Bay
Financial Newsletter
A
"SPECIAL NEEDS" PERSON IN THE FAMILY
In
last month's commentary the focus was on the economic problems faced
by those who support physically, mentally, or emotionally disabled
persons, and the importance of assessing and qualifying the resources
available to solve those problems. Here, the emphasis will be on practical
solutions that supplement available government assistance and enhance
existing financial security. Please feel free to share this information
with others.
Trusts: There
is no better vehicle for assuring management, protection, and dispositive
assistance for a disabled or other special needs person than a well-designed
trust. See The New, New Book of Trusts (510) 024-0515
or Rajut, "Planning for Families with Disabled Members"
audiotape (A9834) available from Million Dollar Round Table at (800)
879-6378, for expanded information in this area.
Through a judicious
choice of trustees, trusts can provide the needed flexibility - or
the rock solid rigidity. If drafted properly, the trust provisions
can continue to be responsive to the changing needs of the disabled
beneficiary. In addition, a trust can continue for the lifetime of
one or more beneficiaries - and beyond that point for generations.
There are several states that allow trusts to last perpetually.
Like heads, two
trusts are often better than one. The first trust would be a non-necessaries
trust that would be designed to meet only those financial needs to
enhance the disabled person’s quality of life that cannot, or
will not, be provided through governmental or private programs. The
second trust would be used only if, or when, or to the extent a financial
gap existed between the total of what the government and private programs
together with the first trust provide, and the needs of the disabled
person.
At least two co-trustees
should be considered, one a family member, relative, or friend and
the other a bank. The combination would offer personal concern and
guidance, as well as professional management, investment, and security
of the financial aspects of the trust. It is imperative that at least
two and preferably three or four back-ups be selected for each trustee;
because it is highly probable that at least one named trustee (or
successor trustee) over a long period of time will die, become disabled,
move away, or for some other reason be unable or unwilling to serve
or continue to serve.
Life Insurance:
If there is sufficient cash or other assets, many problems can
be solved. Absent sufficient cash or other assets, many problems will
be insolvable. Without question, life insurance is the single most
effective way to assure the significant financial security necessary
for dependants who require perpetual care. It is also the most certain
means of providing peace of mind to a disabled person's parents as
to how their child's expenses will be paid after their deaths. The
"instant estate" created by life insurance proceeds may
be the only way the family of a disabled person can afford to provide
adequate security, if governmental care is either not desired, or
the disabled person is, or becomes, ineligible for such support.
Because it is
essential that the coverage be available whenever it is needed, some
form of permanent life insurance is typically indicated. The cost
of term insurance rises sharply at the very ages where the insurance
is most needed: as the risk of the parent's death (and the consequent
cut-off income to the disabled person from that source) increases.
Since the need to provide continuing financial support for a disabled
child can easily outlive the child's parents, term insurance is typically
inappropriate.
Do not overlook
the need for insurance on a parent who does not work outside of the
home, but is the primary caregiver of the disabled child. The income-tax
free proceeds (even if it's only a modest amount) will alleviate some
of the stress brought on by the loss of the caregiver parent, and
provide the means to hire someone to look after the child.
Life insurance
on the parents (or grandparents) may be used to "compensate"
healthy siblings of the disabled child. The insurance proceeds may
be used to "replace" the money or resources expended for
the care of the disabled child that otherwise would have been inherited
by his or her healthy siblings.
Certainly, before
switching jobs or starting a new business, parents of a disabled person
must give extra consideration to life and health insurance coverage.
Check the "pre-existing condition" provisions of the health
insurance plan, and look into MERPs (Medical Expense Reimbursement
Plans).
Some Additional
Thoughts: Nowhere is the need for estate and financial planning
more urgent or important than when the problems include providing
financial security for a physically disabled or other special needs
person. Yet parents of such children are often so preoccupied with
day-to-day crises that they sometimes have difficulty allocating the
time, energy, and economic resources to plan for the future.
The need for continual
updating of information, plans, and tactics is essential. An annual
"Financial Fire-Drill" - a meeting with professional advisors
to review goals, resources, and plans of action and the staging of
a dry run - can make an incredible and invaluable difference to the
overall emotional and financial well-being of the family.
AS ALWAYS,
PLEASE FEEL FREE TO CALL TO DISCUSS THESE OR OTHER ISSUES OF INTEREST!
