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Mike Walther
BY Mike Walther

7 Financial Planning Mistakes Special Needs Families Should Avoid

As the sibling of a brother with Autism and other developmental challenges, and a career financial advisor who focuses on working with families with special needs members, I have seen a number of common financial planning mistakes made by families all of whom had the best intentions.  Even when attorneys and other specialists are included in the planning, the mistakes below tend to go undetected.

If you work with an advisor and attorney who have experience assisting families with special needs children, and you avoid these mistakes, you will be positioning your special needs child for a successful future.

1. Beneficiary designations.

Beneficiary designations are not changed on company retirement plans, IRAs, and life insurance policies to reflect the desired flow of assets to the Special Needs Trust and NOT to the individual outright.  The beneficiary designations, and not your will, will determine these distributions.

2. Funding A Special Needs Trust With Term Life Insurance.

Often, term insurance is purchased to fund the Special Needs Trust because it is more cost effective for families in the short-run.  Given the likelihood that the financial needs of the special needs individual will last beyond his/her parents’ lifetimes,  permanent life insurance (i.e. whole life, universal life, or variable life) should be chosen because if structured properly it will be more cost effective over the lifetimes of the parents.

3. Special Needs Trusts are drafted into the parents’ estate plans to be implemented upon the death of the second parent.

While this approach is simpler administratively, the better approach is to create a stand-alone Special Needs Trust that is operable immediately.  It is impossible to know when a relative may pass away and leave assets to the special needs child.  If the Special Needs Trust is not in existence when the gift is made, the child risks losing or delaying his/her access to valuable public benefits.

4. Parents or other family members fund 529 Plans or other college savings plans in the name of the child with special needs.  

While 529 Plans have wonderful income tax advantages, they can be disastrous if the child does not continue his/her education beyond high school and desires to receive public aid after reaching age 18.  The 529 Plans count as assets held by the child and will most likely disqualify him/her from receiving public benefits.

5. The same family member is chosen as the Executor/Trustee/Guardian in estate planning documents.

Do not assume that the family member who may be best at handling administrative and financial matters after your death is the optimal care giver for your special needs child.  Give careful consideration to whether or not there is a family member who will be willing and capable to provide the care your child will need when you are gone.  If you are not confident that the ideal care giver exists within your family, consider naming an agency that specializes in providing the services your child will need.

6. Not communicating your planning with your extended family.

Not communicating with your family can create major headaches.  If grandparents and relatives are not aware of the existence of your Special Needs Trust and the importance of naming it specifically in lieu of the child, their gift may have adverse consequences.  Either a Self-Settled Special Needs Trust (also known as a Payback Trust) may be required or benefits may be reduced or lost altogether for a period of time.

7. Directions for a smooth transition in care giving are not explicitly documented.

The most important non-legal document parents can leave behind at death is the letter of intent related to their special needs child.  There is no required format.  It should include the individual’s routines, likes and dislikes, medicines, specialists, friends, and other details that will allow a future care giver the best opportunity to maintain the quality of life enjoyed by the child prior to their parents’ passing.

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Mike Walther

Written on March 14, 2013 by:

Mike Walther is the founder of Oak Wealth Advisors LLC.  Oak Wealth Advisors assists families in implementing comprehensive plans for their loved ones with special needs. Mike’s passion for helping people led him to open the firm so that families seeking experienced and objective financial advice could access the same quality of service that has traditionally been available only to the very wealthy. Mike has also written financial planning articles for the Chicago Sun-Times, and has been quoted in The Wall Street Journal, Business Week, The New York Times, and numerous other national publications. 
  • How do you go about finding a person in your area who has the proper knowledge to do this?

    • Very good question.

    • Hello Janice, there are so many options you can find right financial planner for your needs, you can use search engines like, google, yahoo, bing etc., also you have option of local directories. These steps help you to find right one, also it is important to interview financial planner before you hire one. As so interview financial planner you will be able to recognize their expertise as well as experience and hence you will get right financial advisor for yourself. You can also check following site, here you can also get certified financial planner.

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  • Martin C Hughes

    Agreed. I’ve seen these same mistakes several times in my practice. But the biggest mistake I’ve seen again and again is a misunderstanding about the nature of the trust itself. Many times I’ve come across families who think the trust is a magic wand that will take care of everything and have NO financial planning behind it. “I don’t need to meet with a financial advisor, we already have a trust.”
    What people often fail to understand is that the trust is similar to, let’s say a FedEx delivery man. It effectively and efficiently delivers funds when and where they’re needed. But without a sound financial backing, that FedEx guy will be delivering an empty package.
    Trusts need to be funded!

  • Patty Rothbart

    Dear Mike W.,
    This article has been of tremendous value to me! I cannot thank you enough for sharing your knowledge and expertise on this subject. So many families need this advice but simply cannot afford to pay for it! God bless you for having such compassion and understanding. I am so very grateful.
    Sincerely, Patty R.

    P.S. I have two sons – Josh (29) neurologically impaired since birth,
    & Dan (27) soon to married.

  • Alison

    Why is a trust needed when public benefits are available?

    • Alison

      My sister feels that social security and medicaid are enough and my daughter will not know the difference a higher standard of living can give. I feel she will need financial support till after my death apart from her other benefits.

      • Alison

        She will have health insurance through her father’s military service.

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  • gcs

    This is a useful article. Thank you. Relating to the Special Needs Trust and its funding, are these matters best handled with the assistance of an attorney or a financial planner/advisor? or a combination of both? If both, which would you start with and what aspects would each focus on?


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