by Rick Kahler
The heart of estate planning, for many of us, comes down to
one issue: taking care of family. We do our best to make decisions that we hope
will be right for surviving spouses and children.
Such decisions are especially challenging for parents of children
with special needs. The question of "Who will take care of this child
after we're gone?" can be heart-wrenching.
There are financial planners who specialize in this area,
and the best option for many families might be to ask a generalist planner like
me for a referral to one of them. The following suggestions, then, are intended
as starting points or a very general framework on which to build.
A fundamental tool in providing for a special-needs child is
a trust. My suggestion is to have this trust handled by a trust company that
does not manage money, rather than a bank. It will charge a flat fee for its
service, typically in the range of $3,500 to $10,000, and the trust need not be
in the millions of dollars.
The parents can empower the trust company to hire an
appropriate investment advisor to manage the money. I suggest the trust require
using an advisor who is a fiduciary to the trust and is compensated by fees
rather than commissions. This, along with the trustee looking over the advisor's
shoulder, provides a good system of checks and balances.
Then the parents can appoint an advocate for the beneficiary who serves as a
co-trustee. This person does not manage the money, but is the trustee's eyes
and ears to make sure the trust is meeting the beneficiary's specific needs.
When the advocate can no longer serve, the corporate trustee can appoint a new
Advocates might be family members or representatives from an
agency that provides care to the beneficiary. In Rapid City, for example,
a nonprofit organization called Black Hills Works serves people with a variety
of special needs. Many of its clients receive services throughout their
lifetimes, and some of them are supported by trusts. An agency like this will
not serve as a trustee for clients' funds, which would be a conflict of
interest, but it can serve as an advocate for a client who is the beneficiary
of a trust.
The basic approach I'm suggesting is to separate the
responsibilities of caring for a special-needs child among several
professionals, family members, or friends, according to their competencies and
the child's needs. A corporate trustee, not an individual, coordinates their
functions. This goes a long way toward assuring consistent and coordinated
support throughout the beneficiary's lifetime.
I also suggest not thinking of this approach only in terms of estate planning,
but also to provide for a child as the parents age. As they become unable to
provide care or manage funds themselves, they can turn responsibilities over to
the corporate trustee, advisor, and advocate.
Making sure a handicapped child is taken care of may take
all the parents' assets, which could raise the question of fairness to other
children. While the issue of what is fair depends on each family's situation, my
observation is that it isn't necessarily a problem. Many siblings, rather than
feeling deprived, are pleased to know the special-needs child is provided for.
As with other estate planning concerns, clear communication about the parents'
intentions is crucial.
My final suggestion regarding a trust is to make sure you design
it to allow the beneficiary as much flexibility and participation in decisions
as is appropriate for his or her abilities. Ideally, the trust will not limit the
beneficiary's independence, but will support it.
Rick Kahler, Certified Financial Planner®, MS, ChFC, CCIM, founded Kahler Financial Group, and became South Dakota’s first fee-only financial planner in 1983. In 2009, Wealth Manager named Kahler Financial Group as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is co-founder and co-facilitator of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Visit KahlerFinancial.com today!