the next caregiver is given a head start so they can provide the best care possible for your child when you are no longer able.
It is critical that you share your plan with your extended family. It is all too common for parents to do planning in a vacuum. This can be a problem when a well-intended grandparent leaves money for your child. An inheritance or gift could disqualify your child from future government benefits which would result in the loss of hundreds of thousands of dollars of benefits over your child’s lifetime. This event can be avoided by sharing your plan.
9. Plan to Use the Disinheritance Model
Is this You? “We will just leave all of our assets to other children or to a family friend and they will see to it that our loved one will receive the proper care.”
This has been a common planning method that carries unnecessary risk. For instance, when we leave money to another person, that money is now their asset to do with as they wish. They can decide to skimp on care for your loved one and use more of it for themselves.
Another risk we take with this model is liability. For instance, if the person we leave the money to ends up divorcing in the future, then 50% of the money intended for the care of your loved one can be given to the ex-spouse in the divorce settlement. Another risk can occur if the individual you leave the money to has financial difficulty (bankruptcy) or is named in a lawsuit; then the money you intended for the future needs of your loved one may be wiped out. There is a much better way to protect the needs of your loved one, and it is setting up a special needs trust.
8. Don’t Have a Special Needs Trust Set Up or It’s Set Up Incorrectly
A Special Needs Trust is a uniquely designed trust for you to leave assets that will provide for your loved one’s future care. By placing them in this unique trust, you will avoid the dangers of the previous mistake. Furthermore, you will protect eligibility for government benefits such as Medicaid and SSI.
Words of Caution
A Special Needs Trust is not a regular trust. You need to consult with a qualified special needs planner and qualified attorney to ensure you have the right type of trust.
7. Never Defined Future Needs
If you have a GPS system, you know that if you want directions, you must enter your current position as well as a destination. If you never enter a destination, the GPS system can’t help you. The same can be said for your loved one’s future needs. You must first take time to program the GPS, meaning define the future needs of your child (i.e. therapy needs, housing, care-giving environment, monthly expenses, medical needs, employment). Second, pinpoint your destination, meaning define a lifetime cost for your loved one’s needs. In this way, you will know how much money it will take to provide these future needs.
6. Never Secure Your Own Future
If we imagine your life as a truck rolling down life’s highway, then your child’s life would be represented as the trailer being pulled by the truck. Your child’s future is hitched to your well-being and to your successful future. The future of your child is contingent upon your own. If your truck breaks down, then in essence, so does the trailer.
As parents, we are always putting our children’s needs before our own and working diligently to create a bright future for them. Your child’s future is only as healthy as your own. As you begin planning for the future of your child, you must also plan for your future. By securing your future, you also help to create a better future for your child.
5. Never Set Up Your Will or Other Legal Documents
A Will does three important things for you, your family and your loved one. It tells the court system:
Where your property goes
Where your people go (who will be future care-givers)
Who will Administer your Will (Executor/Executrix)
Without a Will the court will make these decisions for you. Your loved one may not receive the assets you would like, or your loved one may receive assets that could result in the loss of eligibility for government benefits. Furthermore, the court can decide where your loved one lives and he or she may not be cared for by those you intended.
4. Incorrect Beneficiary Designations
Beneficiary Designations are most notably found on life insurance and retirement plans such as a 401(k), IRA, Roth IRA, pension plan, etc. These are important because the beneficiary designation overrides the sentiments of your will. Make certain to designate the proper primary, secondary and tertiary beneficiaries to ensure your money goes where you intend.
3. Don't Understand the Tax System
The tax system can be complex to understand for any family; however, it is much more so when you are trying to provide for a lifetime of support for a loved one with special needs after the parents are gone. Special needs trusts are a great tool to use in order to provide for this support. As families plan, however, it is critical to understand the tax implications of different assets when they are held in a special needs trust. You’ll want to work with a qualified professional that can help you begin funding accounts in a way that minimizes taxes and maximizes the amount that is passed on to your loved one.
2. Never Made Future Care-Giver Official
Either you never chose a future care-giver, or you did choose one but never put it in a will. By placing those directions in your will, it provides the court system guidance regarding the future care-giver.
This is usually one decision that is very difficult to make; how-ever, a qualified planner should have the tools necessary to help you in making this decision.
1. You Simply Do Nothing
This is the WORST Mistake of all. Doing nothing will ensure that your child is left to fend for themselves. They will miss out on so many opportunities for a better life if you do nothing for them.
You maybe petrified, overwhelmed, paralyzed with anxiety and stress to the point where all you do is pretend everything will be ok. But it won’t be unless you take action and take action now.
If you have made some of these mistakes, don’t worry. There is still time to address them, but you must take action now. If you have made any of those above mistakes and you want to make sure that your child’s future is secure contact your financial professional or attorney.