Financial planning for children with special needs

my529 met Neil Mahoney at a recent event where he presented on the topic of financial considerations for families with special needs. It sparked quite a few questions from advisors in the audience, so we interviewed him to share his expertise with our advisors.

How do you use your practice to better serve families with special needs?

Personal finances can be challenging and when you add the aspect of a loved one with a disability or special needs, it can make things overwhelming. If we can help people see their finances clearly, then it’ll hopefully make their lives easier and less stressful.

What additional financial considerations do your clients encounter?

We’re helping families plan for two generations and not just one. Rather than the more common work, retire, and sail off into the sunset, our families must be intentional about planning for that second generation of financial and other support for their loved one with the disability. The time span is longer and trying to peer out that far into the future can be a challenge, so we help people understand what they can do now to reduce the uncertainty of what life is going to be like for their loved one when they’re no longer able to care for them.

What do you recommend to clients to help save for that longer timeframe?

A my529 plan can be a good solution, especially for families with younger children. The my529 funds are not going to count as the beneficiary’s assets for purpose of Social Security and Medicaid support programs and funds in a 529 can later be moved to an ABLE account.

ABLE accounts are a great solution that became available in 2015 nationally and Utah-run plans became available in 2022. Utah residents before 2022 were able to participate in other states’ plans, but now we have a great one based out of Utah. An ABLE account also protects money from being counted as resources for government benefit programs.

Before ABLE accounts, the options were to use a supplemental needs trusts, sometimes called a special needs trust, which was an attorney-drafted document, to set money aside for a loved one with special needs and not have it count as their own assets. This was more cost-prohibitive considering attorney involvement. We still use special needs trusts when the asset amounts are more significant, but an ABLE account can do the job when the asset amounts are within the $18k annual contribution limit. When we do have a special needs trust for a client, we find that we can use it in conjunction with the ABLE account. Special needs trusts can send money to the ABLE account, which can then be used for day-to-day needs. If the individual is capable, they can have a debit card and spend those funds for approved expenses and the special needs trust can continue to direct money to the ABLE account.

What do you wish more financial advisors knew to better partner with families with disabilities?

Starting in 2020, some parents of children with disabilities had the opportunity to receive compensation as the natural caregivers through a Medicaid waiver program. They are now able to receive some income for caring for their loved one within their home, which was previously unpaid work. The IRS term for this type of income is “difficulty of care” payments and can be tax-free income. As a relatively new program in Utah, some parents—and their accountants—didn’t know that they were intended to be tax-free, so they reported that income as taxable and paid more taxes than needed. Payroll companies that process these payments will often send families a W-2 and withhold taxes throughout the year, thinking that it is taxable income. At tax time, looking at the W-2, there is nothing to indicate that it is tax-free, and so the tax preparers have to be aware that it was paid under a Medicaid waiver program and they can check the right boxes to show that it’s tax-free income.

Additionally, there are Social Security programs that people with disabilities can qualify for known as SSI, Supplemental Security Income, which is a form of monthly cash payment that qualifies the individual for Medicaid services. That program is means-tested, so it matters how much income and resources somebody has. Social Security also has SSDI, Social Security Disability Income, and qualifying for that comes with Medicare and those programs are not based on income or assets (so they’re not means-tested). When people talk about Social Security benefits, there’s one that is means-tested and one that is not. How you would financially plan for somebody depends on which program they’re on.

Subsequently, an individual who is receiving SSI benefits can eventually convert into SSDI under a program called Disabled Adult Child. When an individual with disability qualifies for SSI and then one of their parents either retires under Social Security or passes away, that impacts the person’s SSI benefits. They can then qualify for SSDI benefits, which are a higher amount. Basically, when parents get to retirement age, the child with a disability can switch programs and can get a higher benefit and then no longer has to be as careful about their income and assets, because they qualify based on their parent’s record.

Do you see any legislation recently passed or on the horizon that would better serve Utah families with disabilities?

Yes, this parent caregiver compensation that I’ve been talking about rolled out under COVID as a temporary program, but last year’s Utah legislative session made it a permanent program, so that’s actually a big win. The Division of Services for People with Disabilities, or DSPD, is working on rules for how they’re going to administer the program. It would be helpful if more money could be allocated to this, because DSPD is trying to do the best they can to distribute limited funds among families that have different severities of disabilities or multiple children. A family can qualify for either 20, 30, or 40 hours a week of parent caregiver compensation and there’s this tough balancing act based on the limited amount of funds. I don’t know if there are current efforts to try to increase that, but it’s something that lawmakers need to be aware of because it’s a very helpful program for families. Often being a caregiver makes it hard or impossible to have other employment and so not only does it help financially, but it benefits people to have pride and dignity actually getting paid for their work. Before this program, families could have other people take care of their kids and get paid for it, but they couldn’t get paid themselves. It is good progress.

Another legislative issue involves basic financial benefits available to special needs families. Social Security’s SSI benefit is only available to families if their income and assets are low enough, and a lot of families don’t qualify for that. There’s a bigger program that provides more benefits called the home and community-based services waiver (HCBS), which is a special Medicaid waiver that provides additional support benefits to families, and it’s not based on the family’s or individual’s income or assets. This program is run by the Division of Services for People with Disabilities (DSPF). Every year, there’s a waiting list of almost four thousand people now that have disabilities, applied for services, and qualified for services, but there’s just not enough funding there for everybody. People are accepted from the waiting list each year based on need and severity of issues, etc., but it’s only a small percentage of those who are waiting, and it is based on how much the Legislature allocates to fund new families. It’s a very helpful program and legislators are aware of it, but may not have a personal connection to affected families to know how much it really helps. In our family, we have twins with disabilities. When we moved to Utah in 2007, one son was on the waitlist for 10 years and the other waited 12 years. Other families are out there waiting, and parent caregiver compensation is only available to people who are on this wavier program and so it is an important legislative issue.

Another thing that we are trying to get passed is the ability to have state-approved Supported Decision-Making, which is a lighter version of guardianship. In every state, you can have parents or other individuals be guardians for an adult with disabilities, from partial guardianship to full guardianship. But there has been a movement going around the country called Supported Decision-Making where guardianship is not granted, but there’s a process to help the individual with a disability make decisions with a circle of support. For those individuals who are able, it’s a way for them to not give up all of their rights, because giving up guardianship can mean giving up rights. Supported Decision-Making (SDM) allows individuals to keep their rights and to have support, so there has been legislation to try to establish SDM as a legally supported option in Utah.

What would you like to share about your firm’s work?

Our entire firm specializes in serving families with loved ones with disabilities, but we’re just a drop in the bucket. We can’t help everybody, so we have an abundance mentality where we want to provide education to inform other advisors and nonprofit groups that support people with disabilities. We want to get information out there at every opportunity and it’s not about us growing as a firm. We know that this field can be complicated, so if the family of an individual comes to us with questions, we’re going to help answer them. Even if they don’t become a client, we’re going to help point them in the right direction and help them get the resources they need to take the next steps. The same is true for advisors that might come to us with questions. We partner with other advisors who don’t have this specialty. They can hire us to prepare customized special needs plans for their clients, maintain the relationship with those clients, and we essentially get added as a team member. Our firm website has a lot of information that people can access and utilize. We just want to see families with healthcare or special needs challenges get more support.

Are there any additional resources you would recommend?

For Utah advisors or families, the Utah Parent Center is a nonprofit agency that’s an educational hub to support families in all of the issues of disability and healthcare challenges. For those outside Utah, they can search Parent Center Hub to find their local state-specific programs.

For additional ABLE account information, https://www.ablenrc.org/ details the various ABLE accounts across the country and in Utah.

If you’re interested in being interviewed for a FAN article, please contact us at advisorinfo@my529.org.

From the FAN — Spring 2024