Financial Planning Tools for Families with Disabilities

Living with a disability or supporting a loved one with a disability is a lifelong journey of learning. When it comes to individuals with disabilities, our culture has changed dramatically over the past 100 years or so, and people experiencing disabilities are increasingly benefiting from support systems, career alternatives and lifestyle choices as unique and varied as they are.

Much of the progression in how individual disabilities are experienced and managed is due to social shifts in how our society views and supports both individuals and their families, and as with most issues in modern society these values are reflected in government policy and allocation of public resources.

Government agencies on both the federal and state level provide support programs for individuals with disabilities and the families providing day to day support. As someone with a child with a disability, and as a professional who works closely with dozens of families like mine, I am grateful for these public support programs which have provided life-enhancing services to my son, my family and my clients. But of course, as with most issues involving the government, qualifying for, accessing and managing some of these programs can be difficult to navigate, so I thought I would address a common planning challenge.

Some public benefit programs are made available upon diagnosis of a qualifying disability. Programs such as early childhood intervention, special ed services in school as well as healthcare and respite services (short term assistance intended to provide a break for primary caregivers) can all be accessed after a diagnosis of disability.

Some programs, however, particularly programs for adults, are qualified for through a combination of diagnosis as well as a determination of financial need. Programs such as Hoosier Care Connect (public health insurance), home based support services, and federal Supplemental Security Income are all considered "needs based" benefits based on a strict determination of financial need as well as diagnosed disability. This additional measuring stick of financial need has the capacity to add confusion to the process of accessing and maintaining access to these vital government programs, and can also open a window of specialized financial planning often referred to as special needs planning.

Sometimes when I write about this topic, I imagine it can sound to the general public like this type of specialized financial planning is designed to "game" the system, but the truth is the government and the law have provided the tools to manage the process of qualifying and accessing public benefits in a financial needs-based situation. With this in mind, it is tasked to individuals with disabilities, their families and the professionals assisting them to learn about and properly use the tools the law provides.

In the interest of space and simplicity, let's make the qualification standards easy to appreciate. While reality is a bit more complicated, let's say for discussion purposes that in order to qualify for financial need-based programs, monthly income must be below $1,000 and assets below $2,000. These are obviously some aggressive limits, and while there may be more flexibility in the income qualifications depending on the program, the resources or "assets" qualification is strictly enforced.

So, how do we use the tools provided to manage these qualification standards? Let's talk about where each tool fits in.

The ABLE account is the latest tool added to the toolbox and is the easiest and most affordable to implement. ABLE accounts are state-sponsored, tax-advantaged savings programs similar to 529 college savings accounts. These accounts enable individuals with disabilities (not families, and not trusts) to retain and invest funds in excess of the $2,000 limit for use in providing for qualified needs now or in the future. ABLEs in Indiana are set up online, have low fees and are easy to connect to a bank account for deposits and withdrawals. I think ABLEs are best used by parents saving for a child's future or by adults wanting to save and invest earned income. In my opinion, ABLEs should be a part of every family's financial planning.

First party special needs trusts are established and funded by individuals with disabilities themselves and in my experience are typically set up to receive legal settlements or inherited assets. These special trusts require a trustee (the person or entity who controls the funds) different from the person establishing and benefiting from the trust. Administration of a first party special needs trust can be complicated, and of the three tools discussed, these are the most seldomly used in my practice.

Third party special needs trusts are typically established by family members to benefit their disabled loved ones (the beneficiary). These trusts will always be funded by the third party who created the trust, never by the beneficiary themselves, and also require a trustee. In my opinion, most families doing financial planning of this type should educate themselves on this tool, and we have used third party trusts extensively in my practice.

Both ABLE accounts and first party trusts enable the government to recoup benefit costs from the individual's estate after passing. Third party trusts are not subject to recoupment. This makes understanding and balancing assets among these tools vital when doing planning. While individuals and families should maintain an understanding of these programs and their rules, this is the realm of professionals, and I strongly encourage getting help from attorneys, advisors and tax experts familiar with this type of planning.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 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.