Long Day's Journey into Financial Light: Part II, Private Financial Resources
When approaching retirement we tend to think about how to stretch our personal financial resources, combined with government resources like Social Security and Medicare benefits, over the remainder of our lives. As a person with autism enters adulthood we probably ought to adopt the same mindset. Financial planning for individuals with autism is complicated by the spectrum nature of the condition—some people will need more services than others so there is no meaningful annual number that approximates “typical” financial need. Programs for autistic adults that provide supported or supervised residential settings may cost $70,000 to $100,000 per year. Young adults that continue to live with their parents, and who have family members as caregivers, will generate out-of-pocket expenses that are much, much lower.
But there are big differences between retirement thinking and planning a financial future for an autistic individual. The first obvious difference is that, in a best case scenario, the person with autism is seeking to begin, rather than retiring from, employment. Secondly, the individual in question may not be able to handle money, especially in the form of abstract financial resources that are difficult for most people to comprehend. Furthermore, financial plans should be made for the day that the primary caregiver or financial advisor passes on. In that sense, you are planning for two lifetimes rather than one. Succession planning involves more than finances but is often done via a will or trust document that is a central financial planning document.
Finally, formulating a long term financial plan for a person with autism is emotionally daunting. That’s one reason many people don’t even try: The reality of the numbers may be brutal to face. But if you have read this far you are already ahead of most people. According to financial advisors who focus on families with special needs the most typical planning mistake they see is a failure to plan at all. The balance of this article will consider the following topics:
Private health insurance: A potential financial asset that many families may not have considered.
Earned Income: A potential financial asset to be cultivated.
Family Resources: Typically the “guts” of financial support that need to be well-organized by people familiar with the multiple needs and laws that affect families with autism.
Special Needs Trusts: The most typical legal planning vehicle used by families with autism.
Private Health Insurance
Private insurance has paid for some services for some people with autism but there seems to be little consistency of rules or payments. Drugs or services prescribed by a physician, such as speech or occupational therapy, may be covered by health plans in some situations. Some families have found that services may be covered, but only if they are prescribed for conditions that are co-morbid with autism rather than for autism, per se. Coverage may be included under mental health benefits, which have become generally more robust since the introduction of The Mental Health Parity Act of 1996. However, many families with a person with autism find it virtually impossible to get insurance and have been precluded from benefits based on “pre-existing condition” language. This obstacle is changing since the passage of The Patient Protection and Affordable Care Act early in 2010 which precludes private insurance carriers from denying coverage to children based on preexisting conditions and gives families access to a bridge insurance plan if adults with pre-existing conditions are denied coverage.
A majority of states have now enacted autism insurance reform laws that mandate coverage of certain autism-related services. Depending on how these laws are written, some services, such as ABA or possibly occupational therapy, may be covered for adults. However, even in the states which mandate insurance coverage beyond childhood, this typically ends sometime between the ages of 18 and 21. Good resources for state-specific information include local chapters of the Autism Society of America and Autism Speaks, as well as other parents within your community who have tried to get services covered by private insurance.
The most obvious source of private financial support is wages earned by the autistic individual. Scott Standifer, a clinical associate professor in the University of Missouri’s School of Health Professions, has put together a terrific Fact Sheet on Autism Employment which provides an overview of the vocational rehabilitation industry, the macro challenges the US faces in attempting to find employment for people with autism, as well as some best of breed private programs. Embedded within the Fact Sheet are links to national and state vocational rehabilitation resources, including a link to each state’s vocational rehabilitation contact information.
Disabled individuals who are receiving benefits from the Social Security Administration (SSA) have access to that department’s programs designed to help people with disabilities return to the workforce. Most of the SSA’s vocational rehabilitation efforts are directed through Work Incentives Planning and Assistance Organizations (WIPAs) located in each state, which are tasked with providing counselors to coordinate federal, state and private resources to help disabled beneficiaries return to work. In addition, there are two specific federal programs which disabled job seekers may qualify for: Ticket To Work which enables a disabled person seeking work access to an Employment Network, and Plan For Achieving Self Support(PASS), which helps individuals create an individualized plan to return to work and creates a savings vehicle that will allow the individual to shelter some income from SSI limits. While not designed specifically for disabled people, people with autism may also qualify for an Individual Development Account (IDA), a savings plan in which persons within certain poverty programs can have savings matched dollar for dollar by participating charities, and, to a limited extent, by the federal government.
“Family resources” include many things. The most important resources are the people: parents, siblings, friends, guardians, trustees, advisors, social workers, counselors, etc. Marshalling and organizing human resources is usually done through legal documents such as a will or living trust for the parents (or guardians) of a person with autism, and often a special needs trust. An attorney is a good point person to lead the process which generally begins with the parents/guardians writing a Letter of Intent detailing how the parent/guardian’s goals for the person with autism can be achieved by whom. Family financial assets, such as family wages, investment portfolios, real estate, life insurance policies, retirement accounts such as IRAs, or perhaps even a potential inheritance are positioned within this overall structure. A good financial advisor can help organize and maximize the financial resources. If sufficient resources exist, usually a special needs trust should be formed to provide a single repository for assets dedicated to funding the financial needs of a person with autism.
Seeking a Financial Advisor
In my experience, financial advisors are like chiropractors: Really good ones are worth every penny while mediocre or worse do more harm than good. There are a number of national financial firms that have created groups dedicated to serving the financial needs of families with special needs individuals, some of which are listed at the Special Needs Alliance website. A financial advisor that is knowledgeable about the unique financial issues faced by families impacted by autism may be able to provide valuable advice. Ideally, that person would know about, and/or have working relationships with other professionals that know about:
- Eligibility requirements for major government disability and poverty programs
- Wills and estate planning
- Guardianship/conservatorship law
- Special Needs Trusts
- Insurance products, including their tax implications
- Stocks, bonds and financial markets generally
Many “name” financial firms which offer the services of a financial advisor are seeking clients with investible assets of $250,000 or more. However, there are no official rules about how much assets a client needs to open an account. Advisors who have chosen to focus their business on special needs families typically have done so because they have a personal connection with this community and may offer services to people with lower levels of assets.
One free resource which may help families begin to think about finances is a basic financial needs calculator available from Merrill Lynch. This calculator provides families with a worksheet to calculate monthly expenses and then build asset, return and inflation assumptions to yield a lump sum savings target. For most families, building a realistic monthly expenses budget will be challenging since pricing and availability of services will vary. However, the exercise is useful, if only to make clear the true cost of very expensive services that will only be affordable for merely a couple of years.
Special Needs Trusts
A trust is a legal entity containing property (generally financial assets) which is managed by a person, the “trustee,” for another person’s benefit, the “beneficiary.” A Special Needs Trust (SNT)—also known as a Supplemental Needs Trust—is a trust created for a disabled beneficiary under the age of 65 for the purposes of providing the beneficiary with “supplemental and extra care above what the government provides.” SNTs are generally created to shelter assets used for the benefit of a disabled person so that that person can continue to qualify for government programs like Supplemental Security Income (SSI) and Medicaid that have strict asset limits. Nolo’s website provides a brief overview of SNTs, while the Findlaw website provides a succinct FAQ page about SNTs.
Why Create a Special Needs Trust?
Oftentimes family members would like to help provide financial support to an autistic individual, yet even a relatively small gift of assets ($2000) will destroy that person’s eligibility for programs such as SSI and Medicaid. There are at least three obvious advantages to creating an SNT:
- It creates an entity to collect assets on behalf of the beneficiary. An SNT is an excellent structure for loved ones to name as a benefactor in a will. Note: If you create an SNT it is imperative that all family be aware of its existence and purpose otherwise a bequeath from a well-meaning relative directly to the person with autism may disqualify that person from public assistance eligibility.
- It creates a legal structure which names a trustee to manage assets on behalf of an autistic person and anticipates succession should the trustee die before the beneficiary.
- An SNT can hold unlimited assets which are not accessible to creditors, nor can they be included in a legal settlement against the beneficiary or family members. Conversely, the SNT may be named by the court as the recipient of a legal settlement on behalf of its beneficiary.
Types of SNTs: Third-Party vs. First-Party
There are third-party SNTs, which are created from the assets of others, usually family, and first-party SNTs which are created from the assets of the beneficiary. The government places much tighter legal restrictions on first-party SNTs than third-party SNTs, especially in the form of “look back” provisions and Medicaid repayment rules. Therefore, one should not co-mingle assets between the two structures. Whereas our government generally sees third-party SNTs as a way for family to provide for a disabled loved one, thus easing the financial burden left to the government, it tends to see first-party SNTs as a legal circumvention of eligibility rules. Therefore, it may be wise to spend down assets where practical (and they must be spent, not donated or gifted), rather than attempt a structure as legally complex as a first-party SNT.
Types of SNTs: Individual vs. Pooled
When most people think of an SNT, they think of an individual trust as has been described in the foregoing discussion. An alternative structure is a Cooperative Master Trust—also known as a Pooled Trust—which is managed by a not-for-profit organization usually on behalf of members or stakeholders. In this structure, assets contributed by many members are “pooled” and managed on behalf of the group with benefits distributed pro-rata according to contributions. Basically, one gives up a substantial amount of control over both the trust assets and proceeds in exchange for a (potentially) lower cost, ready–made trust structure. Generally speaking, families should probably view pooled SNTs as a fallback if an individual SNT is not a viable option. This may be because:
- Assets to be contributed to the SNT are small enough that set-up and management expenses eat up a meaningful portion of trust assets.
- There is no appropriate person to serve as trustee.
- Legal requirements for setting up an individual SNT seem too daunting.
If a family chooses to participate in a pooled trust, it should choose its sponsor carefully. Ideally, both the charity and the trust should have long and stable operating histories, since if the charity goes broke the beneficiary could lose access to contributed assets, or potentially lose these assets altogether.
Funding an SNT
Many SNTs are funded by inheritance from the estate of a deceased family member. Other sources of funding may include insurance policies naming the SNT as beneficiary. Using insurance policies rather than a will avoids probate, possibly avoids estate taxes, and probably results in quicker access to assets. Real estate, such as the house an autistic person is living in, may be contributed to the SNT. While a house owned by an autistic person is not counted against that person’s $2000 asset limit for SSI eligibility, maintenance expenses, if paid by someone else, may count against income limits. If the house is owned by the SNT, then the trust may pay for these maintenance expenses without impacting income limits. Other financial assets, such as stocks and bonds, may be contributed to an SNT. If possible, one should avoid contributing financial assets from retirement accounts such as IRAs. The contribution will trigger income taxes on every dollar of donated IRA assets, whereas taxable account contributions do not trigger income taxes.
Other SNT Does and Don'ts
- Write a thoughtful Letter of Intent as part of the trust document. The letter can be addressed to the successor trustee and can be used to give important information about the beneficiary: his medical history, special needs, likes and dislikes, and whatever information a trustee would need to use trust assets to enhance the life experience of the beneficiary.
- Find a trustee that understands the rules regarding allowable trust expenditures. Somewhat counterintuitively, an SNT probably should not pay for basic food and shelter needs, such as groceries, but could pay for a vacation or dinner party.
- Make sure that the trust document states that it is not intended as a basic support trust and that it contains correct legal language regarding Medicaid payback, appropriate portions of the Social Security Operations Manual, OBRA of 1993, and relevant portions of the US Code. Incorrect wording can nullify the trust, so it might be wise to have a lawyer who specializes in this area write the document.
- Keep good documents. Merrill Lynch suggests 10 types of documents be gathered and made accessible.
- Use the trust to purchase countable assets in the name of the beneficiary.
- Include a “Crummey Clause”—an estate tax provision—in the wording of the trust document.
- Keep its existence a secret. Make sure Aunt Sally knows to leave assets in her will to the SNT and not directly to the person with autism.