Speaker 1 00:00:08 What's up, everyone. Welcome to the finance for physicians podcast. I'm your host, Daniel Raimi. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our
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Speaker 2 00:00:26 What's up guys. Hope you're having a great day today. We're going to be talking about special needs planning. So planning in the event, you have a child or children with disability. Last episode, we talked with Lori Yost and she shared her story about her daughter Scarlet and down syndrome diagnosis. And so we talked to, we get to learn a little bit more about the experience and what that's like and, and how that changes, how, how that can change your life. And in Laura's experience, it was, it was extremely positive, uh, experience in a, uh, really a blessing for them. So today we're going to talk a little bit more about the mechanics of what it can look like, or some of the tools at your disposal in the event, you have a child, her children with a disability. So the first thing, uh, around planning in this sort of situation, I think it becomes exponentially more important to think about like the worst case scenario, uh, unexpected death or disability.
Speaker 2 00:01:26 That's always something you should be thinking about when you have children, especially younger children, but when you have a child or children with a disability, it kinda like makes this even more important. Mainly because I guess that's not always the case. It really depends on their needs. And so for example, I have a younger brother with autism and down syndrome and he's, he has a lot of care needs. And so it's, it's really, that's a high priority for us because if, uh, something, or when something happens to my mom, if he's still around, that's, we're going to have to really make sure there's a concrete plan for who's taking care of him, because he has lots of, lots of, lots of needs that my mom is currently, uh, providing. So when you have a child with disability, the more dependent they are on you and the longer you expect that to continue, the more important it is to really think about unexpected death or disability, because it's the same reason.
Speaker 2 00:02:30 That's such an important thing. When you have a really young child, is that there, you really need to kind of map out the plan for them. So what does that look like? Uh, or what are the kind of, some of the most common questions that come up around that sort of situation? I think then probably the number one question people are thinking is who's going to take care of my child or adult child, uh, adult with a disability, uh, that I'm still taking care of her providing care needs for. And so the answer to that is using like a will. So a will is a basic legal document that outlines where all my stuff goes, but it also is where you can list who a guardian would be for your children. Now, if your child with disability has, um, is becoming an adult or is an adult, it's a little bit different, you got to kind of depends on your situation.
Speaker 2 00:03:26 Sometimes you can, uh, appeal to the courts to be, continue to be the guardian. And, um, so for today, though, we'll just talk about if your child is below age 18. So for your under age 18 child, you can use a will and in a will, you're going to name a guardian. The guardian is going to be the person that would provide the care for your child or children. That's an important thing at minimum. You want to have that document in place and formalized and signed to know where it is and understand what it does. And then on top of that, you need to communicate that with the people that you're listing. So if you're naming, say your brother or brother-in-law is the guardian for your child or children. And one of, one of them has a disability. They need to be, you know, at minimum they need to be aware of it.
Speaker 2 00:04:21 But on top of that, they need to have a copy of the document and they need to kind of know the general high level game plan. They should probably have like a, a summary of who the key people are involved, like the financial people and the legal people, like in the attorney that helped you draft the document. You know, they need to know the players and know kind of a high level, but at minimum, they need to know that they are the, the guardian and understand what that looks like. Another big question that's gonna come up is how are they going to know how to take care of my child? The pay, every parent's like the typical thought is like, nobody can take care of my child as well as, as I can. Nobody's going to understand my child as much as I do. And that's, that's probably true just as a result of, um, the time you spend love that you have, like, you put in a lot of effort into your children's wellbeing.
Speaker 2 00:05:17 And so it's natural to think, you know, how are they going to know, especially if your child has additional needs and is left less self-sufficient. So there's a, you know, it's going to be a challenging situation, but there's, there's some ways to kind of make that a little more seamless. So they call there's a document that's called Al it's often called a letter of intent, but it's basically a document, um, that outlines your wishes and your child's like key, important information. It's kind of like, you know, several page summary of the most important stuff they need to know about taking care of your child. So that's an important way for you to line out all that stuff while you're still healthy and all, all as well. So that in case something happens that a guardian, so that's something that the guardian should have probably is like, the guardian has this letter of intent, so they can be like, oh yeah, that's what that's who the doctors are.
Speaker 2 00:06:22 That's what the, the routine is. That's their favorite thing to do, uh, reminded of kind of the most important things and the intent. And so that's an important document. I think everyone should have some sort of variety of that. And you can look that sort of thing up on like Google. There's a lot of templates out there I'll include a link to an article that kind of outlined some of the key components you should probably have in a letter of intent. Uh, some of the big ones are like medical care needs, education, food schedules, any like, uh, behavior related things. Uh, but, uh, but yeah, I'll link to that in the show notes, but that, I think that's a very important aspect as well. Another question that comes up is, is my child going to have enough financial aid to take care of them? And this is especially important question.
Speaker 2 00:07:19 If you have a child with like a, um, it's pro that's going to need like lifetime care. That's just, and it's such a hard question to answer because it's such a long, especially if you're younger, it's a long duration sort of a situation, but there is a way, I mean, you can kind of start to think about iron in that out. It's similar to something like retirement planning or estate planning or, you know, long-term care planning. Uh, that's like a, if you're a young person and you're planning for retirement, that's a long time in the future that you're planning for. And it's typically something that happens. And then you stay retired for a long period of time. So it's a long duration event. So it's, it's similar to that sort of sort of planning strategy. You can start to, um, project forward what the potential needs might be for your child and start to estimate the potential care costs if there are going to be those, um, that's where it gets difficult.
Speaker 2 00:08:24 A lot of times, if you have young children, you're not sure what the care needs might be. And so you can kind of, you know, maybe it's definitely something you can adjust over time too. So, you know, you're never going to get it perfect. But by going through that exercise and kind of thinking about what it potentially might be, you can project forward what those costs would be, and then start to back into how much dollars would be needed today, if something were to happen to you. And so that's how you figure up the need. And oftentimes when you're younger, you don't have those assets yet available. And so you can use something like life insurance, you can purchase, make sure your life insurance benefit amount is adequate to cover that. And any other needs. Another thing about that, a lot of times, as parents you're gonna, the tendency is to want to make everything equal for all their children.
Speaker 2 00:09:18 I have three kids. I kind of feel that it's like, you just want to give each child and you want to make sure that they know you love them. And, but in this sort of situation, it doesn't, doesn't have to be equal. Typically the child with, uh, with special needs, that's disabled is going to have higher needs as a result of the situation. And that's okay. Uh, like I said before, I have a younger brother with autism down syndrome and I'm like encouraging my parents to pass a hundred percent of all their assets to my brother. He needs it. Um, he'll need it more than we do and that's that's okay. So another handy tool that can come into play in planning for long-term care needs, if something were to happen to you is using a special needs trust. So a special needs trust is like a think of it like a legal, uh, like a, a bucket that can hold money.
Speaker 2 00:10:18 It's like a, a bucket that you create while you're alive typically. And the intent is to create this bucket that's for a certain purpose. And in this case, it's for your child with special needs. So you create the bucket, the trust, the special needs trust is what they often call it. You create the bucket while you're alive. And that way you can direct funds that need to go towards taking care of that child into this bucket. The special needs trust. Now that's kind of handy from a, from a like separating assets standpoint, but where it comes into play, where it's most beneficial is that by using this special type of trust, that that child will still qualify for a government benefits. So there's lots of benefits available for people with a disability in our, in the United States. But the problem is if they, if the individual has assets and it's a really low number, like several thousand dollars, if an individual has assets above several thousand dollars, they're typically going to get disqualified from a lot of the government benefits.
Speaker 2 00:11:23 So you can use this special needs. Trust is like a pool or a bucket to hold the funds and not disqualify them from getting those, uh, government benefits. So that's an important strategy that can help this projection that I was referring to like that helps, you know, substantially reduce the number potentially because a lot of those baseline needs might be provided for, by some of the government benefits that exist. So oftentimes special needs trust is a very efficient tool to use, to help with it. If you're going to create a special needs trust, it's extremely important to think about the trustee. So that's the person or the institution that you name, that's like the responsible party for the money, like the money quarterback. And so that if you're going to name an individual, I think that the type of person you want is somebody that's very responsible with money.
Speaker 2 00:12:21 Of course, you know, is familiar with finance and investing. And that is objective minded, not, you know, you don't want someone, you know, shiny object, hyper emotional all over the place. Ideally they're very fiscally responsible and yeah, focused and kind of can hold the course and manage the funds. And a lot of times people don't have someone in their life that's like that that's completely, that's completely trustworthy. So an alternative is to name an institution as a trustee, you can name a company, a trust company. Uh, there's a lot of those, these trust companies that exist and their sole purposes to manage these types of accounts, uh, within a trust fund. And in this case, it's a special needs trust. They basically just manage the money based on the trust, the purpose of the trust, and that's to provide for your child with special will needs.
Speaker 2 00:13:14 And then they'll distribute funds to the they'll manage the money, and then they'll distribute funds to the guardian. Uh, over time as needed trustee setup is typically more expensive. You know, you got to pay them to manage the money over time, but yeah, they have a high legal fiduciary responsibility. So they're required to act in the best interest of the beneficiary. Sometimes people do like a hybrid they'll name, a person, and an individual as a trustee for their special needs trust. And then a trust company is like a backup, or they'll say like, we, you know, encourage you to hire a trust company or an advisor to help you manage those funds. So that's kind of a hybrid between two, but the main thing is naming a person to manage the funds like the money quarterback. That's an important part of having a special needs.
Speaker 2 00:14:06 Just one side note, also, along in the lines of setting up a special needs trust. Oftentimes people go through the process of creating those legal documents, like a will special needs trust maybe, and they get it all signed and formalized and it's in place and they feel, you feel like, you know, they're, they're done, that's good to go. Uh, and then they, they move on and kind of forget about it. The problem is that almost every time there's, you need to do some follow-up tasks after completing the documents, uh, beyond just signing the legal documents. So the number one thing is changing your beneficiary designations and talking to your relatives or your you key parties. So once you got, once you have the documents in place, you need to go and change your beneficiary designations to reflect what the plan is. So for example, a life insurance, if you die, it will always pass based on your beneficiary designation.
Speaker 2 00:15:08 It doesn't matter what your will or trust says, life insurance passes based on the beneficiary designation. So you could name your spouses, the first beneficiary, and then your children equally as the second beneficiary. The problem with that in this scenario, I was just talking about is if your child that's disabled is named individually in that example, that pretty much defeats the purpose of having a special needs trust in the first place. And that disqualifies them for government benefits potentially for extremely long time. You've kind of shot yourself in the foot. So what you need to be doing is if you set up the special needs trust, you need to make sure that is a part of your beneficiary designations for the assets that need to get directed to it. And that keeps it clean. And it avoids having, uh, funds go to, uh, that child that would disqualify them potentially from government benefits.
Speaker 2 00:16:04 You also need to talk to the people that you've named. It's important to communicate what the plan is, and kind of give them the high level overview and share with them the documents and who the key people are. And then even more so, uh, share you want to talk to relatives or close contacts about what potentially their estate plan is. It's not, it's pretty common for like family members, like grandparents or siblings to want to pass funds at their death, to your child, with a disability. So they, they need to know what your plan is. So they should be naming, you know, in a lot of cases that special needs trust is the beneficiary instead of your child with disability. Uh, if they don't do that, that could kind of ruin that whole plan of, uh, what we just talked about if they just name your child individually.
Speaker 2 00:16:54 So they need to be naming the special needs trust as well. So now that we got all the morbid kind of worst case scenario out of the way, um, let's say you're, you know, alive and well and living a happy life. Uh, a common question that comes up as how do I save for my child, uh, with a, with a disability. So in some cases, this varies dependently on your circumstances. So if you are qualifying for government benefits now, or if your child is qualifying for government benefits now as part of their disability, that's a pretty big difference than if they are not. So let's say you're in training and your income is lower and maybe your child is disabled and they're qualifying for some of these government benefits. In that situation, you want to be careful not to put too many assets in your child's name, otherwise they potentially will disqualify be from, from government benefits.
Speaker 2 00:17:51 So in that case, something like a, uh, an able account might be a good solution. You can put money into an able account and, uh, up to a hundred thousand dollars, doesn't disqualify them from government benefits and you can save it in there and it grows tax-free. And ultimately, as long as you use it for education or other qualified expenses like healthcare, or there's, it's a much more broad use list than just a 5 29, but like an able account, as long as you use it for qualified expenses, that's going to come out tax-free as well. So it's a very tax efficient way to save for them. And it's also a protects them from those government benefits that they're getting. Now, maybe your child is not getting any government benefits now, or yet enable account still might make sense. That's a great way to save for definitely for kids college, but, um, potentially for, um, other stuff beyond college.
Speaker 2 00:18:52 So it's like an able account is like a 5 29, but better. It's like you still get the college aspect. You can save for college tax tax sheltered, uh, but you can also save for additional needs, uh, for your disabled child beyond just those education needs. Now, if it goes above that a hundred thousand threshold, it can start to disqualify them for government benefits. So you got to keep an eye on that, whether that be in your situation now, or if you were to pass away, you got to think about it in both cases. So the able account can definitely work 5 29 can also work. It's just not as robust or flexible as the April account. And so typically people err on the able account side, uh, just cause there's a lot more, you know, benefits, a special needs trust sometimes is a way to say, save for your child as well.
Speaker 2 00:19:43 You're living even to kind of protect those government benefits that they're getting the downside to. It is it is taxable as it grows. So there there's no real tax efficiency when you save into that kind of account, but you don't have to deal with that hundred thousand dollar threshold I was talking about with able account. So it's a little bit, it's just kind of a different, uh, tool in the tool belt that potentially you might keep in mind, or maybe you just use a normal savings account. Maybe you're not qualifying for government benefits and it's not really a big deal and it's, we're not talking about substantial dollar amounts. Maybe you just use this normal savings count. Maybe you put it in their name, maybe you don't, but if it's, you know, especially under a few thousand dollars, sometimes that's just the easiest solution to save for them.
Speaker 2 00:20:34 Another alternative, the last one I'll throw out is just, maybe you're just leaving it in your name. Maybe you're saving assets in your name and just kind of adding that to their future pool of funds. And that way it's not, uh, minimizing their ability to qualify for government benefits and you're still, and you maintain control over that. Now, if someone gives them to your child outright, you have to keep them for benefits, keep those funds for benefit of your child. So you have to be careful to make sure you're following those rules, but in a lot of cases, you can still follow those rules and keep those assets in your name. So today I just wanted to hit on some of the high points around planning for your child with special needs. I'm happy to get into more of the weeds or strategies if you like, definitely bring that up, let me know if you want to dig deeper and I'd, uh, I'd be happy to get into more detail, but, uh, yeah, for today just wanted to hit on the high points and uh, hopefully it's been helpful and we'll look forward to talking again next time
Speaker 1 00:21:43 As always, thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our
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