Parents of disabled must plan for future

For Ed and Pat Worff, retirement planning wasn't as simple as salting away money in a 401(k).

The Worffs' 36-year-old daughter, Patty, has a developmental disability. And though she works as a greeter at a nonprofit center, the couple needed to provide for her financial future, too. In doing so, they had to be careful not to make her ineligible for government benefits.

A few years ago, the Worffs got estate-planning documents in order and set up a special trust for Patty Worff. Their lawyer also drew up documents for their daughter, including one outlining her desires for care if she becomes incapacitated.

Planning has brought peace of mind.

"Both my wife and I are relieved," said Ed Worff, who is 60 and retired. "We know that if something were to happen to both of us, at least Patty's future is insured."

Nearly one in five adults and young children in the United States — 49.7 million people — have a disability or long-lasting condition, reported the 2000 Census.

Years ago, aging parents relied on relatives to care for an adult child with a disability, experts said. But with smaller families and relatives often living far away, it's become important for parents to develop a long-term financial strategy for their child.

Often parents put off planning because they can't bear the idea that they won't always be there for the child, said Mary Anne Ehlert, a financial planner in Vernon Hills, Ill., who specializes in planning for people with disabilities.

"Parents want to live one day longer than their child. In reality, that's not going to happen," Ehlert said.

The first step to planning is making a candid assessment of a child's capabilities, she said. From there, parents will have a better idea on what legal documents they may need to secure a child's future.

Estate laws differ from state to state. So do rules on government benefits. Families generally need a professional in their home state who has lots of experience with trusts for people with disabilities.

Every family is different, but here are issues to consider:

Special-needs trust: Generally, children cannot have more than $2,000 in their name to be eligible for government benefits, such as Medicaid and Supplemental Security Income, experts said.

"If you have $4,000, you may have $50,000 in medical bills but don't qualify for Medicaid," said Ron Landsman, an elder law attorney in Rockville, Md.

Parents often set up a "special-needs trust" to pay for care not covered by the government or for extras, such as annual vacations or modifications to a house to provide accessibility.

"A special-needs trust can be a stand-alone trust or can be created as part of a will," said David Rosenthal, an American Express financial adviser in Arnold, Md., who helped the Worffs.

Rosenthal says the simplest way is through a will. "That creates the most flexibility. You can change any time up until you die," he said.

Funding a trust: Money and other assets can be put into a trust, with the trust listed as owner. Again, putting assets in the child's name will trigger a loss of benefits.

Parents with few resources often fund the trust with so-called second-to-die life insurance. The policy is less expensive than some others, allowing parents to buy a bigger benefit.

The trust should be named as the policy's beneficiary. The money is paid to the trust after the second parent dies.

Selecting a trustee: A trustee administers the trust on behalf of the child. It can be a family member, a corporate trustee or a combination of the two. Ehlert advises choosing someone "they trust with their wallet."

Pooled trusts: A special-needs trust isn't cheap to set up, and financial institutions often aren't interested in managing a trust with assets of less than $250,000, experts said. For families with more modest means, some nonprofits have set up "pooled trusts," where money from many families is combined and professionally managed.

Each family has its own account, and earnings are apportioned, like a mutual fund, said Marty Ford, a lawyer with the Arc of the United States and United Cerebral Palsy.

The trust's manager knows aid rules and won't allow disbursements that would jeopardize benefits, Ford said.

A will: With this document, parents can designate where they want their assets to go, such as the trust.

Letter of intent: In this letter, parents can write a child's likes and dislikes, their goals for the child, the names of service providers and key professionals. In other words: "If you are being asked to step into a situation and take over the care of a person, what would you want to know?" Rosenthal said.

Communicate: Make sure relatives know about the planning, Rosenthal said. That way, if they intend to leave money to the child, they will know not to do so directly and cause a loss of benefits, he said.