When Your Kids Will Always Be Dependent

How to assure care for disabled children

Like other parents of children with disabilities, Evelyn and Robert Hausslein of Lexington, Mass., had to face a heart-rending issue: How would their 33-year-old son Thomas, who is moderately retarded, survive after his parents' death? To assure his living arrangements, Evelyn, 61, a retired teacher, and Robert, 62, a retired chemical engineer, bought a unit 12 years ago for $65,000 in an independent-living facility for developmentally disabled adults. His $1,200 monthly support is partially covered by government subsidies. The Hauss- leins also set up a trust, structured so that Thomas will not lose government aid when his parents leave an estate. Their other two adult children are trustees who will make cash distributions as well as monitor his care.

Thomas' future may now be more secure than those of his siblings. "We're buying some level of peace of mind and control," says Evelyn Hausslein. Adds her husband: "With Tommy in a group home, his future is predictable. With our other children, we don't know how the vicissitudes of life will treat them."

Like the Haussleins, increasing numbers of families are facing such estate-planning difficulties, with tricky legal issues and tough calculations to determine an adult child's long-term financial needs. "Severely disabled children used to die before their parents," says Christopher Sullivan, a vice-president and manager of Merrill Lynch's new financial-planning program for families with special-needs children. Thanks to medical advances, "many more now outlive them." The Arc, an advocacy organization for the mentally retarded with local chapters nationwide, says that people with developmental disabilities often live well into their 60s, and nearly a half-million adults with mental retardation are living with a parent who is over 60. That means that parents may have to provide for the future of their disabled children at the same time that they're arranging for their own retirement and their other children's college educations.

COSTLY MISTAKES. A key first step is finding other parents in similar situations. They can be founts of information on community services, estate attorneys, and financial planners with expertise in these areas. Also, the local organization that advocates for your child's disability, such as affiliates of United Cerebral Palsy and the National Alliance for the Mentally Ill, can put you in touch with experts.

Make sure your attorney understands "special-needs" trusts; a mistake by an estate lawyer with little experience in this sub-specialty can imperil your child's security. Such government benefits as Medicaid and Supplemental Security Income are crucial because they pay for most medical care, housing, and other community services. But under federal and state laws, disabled adults can't receive those benefits if their assets exceed $2,000. A special-needs trust (to pay for such extras as nicer clothes, entertainment, a computer) must be written so that the child doesn't own the assets or control any portion. Trust documents also must clearly specify that the funds will go only for expenses the government won't provide. The government has suspended benefits when documents state in too-general terms that the funds will be used for the care of the child.

Even the wealthiest parents should preserve the possibility of government aid. A child receiving Medicaid can still use the trust to pay for upgrades in care--say, the best neurologist or private institution. "Even if you're paying privately, you still want Medicaid for unexpected medical expenses that could wipe out even a well-planned estate," says Theresa Varnet, an estate attorney with the law firm Spain, Spain & Varnet in Chicago.

One popular tool to expand the pot is second-to-die life insurance, which pays out after the second parent dies. The money can be used either to pay taxes on the entire estate, or to fund the special-needs trust. Also, work with grandparents and other relatives who may be considering a bequest. Varnet usually advises clients to set up "stand-alone" special-needs trusts to accept gifts and bequests--and pay for a child's supplemental needs--until the parents' special-needs trust kicks in at their deaths. Remember to look, too, at the beneficiary clauses of 401(k) plans, annuities, individual retirement plans, and other assets. Cynthia Haddad, a financial planner with Bay Financial Associates in Waltham, Mass., notes that some estate attorneys "will never take the step to make sure these assets are transferred into trust documents."

How much should be left in a trust? That depends partly on your wealth, your retirement needs, the age of your child, and the expenses of other children still at home. A financial planner with expertise in disabilities and advocacy organizations can help you figure out how much your child's housing and other needs could cost down the road. And consider the feelings of your other children: Sometimes worried parents will leave their entire estate to their disabled child, creating resentment among siblings, says Joseph McDonald III of McDonald & Kanyuk, a law firm in Concord, N.H. If government benefits are generous, you may be able to leave more to your other children. "You want to make sure that siblings remain loyal and affectionate to their disabled brother or sister," he says.

Also, choose a trustee and other monitors carefully. The trustee will invest the funds and make disbursements. Some experts warn that banks, while good fiduciaries, often know little about your child's needs or even about reporting requirements under public-assistance laws. Siblings are often the choices, though there is a conflict of interest if a family member stands to inherit the remainder in the trust. Jim Bown, 68, of Dixon, Ill., didn't hesitate to choose his three daughters as successor trustees for his son Stan, 43, who is mentally retarded. "I want someone who knows him and his needs," Bown says.

OPEN EYES. Another option is a nonprofit organization. Some local groups are setting up services to act as trustee, as your child's "needs monitor," or both. The Arc of Indiana, for instance, has established a pooled trust and hired a bank to invest the assets, $7.5 million from 130 separate special-needs trusts. Perhaps the best strategy is to choose co-trustees who can monitor each other. Varnet also usually requires an accounting firm to review the trust once a year "to keep the trustee honest."

Ensuring that your child is living in a secure environment, watched over by people who understand his or her personal needs, can be an even more difficult process. Tap into the local services network and start coming up with a housing plan, either buying space in a private program or getting on a waiting list for government-subsidized support services and housing. One big help is to prepare a detailed description of the child's history and preferences--everything from favorite foods and activities to friends and doctors the child sees. Although not a legal document, this "letter of intent" will give future caregivers vital information on how best to meet your child's needs.

Keep in mind that it could take many months, even years, to arrange the money, home, and social-service network. But to know that your child can live comfortably for years after you die is surely worth the time and effort.