A critical tool for family members with disabilities
Financial and estate planning for families who include an individual with a disability presents some unique challenges and an understanding of a variety of legal concerns, public support programs and financial considerations. This combination of specialized interests can often be intimidating and stressful for families and caregivers already managing a variety of unique medical, educational, health and mobility needs for their loved one.
My youngest son Ethan has Down Syndrome. When Ethan was born to our family in 2009, not only did this event lead my parenthood journey on a unique new adventure, but my wealth management career was also set down a path of learning about the specialized type of planning for families like mine -- first to do the best possible personal planning, and ultimately as my expertise in this subject matter expanded, to help client families and others in the community needing guidance.
With the experience gained over the past 16 years, I have come to not only understand the complicated technical aspects of planning for the future of a family member with a disability, but also -- perhaps more importantly -- the more emotional and personal components of this planning journey.
I think I can safely say there is not a parent of a child with a cognitive, emotional or physical disability who hasn't at some point laid awake at 3:00 a.m., staring at the ceiling, wondering in the most stressful fashion possible what would happen to their loved one if they were no longer around to provide the care and support required.
Recently Ethan brought home some interesting worksheets from high school. The worksheets, called the IEP transition plan, were provided by the State of Indiana to help us talk to Ethan about his vision and goals for the future. I was intrigued by the concept and curious to see how the discussion would go. Candidly, a little bit to my surprise, Ethan had many ideas about his future and had clearly been observing the life progression of his older siblings. This enjoyable and amusing conversation helped me focus my own thoughts and reinforced the reality that in my own planning, I needed to address not only my wife and my future security, but also perhaps the lifetime needs of Ethan as he pursues his vision for an independent adulthood.
Having worked with hundreds of families on their financial planning and wealth management, I understand how American families accumulate wealth for the long term. The typical family will hold a material amount of their balance sheet wealth and liquidity in tax-advantaged retirement plans such as 401(k)s and IRAs.
One of the technical challenges for families like mine is that naming a child with a disability as the beneficiary of a tax-advantaged retirement plan was not considered an ideal solution, as doing so could create taxable income impacting eligibility for public support programs, as well as inadvertently require investment and financial decision-making exceeding the loved one's reasonable abilities. So, even though parents may be planning for the long-term needs of a child whose lifetime could exceed their own by decades, with much of their personal wealth held in accounts which may not be well suited for this purpose, other solutions had to be developed.
Fortunately, with the help and hard work of family advocacy groups, this challenge was addressed with the Secure Act 2.0, enacted in 2023. This important legislation enabled a properly structured supplemental needs trust (SNT) for the benefit of an individual with a disability to be named as an Eligible Designated Beneficiary (EDB) of a retirement account. The classification as an EDB allows the supplemental needs trust to stretch income payments from the inherited retirement account over the lifetime of the individual with a disability, instead of the 10-year requirement for non-EDB beneficiaries.
In addition, critically, the legislation enables a properly drafted SNT to supplement an individual's care and lifestyle needs without jeopardizing eligibility for public support programs. The SNT also positions a trustee to support the ultimate beneficiary in the income management and investment strategy of the inherited retirement account -- solving the concerns over decision-making.
While positioning an SNT as the beneficiary of a tax-advantaged retirement account can solve several potential challenges, the planning process is technical and involves a number of other decisions which need to be worked through. Families needing this type of planning are encouraged to work with legal and financial planners experienced in this area. This is not the realm of web-based legal services and online trading apps. Doing this work with the right team is critical, and just might help when that 3:00 a.m. wakeup call we would all rather sleep through arrives.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
