B. Making Changes to Your Home Taking that thought a step further has to do with modifying your home. If someone wants to plan to stay in their home, they should plan to make all aspects of living in that home possible. Although this ties into special needs planning well, I’ll stick with LTC planning for you for the moment. If you consider a nursing home costing over $100,000, a $15,000 walk in tub that allows you to stay in the place you prefer and saves you $85,000 all of a sudden looks like a reasonable purchase. And that is my message, where many people jump to selling their home (which costs tens of thousands of dollars) and buying a home (which costs tens of thousands of dollars) when the home they prefer can be made for less money to stay in perfectly fine. There is a great deal of technology available and much of it should be looked at and considered to protect your independence which allows you to live where you prefer longest, and is also the best strategy for your special needs financial plan too. Total additions to your accounts and savings – Helps with quality of life, not quantifiable Total Wealth Added For All Options Discussed = $1,608,000 There are ways to improve your retirement plan and special needs plan beyond simply “save more, spend less.” The Social Security example showed delaying taking Social Security for 8 years. Delaying Social Security 1 or 2 years still helps so your options go beyond doing everything or doing nothing. This holds true for topics that are more specific to your special needs financial plan. In the example of handling your investments yourself, even if you use a financial planner, knowing the true cost will hopefully cause you to hold your financial planner to the high bar they should consistently meet (or exceed). 101
HOW DO WE FUND OUR SPECIAL NEEDS TRUST How much will we need to save? This topic is discussed a great deal. I think it’s equally important to think about this topic in context. The goal should not to come up with an exact figure. Spending too much time on this points you in the wrong direction. How long your retirement will last? Will you need Long Term Care? How will your child’s health change? What medical advances will be discovered? Not one of these questions can be answered with confidence. And the difference in answers for any one of these questions can swing how much will be needed by hundreds of thousands of dollars. This is not to say do not consider how much will be needed. What I am saying is to keep “how much will be needed?” in context. If you try to figure out how much will be needed from a pure mathematical approach you will likely come up with a number that will leave you feeling defeated before starting. In most cases what happens in the end is the same regardless of how much a math equation tells you will be needed. D Do as much as you can, with what you have. This holds true with retirement planning, college planning, long term care planning and almost any other type of financial planning out there. The only time a specific number matters is when it’s possible for there to be a specific number. What do I mean by this? If you wish to buy a house, you can look and see exactly how much you need to save or take a loan out for. When it is possible to have an accurate number, that number matters a lot. For anything else, and especially when balancing retirement, long term care and special needs financial planning together, how much will be needed is “a known unknown. So instead, 102
BEFORE YOU TAKE ACTION The following are living options that often are overlooked. I encourage special needs families to look at a wide variety of options. Is a sibling someone that wants to help care for their brother or sister, but needs to work? What if both lived in your home after your passing. She lives mortgage free and starts early looking for options that allow her to work from home and state programs where she would be paid something for being a caregiver. She then inherits the home at her siblings passing. Where something seems impossible at first, often there are solutions and with living arrangements the solutions are as creative as you can be. » How much do you spend on expenses today? Put into two columns 1. Support needed that you provide (anything Medicaid doesn’t covered they need for their care 2. Quality of life things (tickets to a baseball game, baseball cards, video game etc. The total of these two numbers is going to be our reference point for funding our special needs trust with enough money to provide these this quality of life and level of independence. » Where do they want to live “tomorrow?” If they want to live in their current home, what modifications will need to be made to provide as much independence as possible? If they want to live anywhere else, would it be better if they moved while you were alive to help them or after your passing 103 Life Care Planning - Developing a Life Care Plan - SNA (specialneedsalliance.org)
LIVING ARRANGEMENT OPTIONS Multi-Family Home Problems solve: * Someone nearby for safety and support * Companionship * Extra rental income to provide additional support Using a multi-family home can mean different things and be used in different ways. The concept here is where your adult child with special needs has a level of independence where they can take care of most tasks on their own. They still need support from someone who ideally would be nearby. The person nearby in the second unit could be a health aide, sibling, person with disabilities who can help your child and your child helps them. This could be done with a 2 unit duplex or with 3+ units. It all comes down to what works best for your family. For information on low income housing https://www.investopedia.com/low-income-housing-people-disabilities-5220009 104
STAYING IN THE SAME HOME WHEN THEY OTHERWISE COULDN'T Problems solved * Someone nearby for safety and support * Companionship * Solution for estate with multiple children * Trustee option This idea works well when you are trying to stay in the same home, and works even better when there are other siblings. The concept here is having someone who in a perfect world would be happy to be a caretaker in a small or large capacity if it wasn’t for _____. Often is comes down to finances. The idea here would be to find an arrangement that works for both sides where the sibling, relative or friend moves into the single family house and provides whatever level of support is needed. This also could help solve challenges with finding a trustee. For the person moving in and providing the level of support needed for your child, they would be able to live there rent free and at the time of your child’s passing they would become the owner of the home. In addition, they could be paid (a modest amount) from the trust and some states will pay them for being the caregiver. There are many ways this can be adjusted to meet a families specific needs. If the level of support needed is too great for that person, there might be a solution where they pay a minimal rent that is significantly less than what they pay now and use that money to provide support where the support the sibling, relative or friend’s ends. This is also well suited for when additional money is needed to support the child with special needs and you also want to leave an inheritance for your other child(ren). This idea can be modified in an almost endless number of ways. If this solves half the problem you’re having, there is probably a solution for the other half that can be found. 105
EQUITY IN HOUSE More equity in home than cash in savings * When cash/investments are needed for retirement/other * When moving is a better option * When your adult child is hesitant to the idea of moving The concept here is when living in the same home after a lot of consideration is just simply not an option. Having to move out of a home you’ve lived in for years is difficult. Moving out when it’s not your idea and after the death of a loved one is well, more than a lot. Having an adult child move to where they will be living after their parents die, while their parents are still alive is the better option on paper. In practice, the family often has a lot on their plate already,…they don’t want to upset their child while they spend time together. This strategy has to be paired with a family that it is meant for. The strategy here involves taking a very slow path towards your adult child living independently. First, purchasing land where they prefer living. Since there is no rush, you take your time and involve your child so they are making the decisions of what they want. During this time you can talk to a couple architects about building a residence for your child’s specific needs. This would not need the complexity or cost of a typical 4 bedroom 2 bathroom house. “micro-homes” have become quite popular where someone or a couple wants to simplify their life and they get a home somewhere between 300 sq ft at the very small end up to 800 sq ft. By building with an architect you avoid the cookie cutter options of counter top 1 or counter top 2, which is the norm in most developments where new homes are built. The smaller size will contain costs and it’s something that your family can do as something enjoyable rather than a conversation that everyone is nervous about having. At the time the home is built, there is no pressure to have them move out by the end of the month. They can take their time bringing their things over and making the place their own and getting use to where everything is now. If there is equity in your home you can take a Home Equity Line Of Credit (HELOC) out. This is a line of credit like your credit card with a big difference. It doesn’t have the big interest rate. This is because your home in collateral incase you default. It also works well because it lets you take your time. At any moment you can write a check if you find the perfect location and can keep costs low by being picky. This wouldn't be possible with a traditional mortgage. Finally, when this option is appropriate, it solves the biggest concern. Making a time that regardless of what is done will be difficult for your child easier. When done right, this brings families closer and gives the child memories with their parents in their new home and the transition is easier. 106
FUNDING YOUR SPECIAL NEEDS TRUST LIFE INSURANCE TO PROTECT YOUR CHILD’S INDEPENDENCE The two most common funding options that are used are: 1. Having whatever is left at the end of the parents retirement go to fund the special needs trust (or the portion of assets they wish to leave to their child with special needs). 2. Life insurance. Although the topic of life insurance won't be very popular at a party, it is the most efficient way to transfer money tax free when someone dies. Many people also assume they will not be approved which is often not the case. If someone is 50-60 years old, when they apply for insurance their rating is based on what the health of the average person their age. Another mistake is thinking all medical concerns matter. They don't. The insurance company is trying to estimate when someone dies, not gets hurt. If you need knee surgery that will matter little or not at all. Your knee may be in rough shape, but it won't change your lifespan. 107
This dry topic deserves attention when it comes to special needs financial planning. When looking to fund a special needs trust life insurance works well for several reasons. The reason that tends to be most attractive is that it allows the parents to spend every penny they have in their retirement accounts without feeling bad, because the life insurance is there to fund their child’s special needs trust. The family sets up a life insurance policy that is used to fund the special needs trust. Where the thought of saving $500,000 in addition to funding their own retirement seems impossible. Making a payment of a few hundred dollars a month in retirement is often within reach. I can and will go through the best ways to approach this, but it’s important to give you an “Insurance 101” first. SPEND EVERY PENNY YOU SAVED AND STILL PROTECT YOUR CHILD IF YOU PREFER A VIDEO, INVESTOPEDIA DOES A VERY GOOD JOB. HTTPS://WWW.INVESTOPEDIA.COM/TERMS/L/LIFEINSURANCE.ASP 108
A little education on life insurance There are 2 types of life insurance, Term (temporary) life insurance and Permanent life insurance. Both types of policies have a death benefit that pays out tax-free when the insured dies. Although term is less expensive, it’s less expensive because at some point it ends. If you die after it ends nothing pays out to the trust. Very similar to renting an apartment. You get to use the apartment only while you are paying for it. After you stop paying, you have to leave. It doesn’t make sense to have you put money into a policy that is unlikely to pay out. At the end of the term the policy ends. There is no cash value to the policy and the insured person no longer is covered. For this reason, permanent insurance is what works for special needs financial plans Permanent Insurance (as the name implies) is permanent. The policy is meant to never end so that you know that at some point, when you die the policy will pay out the death benefit. One important point to add is you must pay enough into the policy. I suggest requesting quotes to have the policy "run to age 100." This means if you pay the same premium each month the policy is meant to last until you are age 100. No matter what type of permanent policy you use, on a basic level they operate the same. You pay a premium each month into the policy. That premium pays for covering you incase you die for that month and little extra. The “extra” premium is put in an investment account that is left to grow. This is so when you are older and the cost to insure someone at that age would cost more than what your premium is, you can still pay the same price and use the “extra” you’ve been paying all along (with the growth from the investments the money has been in). 109
There are different types of permanent life insurance. What someone is trying to accomplish generally dictates which policy is best. If getting quotes through an insurance agent or financial advisor I suggest requesting quotes for "Indexed Universal life insurance" in addition to any quotes your agent wants to show you. This is because it works well when you are trying to get the lowest premium for a policy that lasts the longest. If they only show you whole life quotes it's likely because they aren't licensed to sell other policies. You should sit with someone else rather than pay thousands more than you need to. Also, always check each quote that they all have the same health rating, interest rate and end date. If any of these are different it can make a dramatic difference in price. For example, you need to estimate the rate of return that the money in your policy will earn. If you look at a quote (all other things consistent) for variable life estimating a 8% rate of return (ROR) and compare that to a Universal Indexed life policy that shows a 4% ROR, the variable policy will look cheaper, but if you don't get an 8% rate of return you'll need to make up the different. Always know I. Health rating II. Interest rate III. when the policy ends. Universal life insurance (and indexed universal) works the same as whole life except the rate of return on the “extra” money you put in is based on interest rates or can be connected to how the stock market does with some protection if the market goes down. These policies are more flexible where you can stop and start paying as long as there is enough “extra” money in the policy. Important to your special needs plan, these policies are usually less expensive than whole life. Whole Life Insurance Many people have heard of the first which is whole life insurance. That is because whole life was the first type of permanent insurance available. Whole life insurance is usually not flexible if you need to skip a payment and they are more expensive than other options. Whole life is good for other situations that don’t have to do with special needs financial planning so I’ll move onto a policy that does work better. That option is called universal life insurance and indexed universal life insurance Variable Life Insurance The last permanent life insurance is variable life insurance. I also won’t spend much time on variable life because it too doesn’t work well for special needs financial planning. We are looking for a policy we can pay each month the least amount of money, for the biggest death benefit that is permanent. Universal and indexed universal are most often best for that. 110
LIFE INSURANCE There are two ways you can see if this works well for you. If there are two parents, unless there is a very significant difference in health I suggest both apply. If everything else is the same a female will be less expensive (more insurance for less money). If you are thinking “there is no point I have high cholesterol” you’re healthier than you think. Your health is compared to the average health for someone the same gender and age you are. If the only thing someone has is high cholesterol, that is someone that should apply to see what they are approved for. To dispel other myths and misunderstandings, if you take several prescriptions that alone is not something that works against you. On the other hand, if you have been prescribed medicine and never filled the prescription and you were referred to see a specialist and never went, that is not good. Why? Because it creates an unknown about someone’s health (in the insurance companies eyes). It’s best to have the information for what prescriptions you take and what doctors you see when you apply. It will be needed anyway and will make the process go faster. Companies often look at the same person differently. I was working with a client that was certain he would not get approved for insurance, but truly needed the coverage. He was the only source of income and his spouse would not be able to jump into the workforce and make anywhere close to what he made if he were to die. The problem was he had a heart attack just over 5 years ago. Since then he has seen his doctor and a specialist at first every 3 months, then every 6 months and now just once a year. A few companies declined him and would not offer him a policy no matter what he paid. One company saw things differently and not only approved him, but gave him a “standard” rating. This means he was on average as healthy as anyone else his age and gender (he was in his early 60's. The moral of the story is, if this strategy seems appealing you are no worse off if you apply and decide not to get the policy. You find out what rating you get and the premium you are approved for before you have to decide whether or not to buy the policy. There are a few groups of people that I can let you know this will not work well for. If you had cancer within the last 5 years. If you smoke and have no plans on quitting, you can get a policy, it will be roughly twice as much as if you quit. Something that is less known is that if you get a policy as a smoker and later on quit. You can reapply for the policy you already have. If you get a better rating, you get to have it which will lower your premium. If you get a worse rating, you keep the one you already have. Win-win If your health is not ideal and you currently have a term life insurance policy (either on your own or through your employer's benefits) - Most term policies have a "conversion option." This means the company insuring you with a term policy will give you a permanent policy with a standard rating regardless of your health. You have to call the insurance company to find out if they do have that option, the price and paperwork to set it up. If you aren't in great health or possibly smoke without intending on quitting look into this. I do not recommend any policies that are "guarantee" to issue with "no medical questions." What they are saying is they charge everyone the price as if they are in bad health. They seem cheap at times because you aren't getting much coverage. I do not suggest any policy with less than a $50,000 benefit. Those policies tend to be expensive because the cost of a company to keep track of a $50,000 is the same as a $500,000 policy. So you're paying often a lot more for every $1,000 of insurance coverage. A quick way to see if the policy is expensive or not is to take the premium and multiply it by however many years it will take to make you 90 years old. If the cost is more than the death benefit, it's starting to get expensive. 111
WAYS TO MAKE THIS STRATEGY WORK BEST 1. 1035 Exchange - Do you have a permanent life insurance policy? Many people have a old whole life insurance policy (or several). It was common decades ago to get life insurance for your child. This is far less common now. If you have an old whole life policy it will have a cash value. This is what you’d get if you cancel the policy all together. Instead you can transfer it into your new policy which will make your premium lower and death benefit higher. This is called a 1035 exchange. 2. Survivorship Life Insurance (second to die) - Are both parents average health or better? If yes, when applying you should also ask to be quoted a “Survivorship policy.” Sometimes they are called a “second to die” policy. The name says it all. The death benefit does not pay until both parents die. Why get this? If your child won’t need the special needs trust funded until both parents die, this is a good option to consider. Because two people are insured, the premium goes down even more. This is because the insurance company (on average) will be able to collect premium payments for a longer period of time. When putting a special needs financial plan together it’s important to consider all available options. The average American has a couple extra pounds, has high cholesterol and often something else in their health history. If you’re average health (compared to people your age) I recommend you at least apply. This way you know exactly what you are approved for. The cost of the policy will very likely make the decision of whether or not to buy it. 3. Think Out of the Box - Are you uninsurable or is the policy financially out of reach? If a policy is financially out of reach first look to simply get a quote for a lower death benefit. Every dollar put towards funding your special needs financial plan is a dollar well spent (see prior page for policies less than $50,000 and "guaranteed" policies). With life insurance, the choice is not all or nothing. If you are uninsurable, is there anyone that has expressed interest in helping your child out? If they have an amount they want to contribute towards your child’s care discuss with them the option of putting that money in a life insurance policy or if they have an old life insurance policy to make the trust the beneficiary. The key reasons this is realistic is that I. You can set up a life insurance policy to get most (to all) of the money you start with back if an emergency comes up II. life insurance is the most effective wealth transfer tool. That is what it’s purpose is. It protects wealth and transfers it from one generation to the next tax-free, there aren’t other options that does this more effectively. 112
HOW TO SEE IF THIS WILL WORK FOR YOU 1. If you have a financial planner they will be the best place to start. They can look at multiple options and take care of the entire application process. 2. If you don’t have a financial planner, if you use a local agent to get homeowners or auto insurance, they may be able to help you. Make sure to ask if they can sell “Indexed universal life insurance.” The majority of agents only hold a license that lets them sell term and whole life. Neither of which will be helpful for this purpose. If they can’t they should be able to refer you to someone they know and trust. If not go to #3 below. 3. Start an application online. Most websites will take your basic information to start a quote and finish it with you over the phone. Have doctors names and prescriptions when you speak to the agent over the phone. What you put on the application is confirmed through reports either from your doctors (you sign a HIPPA form to allow for this) and through reports that show what prescriptions you’ve been given and when you’ve filled them. 4. Let the agent / planner know if you have current whole life insurance. At least have the company it’s with and the policy number. If you can find the cash value of the policy that helps, but the agent can request this from the company directly. 5. VERY IMPORTANT Let the agent know you wish to apply for universal life or indexed universal life, whichever is least expensive using the same interest rate and to have it end at age 100. This is important. Policies can be set so you pay very little and the policy ends at a young age or last until age 100 but requires your investments to get an abnormally high rate of return for this to happen. Having the quote run this way will help you avoid the problem coming up. 6. Once you are approved you can change the death benefit to a lower amount easily, but it’s not as easy to ask for more insurance. To solve this problem, apply initially for the highest amount you are considering. 7. If you don’t know how much you should apply for, here are options that I’ve found to be helpful: Apply for a death benefit equal to current retirement savings. Apply for the minimum acceptable amount you feel comfortable leaving. Although it’s possible everything else could be gone, usually something is left regardless of when retirement ends. Take the monthly amount you feel you could spend without it affecting how you live your life (see prior section on how much you spent on things other than bill). Have the agent determine what death benefit that premium will give you. Take the amount came up with that you spend on your child yearly today. Multiply that by 20. 8. You can adjust the death benefit before you buy to meet your need. 9. If it’s too expensive to be worth it, don’t get it and know you left no stone unturned 113
CONCLUSION NOT HAVING A PLAN, IS NO LONGER YOUR PLAN Although you may be waiting to sign documents from an attorney,...have a discussion with someone about being a trustee or guardian,...or waiting to see if your life insurance application is approved,...you otherwise have a plan in place. Feel a weight off your shoulders. I sure hope you do. You've documented everything needed, put the legal documents in place, understand your financial options and started to make changes where it makes sense. If you haven't done so yet, give yourself credit before going back to the 100 things on your plate. Most families don't make this a priority and their plan turns into whatever default rules their state has. I'm glad that doesn't apply to you. Congratulations on all you've accomplished. Now, just review your documents once a year for an hour, make changes as needed. Thank you for your trust in me. I know trust is not given lightly and I don't take it lightly. 114
FINANCIAL RESOURCES Ticket to Work Program https://www.investopedia.com/ticket-to-work-program-5218409 Benefits for People with Disabilities https://www.investopedia.com/benefits-people-with-disabilities-parents-5217847 Additional Financial Resources https://www.investopedia.com/terms/s/specialneedschild.asp SPECIAL NEEDS FINANCIAL ANSWERS How Much Can You Make and Qualify for Supplemental Security Income (SSI) https://www.investopedia.com/how-much-money-can-you-make-ssi-eligibility-5217422 Small Scale Long Term Care Options https://www.investopedia.com/articles/personal-finance/122315/pros-cons-smaller-longterm-carefacilities.asp SPECIAL NEEDS FAMILIES www.nyln.org National Youth Leadership Network puts people with disabilities between the ages of 16-28 in leadership roles. This is done through events they hold around the country. These events have a variety of activities such as workshops and talks in the Ted Talk style. www.pacer.org PACER is a website that was created for parents of children with disabilities to get information they need and is time consuming to find. Example – “How to communicate effectively with your IEP team” www.moveunitedsport.org Move United works to give everyone regardless of abilities to experience playing sports and connecting with their community. The website has a search feature where you put your zip code in and it gives you all the adaptive sports programs and organizations in your area. www.bestbuddies.org Best Buddies keeps kids connected to others to build friendships, develop their communication skills and receive job training. 115