Part two of four articles on Financial Planning for Special Needs Families
In the initial article of this series, “If the Patriarchs Were My Clients,” we proposed six tenets for Special Needs Family Planning. They were:
1. Create a written financial plan
2. Create a will and other estate documents
3. Choose your fiduciaries wisely
4. Create a Special Needs Trust
5. Fund your trust
6. Create a Letter of Intent—share your love
This article will focus on the first two steps; the need for a written plan and appropriate estate documents.
I begin by describing my Shabbat dinner last week. My wife and I both got home late from work. My kids were also late coming in. Dinner was not ready, the table was not set, and at the last minute, my son announced he was having friends over. Needless to say, we cut deeply into our 18-minute reserve before my wife lit her candles. I dropped down in my chair and asked my wife, “How come this works so much better on yom tov when we have 20 people for dinner?” She answered me with one word: “Menu!”
For the holidays, we put together a menu about two weeks in advance. We know who is coming and what each course will be. We shop early for everything we need, using the menu as a checklist. We plan our cooking strategy knowing we cannot wait for the last minute. The table is set the night before and all of the serving utensils are laid out for each course. The menu is our written plan—and it works!
If a written plan helps us run our kitchen better, think of the impact it can have on the “big things” in life. The Harvard Business School studied its 1979 MBA graduates in relation to where they were 10 years following graduation. Less than 3% had written goals and plans, but those that did had an average income ten times greater than those with no plan (What They Don’t Teach You in the Harvard Business School, Mark McCormack, Bantum Books, 1984).
A proper financial plan has three key elements:
It lets you identify important financial goals, such as education, retirement, survivorship planning, disability planning, etc. In addition to these traditional family goals, Special Needs families have a whole list of additional considerations, including special health care, caregivers, advocacy, governmental assistance, independent living costs, and more.
Next, it identifies the financial resources needed to meet each of these goals. One of the biggest mistakes people make in determining the cost of funding a goal is to overlook the impact of inflation. For example, a $20,000 one-year tuition bill today could cost nearly three times as much by the time a child becomes college-age. The costs of many healthcare programs are growing at more than 5% per year. Special Needs families should consider whether State budgets will be able to keep up with that inflation rate and continue to deliver the same benefits in the future.
Finally, it helps you allocate your resources by prioritizing spending decisions. Spending decisions are critical for most families in today’s economy. Many clients we meet buy a big home and then struggle to make school payments and barely have anything left for life insurance, emergency savings or retirement. When we ask them if their house is their top priority they often say no, it was just the first goal. When constructing a plan, we advise our clients that while it is ultimately up to them to choose their priorities, it is imperative that they be sure to fund what is most important first. A good plan lays out each of your financial needs and lets you look at them all together and decide how to allocate your money to each one appropriately.
Not every family needs a big, elaborate or expensive financial plan. But every family should go through the planning process. Dwight D. Eisenhower said, “Plans are nothing; planning is everything.”
It has become very popular today to buy complex items with no instruction manuals, such as phones and computers. Even cars now have their instructions on-line (so, if I get a flat, I need an internet connection to figure out where the spare is). In contrast, every financial plan should have written instructions called estate documents. A will is often the first estate document, but it is not the only one. At a minimum, you also need a Power of Attorney, Health Care directives, and perhaps a Trust or two. Together, these documents form “the instructions” for taking care of you and your loved ones if you can’t do it yourself.
Last Will and Testament—can be simple or complex depending on the sophistication of your assets. Its purpose is to guide the distribution of the wealth you have accumulated over your lifetime, appoint fiduciaries to be responsible for administering the process and caring for your minor dependents, and cleaning up your debts.
Power of Attorney—is a permission slip for someone else to sign your name and make financial decisions on your behalf if you are physically or mentally unable to do so. This is important if you were suddenly incapacitated. If you don’t have a joint checking account, even your spouse can’t access your bank account without a court order.
Health Care Directives or Living Wills—state as clearly as possible the type of medical treatment you do or do not wish to receive if you cannot communicate your desire—including your right to die. A properly crafted directive will also set forth your religious views on these issues and the minimum quality of life you deem acceptable.
A Trust—is a legal entity that allows a trustee to hold or control assets on behalf of a beneficiary. There are many types of trusts and one of the most important and useful trusts for a special needs family is the special needs or supplemental needs trust. A family seeking to provide for a Special Needs member has three major concerns: (1) assets they receive may be squandered because the beneficiary is unable to make responsible choices for him/herself; (2) all of the assets will be used to pay the costs of a healthcare facility and the beneficiary will not have any other benefits from the money; (3) inherited assets will financially disqualify the beneficiary from receiving government services. A special needs trust helps address all of these concerns. We will discuss this in more detail in our next article.
Perhaps the greatest value of preparing a financial plan or an estate plan is engaging in the process. A qualified financial planner and an estate/special needs attorney can guide you through the questions you need to ask, but only you can answer them.
Zev Grossman and Bruce Maier are registered representatives who offer securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC, investment advisor representatives who offer investment advisory products and services offered through AXA Advisors, LLC, an investment advisor registered with the SEC, and agents who offer annuity and insurance products offered through AXA Network, LLC. AXA Advisors and its affiliates and associates do not provide tax, accounting or legal advice or services. Please contact your tax and legal advisors regarding your particular circumstances. AGE-89835(11/13)(exp.11/15)
They can be contacted at [email protected] or [email protected].
By Zev Grossman and Bruce Maier
