Planning Crucial for Parents of Disabled

It was a fortuitous coincidence. Early in her career as a financial consultant, Sheri Billings had several clients who had disabled children. They told her about financial planning for their offspring, conversations that Billings admits went over her head--until 1992, when her youngest child was born.

Taylor’s medical problems surfaced when she was 5 months old. Sheri and her husband, William, realized that their little girl would have lifetime mental and physical disabilities.

“Those clients became my mentors,” said Billings, now a vice president and manager of Merrill Lynch & Co.’s Weston, Fla., office. “They helped me understand all the challenges that were ahead of me.”

That’s largely why she jumped at the chance to get involved in a fledgling program at Merrill aimed at creating specialists in financial planning for parents of children with disabilities. The New York-based investment conglomerate has enlisted 500 financial consultants to get specialized training and work with a cadre of lawyers and estate planners to address the specific needs of this market.

“When you have a child who is handicapped, you become an advocate, a warrior in this process,” Billings said. “It is hard to fathom what all this involves unless you are living it.”

Though this is the first organized effort by a major investment house to address this niche market, you can find specialists at most large investment firms. In addition, the National Assn. of Personal Financial Advisors, at (888) FEE-ONLY, can refer you to a specialist in your area.

Roughly 14.7 million people have a “severe” disability, as defined by the Americans With Disabilities Act, according to the U.S. Census Bureau. Virtually all of these people face financial planning challenges, largely because their medical expenses tend to be far higher--and their incomes far lower--than the average American, according to government statistics. But the financial planning challenges are usually even greater for the parents of more than half of those individuals--roughly 7.5 million--who are mentally retarded.

Many of these children are likely to require physical and financial help for the rest of their lives, said Rick Berkobien, assistant director of the Arc, an Arlington, Texas-based nonprofit group formerly known as the Assn. of Retarded Citizens. While this assistance is often provided by parents while they are alive, most parents are 20 to 40 years older than their children. As these parents age, they must deal with legacy issues that become complex when a web of government services are taken into account.

An adult with severe mental retardation qualifies for a host of government-paid services, ranging from health care to custodial care. But all of these government-provided services are “means tested”--in other words, they are provided only to people who are too poor to pay on their own.

As long as the disabled individual has no income or assets of his or her own, his or her state (which administers the federal Medicaid programs) will pay for special schooling, physical therapy, doctors, medicines and, when necessary, convalescent home care. Through Supplemental Security Income, a welfare program for people who cannot work, these individuals also get a small monthly allowance that can help pay for incidentals, ranging from clothing and toiletries to entertainment, which are not paid for by any other government program.

However, in most states, the bulk of SSI stipends must be used to repay the state for the cost of other services provided. The disabled recipient often gets to keep just $30 a month--which doesn’t come close to providing even modest luxuries that can improve the quality of life, Berkobien said.

Of course, while they are alive, parents can improve the child’s quality of life by paying for trips to baseball games, new clothing, books, TV sets and other items out of their own pockets. The challenge arises when the parents die and no longer provide these things.

If no planning is done, the child’s quality of life can evaporate at that point, Berkobien said. Unfortunately, if traditional estate planning is done and the parents leave assets to the disabled child, they can do as much harm as good.

That’s because an inheritance can disqualify the child from his or her means-tested government programs. In most cases, the disabled child won’t be physically booted from a convalescent home or school. Instead, the government will seize the inheritance to pay for the child’s current--and sometimes, past--food, board and medical expenses. In short order, the inheritance is gone and child is again dependent on the state’s small monthly allowance.

Experts suggest that parents solve this problem by setting up a “supplemental needs trust.” This trust provides income for “extras,” or whatever the person can’t afford from his or her small monthly allowance. However, it’s imperative that the trust document complies with rules set up in the Omnibus Budget Reconciliation Act of 1993, which details what is and is not permissible, Berkobien said. It’s wise to consult an estate planner or attorney familiar with the OBRA legislation.

If there are other siblings, particularly younger adults, parents may be able to address legacy planning in simpler ways by discussing the disabled child’s needs with the siblings, and, in their wills, providing those siblings with the financial wherewithal to serve for the disabled person’s needs.

If the disabled child is being cared for at home, rather than in a nursing home, parents would also be wise to keep a record of the child’s daily routines, experts add. These routines can be precious to the child, who is already likely to be devastated by the loss of their parents.

In any event, if you have a retarded or severely disabled child it’s crucial that you consider future financial issues and plan for contingencies, Billings said.

“You have to get the emotion off the table for a little bit and deal with all of the ‘what ifs,’ ” she said. “And look at this again every single year, just in case there are new rules and regulations. I figure, every year when you set up your annual medical exam, you should also set up a visit with your attorney.”

Times staff writer Kathy M. Kristof can be reached at kathy.kristof@latimes.com or at Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.