Fortress of Solvency

For families taking care of a special-needs child or adult, solid financial and legal planning gives a measure of control over an expensive future

Back Longreads Apr 18, 2017 By Steven Yoder

The day that Jenny and Bob had their son Justin in 1994, they set foot in a new world. Jenny went into labor four weeks early, and her baby presented in the wrong direction — feet first. So he was delivered through emergency C-section. Once he was born, his heart rate dropped instead of rising, as it should have. For weeks it wasn’t clear whether he’d survive.

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But Justin lived, and at first he seemed fine. His speech was excellent — he had 40 words by 18 months old, within the normal range. But then his language development flatlined. All of his words became “ta.” He became fixated on ceiling fans. At age 4, he was diagnosed with autism.

Today Justin is 22, and Jenny and her husband, Bob, live in a suburb of Sacramento. (They asked their last names and location be withheld for worry of jeopardizing the government benefits to which Justin is entitled.) Caring for their first-born goes above and beyond what even the most anxious new parents could have expected. Justin can’t do anything by himself: He needs help dressing, bathing and eating. Jenny had been a retail salesperson, and she left the workforce for good after his birth — attending to him, arranging care and keeping up with his appointments has been her full-time job.

Jenny’s lost income aside, the family also has faced extraordinary costs — $300 a month for twice-weekly speech therapy sessions early in Justin’s life,  $3,000 for consultation with a doctor on alternative diets that might help, a special gluten-free diet that makes his food bills 50 percent higher than they’d otherwise be, several thousand dollars in health costs after Justin fell and was injured as a teen. When Justin turned 18, Jenny and Bob couldn’t find a group home that seemed adequate, so in 2013 they scraped together $200,000 to buy and renovate a house for him that’s 15 minutes from their own — he now lives on his own with help from home health aides.

“We love our son, he’s been a great guy, but we’ve made a lot of sacrifices,” says Jenny. “And we’ve stayed married, which doesn’t happen much,” she adds.

There also will come a day when Jenny and Bob aren’t around to oversee Justin’s care. So for them and families like them, good financial and legal planning is the only way to ensure that he’ll get the life they’d want if they could be there for him always.

No One to Care When Caregivers Are Gone

More parents find themselves in Jenny and Bob’s situation every year. A 2011 study by the Centers for Disease Control and Prevention found that the number of children with developmental disabilities grew 17 percent from 1997 to 2008. In that period, the prevalence of autism spiked an eye-popping 290 percent and attention deficit/hyperactivity disorder by 33 percent.

A 2012 study calculated the extra cost to a family of raising a child with a disability as $3,000 to $25,000 a year when the lost income of parents is included.

At the other end of the lifespan, an expanding slice of the population also needs help. A 2016 study estimated that by 2025, the number of Californians with Alzheimer’s disease will grow by almost 38 percent, largely driven by increased longevity. As people live longer, they’re more likely to develop Alzheimer’s, says Susan DeMarois, policy director of the California Council of the Alzheimer’s Association. Indeed, one in nine Americans 65 and older have Alzheimer’s, and among those 85 and older it’s one in three. It’s the same reason that other diseases causing cognitive impairment, like amyotrophic lateral sclerosis (Lou Gehrig’s disease) and Parkinson’s disease, are also rising fast.

That means more families’ savings will be wiped out. A 2012 study calculated the extra cost to a family of raising a child with a disability as $3,000 to $25,000 a year when the lost income of parents is included. A 2013 RAND Corporation study found that the out-of-pocket cost to family members for taking care of an adult with Alzheimer’s is more than $6,000 a year, not including the caregivers’ unpaid time.

Government programs like Medi-Cal and Supplemental Security Income keep these families afloat. But those programs are far more likely to see funding cuts than increases in coming years, says Trevor Stapleton, a partner at Wilke Fleury who specializes in special-needs legal planning and has a 10-year-old son with Down syndrome.

And that raises the question — who will pay to take care of people with cognitive impairments after the parents are gone?

How to Pay for a Child’s Care

There’s a good reason that people wait to do estate planning for kids with special needs — they’re understandably loathe to acknowledge their mortality, Stapleton says. But there’s a payoff to planning early. “A hundred percent of the time, when people come out the other end [of the planning process], they feel so much relief, they feel so much better because they have something in place,” Stapleton says.

A special-needs trust is a family’s most important tool in making plans to pay for care. Key government benefits like Medi-Cal and SSI are restricted when a person with special needs has assets of more than $2,000. But special-needs trusts are a bucket into which family members and others can deposit an unlimited amount of money for a range of eligible expenses for their family member, like clothes, furniture, a car or education. The government doesn’t count such a special-needs trust as part of their assets.

Once a trust is set up, extended family members need to be told that it exists so that they can write their estate plans accordingly. “If Grandma leaves $50,000 directly to the child with special needs, that could disqualify them,” Stapleton says. The estate plan has to reflect that her money will go to the trust, not her grandchild.

The cost of paying an attorney to create a special-needs trust ranges widely depending on circumstances but is usually a few thousand dollars, Stapleton says. Pat and Dale Valencia-Carlson of Elk Grove, 59 and 57, recently spent about $3,000 to set up a special-needs trust for their 20-year-old son who has Down syndrome. They say they saved money by paying their lawyer to simultaneously prepare both an estate plan for them and a special-needs trust for their son. Had they done those steps separately, they would have spent about $5,000, they say.

Related: Working with Autism

When working with attorneys, experts advise families to be wary: Lawyers who work in estate planning don’t necessarily know how to prepare special-needs trusts. So families should do their due diligence to make sure their lawyer is more than just an estate planner. These trusts require special expertise. For example, money deposited into a special-needs trust as a result of a lawsuit cannot be used to buy mutual funds, says Scott MacDonald, who leads a Merrill Lynch special-needs financial planning group with an office in Folsom.

For families with few assets, a “pooled” special-needs trust can be a solution, MacDonald says. Pooled trusts pull together assets from many families and are normally managed by a nonprofit, which typically employs a professional trustee to make investment decisions for the trust. Since the pooled trust is already established,  the cost of joining is far less than setting up a trust written for a single family. To join, families establish an account in the pool, subject to the trust’s membership terms.

 MacDonald says families with little money also have another option: designating a special-needs trust as the beneficiary on a parent’s life insurance policy. Any payout on the death of a parent goes into the trust.

The newest planning instrument for special-needs families is the Achieving a Better Life Experience Act passed by Congress in 2014. Modeled on 529 college savings plans, these allow families and others to deposit after-tax dollars — currently up to $14,000 yearly per child — which grow tax-free thereafter. That’s an improvement over special-needs trusts, whose growth is taxed. ABLE accounts are also free or low-cost to set up. On the downside, the amount that can be kept in an ABLE account without jeopardizing government benefits is only $100,000. Special-needs trusts have no such cap. Most families will want to use some combination of a special-needs trust and an ABLE account, says MacDonald.

Maximizing government benefits is another aspect of financial and legal planning that parents with special-needs kids often overlook. Those nervous about navigating the maze of confusing program rules can seek advice. For example, James Huyck, the former director of Sacramento’s Alta California Regional Center serving people with special needs, is now an advocate and consultant based in Rancho Cordova who assists families in maximizing their benefits. He once worked with a family to recoup $20,000 from the Social Security Administration after the government calculated their child’s disability benefit using the wrong parent’s income.  

How to Pay for an Older Person’s Care

At the other end of the lifespan are spouses and children responsible for someone newly diagnosed with a condition like Alzheimer’s. For these families, estate planning as soon as they have a diagnosis is critical. Once a spouse or parent loses their mental capacity, it’s too late to get documents like advanced health care directives, powers of attorney, and health care records releases signed without extensive and expensive court intervention.

Those worried about launching that process can go to a nonprofit like the local Alzheimer’s Association (found through the organization’s free telephone helpline) or the Del Oro Caregiver Resource Center based in Citrus Heights. “A complaint we often hear is that people don’t know where to start and can’t navigate the system, DeMarois says. “That’s what we do for families, all day every day. We may not have all the answers, but we can help them with initial questions and get them started on the right path.”

Whether the person with needs is a child or parent, the most overlooked assets for financially stressed caregivers are similarly situated families. Heather Scott, president of the nonprofit Down Syndrome Information Alliance in Roseville, says it’s often families with the greatest financial need who don’t seek out help.

Stapleton says when they first were told of their son’s prenatal diagnosis, they weren’t given much information on what to expect and were “floundering for a couple of years.” Then they got connected with Scott’s group. “It was an epiphany,” Stapleton says. “Once we were around other families of children with Down syndrome, it was reassuring. For the first time, we had the sense that this may be OK.”  

Editor’s note: This story has been updated to clarify Scott MacDonald’s position. He is managing director at Merrill Lynch, where he leads a special needs team.   

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