Over the course of the two-day conference, attendees from across the country got a more detailed look at how to plan for and best serve individuals with special needs and their caregivers with financial planning designed to ensure a successful and secure financial future. 

A Deep Dive Into Specialized Knowledge

The symposium began with a welcome address from Joellen Meckley, executive director of the Center for Special Needs. Meckley thanked the around 50 financial professionals at the conference for attending and pointed out some notable facts: firstly, that the symposium was the largest in-person event ever held on The College’s campus; and secondly, that the Center for Special Needs had received a grant from the Christopher Reeve Foundation. Reeve, an actor who famously portrayed Superman in multiple movies, was himself severely disabled after a catastrophic horseback riding injury and was a well-known activist for those with special needs. 

Meckley noted that the grant would go toward expanding the operations of the Center for Special Needs. She mentioned that grant funds would be used to support a project currently in development: a five-part video series on financial wellness for advisors, caregivers and clients who are facing paralysis, including modules on budgeting for disability, public benefits, and taking control of your financial future. 

“Many people are drawn to this form of practice because they have family members or loved ones with special needs,” she said, noting that nearly everyone in attendance raised their hand when asked if they knew or were close to someone with special needs. “Most conferences like this are for lawyers – but this one is for you.” 

Morning sessions were led by staple College thought leaders laying out many different specialized areas of financial planning that affect those with special needs. Tom Brinker, JD, LLM, PFS/CPA, AEP®, ChFC®, an adjunct professor of special needs planning, used his expertise in both tax planning and as a parent to a child with special needs to present a compelling lesson on tax strategies involving changing IRS regulations and tests for tax exemptions on housing, education, activities, and more – all while dropping some important and eye-opening facts. 

“One in six children today has some kind of disability,” he said. “Rates of autism have risen dramatically across the country over the last decade – but is it really because more people are autistic, or just that we’re finally recognizing this condition for what it is? Either way, the need is growing and we need financial professionals who are educated to address it.” 

College faculty members and staff including Lesley Mehalick, JD, LLM, an adjunct professor of taxation and special needs planning, Lindsey Lewis, CFP®, ChFC®, director and chair of the American College Center for Women in Financial Services, and other experts in the fieldshared their own insights on how special needs affect their distinct focus areas and constituencies, including the fact that most caregivers for those with special needs are women to Medicare and Medicaid, public benefits, Social Security, and more. 

Impacts on Individuals and Caregivers

Some of the most impactful sessions of the first day of the symposium addressed the real-world implications of having to care for a person with special needs. In their workshop on ABLE accounts, meant to give adults with disabilities more financial and life independence, Kelly Piacenti of MassMutual and Jerry Hulick of Caring Consulting Group talked about the need for more awareness. 

“We are the largest minority population in the country, and the business case for this space is huge,” said Piacenti, a key organizer of the event and leader of the Center for Special Needs Advisory Board. “We need allies, and advisors who say they don’t have any clients for whom this knowledge is relevant probably do and just don’t know it. Disability can happen anytime, and benefits available for those with special needs constantly shift. We need advisors who ask the right questions and can keep up with all the changes.” 

In his session, Pat Bergmaier, CFP®, ChSNC®, discussed the very real possibility of caregivers needing to plan for a “retirement for three” – for them and their child with special needs, who may not be able to live on their own. 

“Many parents don’t know how to face the fact that their children may need care even after they are gone and will need a way to maintain their quality of life,” he said. “Sometimes, they’re faced with the awful thought that it might even be better if their child were to pass away before them. But it doesn’t have to be this way. After the age of 18, things really open up for young people with special needs and their caregivers when it comes to benefits available: do the work and make a plan.” 

Jason Fishkind, CEO of Hope Trust, also mentioned the need for sensitivity in working with caregivers and those with special needs, as well as the knowledge gap among financial professionals. 

“Even though two in seven households are supporting someone with disabilities, very rarely is there a financial advisor with a broad understanding of the various issues confronting them,” he said. “You need to be an expert on this subject and know how to talk to them. The products and planning involved are so complex that it’s not something just anyone can do.” 

An Emotional Call to Action

After departing for the evening, the symposium attendees reconvened the following morning, when they were welcomed back by George Nichols III, CAP®, President and CEO of The College. Nichols spoke about his own past experiences in the special needs space as the State of Kentucky’s mental health commissioner, as well as his own father’s struggles with dementia. 

“The physical and emotional toll of caring for those with special needs or mental health issues is overwhelming,” he said, speaking of the challenges caregivers and families face. “Special needs planning isn’t just about kids anymore, either – many more adults are also being diagnosed with disabilities. The College is dedicated to building a powerful network of allies and thought leaders to meet this need.” 

In a panel discussion, several experts in financial planning encouraged attendees to refer to special needs planning instead as “quality of life planning,” as much of their work is about ensuring individuals with special needs have the best lives they can possibly have. They also pointed out the importance of local efforts and building community in planning, as well as the value to financial advisors and firms to specialize in the field. With so few advisors experienced in this type of planning, they pointed out, you can easily corner the market in your given area – and once you help one family, others in their network will come flocking to you. 

In another session, lawyer Ethan Ordog spoke about an often-forgotten aspect of special needs planning: making arrangements for elderly family members or clients who may not have the mental capacity to make their own decisions anymore and ensuring they are not exploited. 

“Advisors are more and more being found at fault for elder exploitation because courts and juries find they should have known it was going on, but failed to act,” he said. “There are major differences between power of attorney, conservatorship, and guardianship – don’t trust your clients to figure them out. Laws, life, and needs are constantly changing, and it’s our responsibility to stay up-to-date on all of it.” 

Mental health professionals from outside the financial services space were also heard at the symposium. Abby Grasso of PLAN PA, a special needs organization in Pennsylvania, spoke to attendees about the importance of approaching those with special needs and their caregivers with understanding and respect. 

“Sympathy and empathy are not the same thing,” she said. “One in five US adults experience mental illness, and 17% of youth experience mental health challenges. When you talk to them, don’t try to change the subject or offer silver linings. Just let people know that you are there for them and that you understand what they must be feeling.” 

The symposium ended on a high note, with many financial professionals present taking home significant lessons to apply in their practices. 

“The information has been outstanding, and so much more than I anticipated,” said Robert DiLaura, a senior financial planning manager at Charles Schwab. “The ability to network with people who are like-minded and also working in related fields that we need to know about has been extremely valuable.” 

“What I learned in the very first session probably paid for my coming by itself, and there’s been even more than that,” said Julie Smith, a financial advisor with Ameriprise. “It’s been wonderful to get different points of view and learn from others. I’ve gotten just as much from my peers as I did from any of the presenters, who were excellent.” 

The event also honored the efforts of those present in the special needs planning space, including recognizing and celebrating Jerry Hulick’s 50-year anniversary as a member of the MassMutual family.

For example, the advocacy organization Autism Speaks estimates the lifetime cost of caring for a person with autism at $1.4 million. That cost can almost double if the person is impacted by an intellectual disability (having an IQ under 70). 

Most families don’t have the income or personal savings to meet these challenges. That’s why it’s essential to take advantage of all the government benefits that are available to assist families caring for a loved one with special needs. 

If you are caring for a family member with special needs, make sure your financial planning includes these government programs. 

Supplemental Security Income Benefits 

Supplemental Security Income (SSI) is a federally funded program administered by the Social Security Administration (SSA). 

Blind or disabled children and adults are eligible for SSI benefits, as are adults 65 and older who meet the program’s financial criteria. 

The SSI definition of “disabled” is different for children and adults. 

For children: 

• The child must have a physical or mental condition(s) that very seriously limits his or her activities, and 
• The condition(s) must have lasted, or be expected to last, at least one year or result in death.

For adults: 

• The adult has physical or mental condition(s) that results in the inability to do any substantial gainful activity and can be expected to result in death, or 
• The condition has lasted, or can be expected to last, for a continuous period of 12 months or more. 

Visit the SSI homepage for information on the program and on how to apply. Also, know that the Social Security Administration will: 

• Help you complete your application. 
• Make an appointment and pay for a medical exam if the information you currently have isn’t sufficient. 
• In some cases, pay for your travel to the exam. 

Social Security Disability Insurance 

Social Security Disability Insurance (SSDI) is an earned benefit funded by the Social Security tax fund and targeted to people whose physical or mental impairments prevent them from engaging in their normal occupation or other work. That means, even if an individual meets the SSI definition of disabled, that person must have sufficient Social Security work experience to qualify for payments. 

The program includes the Disabled Adult Child (DAC) provision, under which an adult disabled before age 22 may be eligible for child benefits if a parent is deceased or starts receiving retirement or disability benefits. This is called a “child’s benefit” because it is based on the parent’s Social Security earnings. 

The SSA website provides this example of a DAC benefit: 

A worker starts collecting Social Security retirement benefits at age 62. He has a 38-year-old son who has had cerebral palsy since birth. The son will start collecting a disabled "child's" benefit on his father's Social Security record. 

In this case, the adult child is eligible even though he has not worked or contributed to Social Security. Adult children who work can still receive benefits as long as their earnings remain below a level the SSA considers “substantial,” which in 2020 was set at anything over $1,260 a month. 

Check out the SSA guidelines to learn more about SSDI benefits, eligibility, and application process. 

Get professional support 

The SSI and SSDI benefits are just some of what’s available from the government to assist families with special needs. Medicare and Medicaid include provisions that can provide additional financial assistance. 

Even though the SSA website is easy to navigate, these benefits can be complex and challenging to understand. One of the best ways to ensure your loved one receives all their eligible benefits is to work with an advisor who has professional credentials and experience working in special needs planning. 

This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.

One of the things I learned from these families was that having a child or grandchild with special needs often comes with many challenges. Someone always needs to be available to care for them. Family vacations are infrequent. Trips to the grocery store are difficult. Going to a crowded movie theater on a Friday night isn’t ideal. And taking some “me time” is almost always an afterthought. 

And then there’s the reality that the child may not ever be able to live a fully independent life away from home. This means that those responsible for the child’s care need to put into action a plan for now, a plan for when they can no longer care for the child, and a plan for when they are no longer here with them. If you are a grandparent of a special needs child, you may wish to share this article with the child’s parents. 

The Importance of Estate Planning for Families with Special Needs Children 

Estate planning is usually not the most comfortable area of financial planning to address for many clients. You may be thinking of the complexity, the cost, the time commitment, and the emotions that come along with this planning. If you are someone who needs to plan for a child with special needs, these thoughts and feelings are even stronger, but the need to plan is even greater. The focus for you will be to establish the necessary documents to act on behalf of your child and ensure that they can live a full, quality life when you are no longer able to help them. 

You will also want to be certain that everything is in place if you become disabled. You will need to create what is called a Life Plan. 

A Life Plan helps to ensure the right people are in place to care for your child and that they have everything they need to follow your directions. It also gives you a way to efficiently leave assets to your child, while considering the need for government benefits if they cannot work to meet the “substantial gainful activity” level, as defined by the Social Security Administration. In the Life Plan you will outline the present and future personal, legal, and financial needs. 

To help you get started, below is a list of categories derived from the book Planning for the Future: Give your Child with a Disability the Gift of a Safe and Happy Life (Russell & Grant, 2010). For each of the categories we recommend listing four priorities on which you’d like to focus. These will be your stepping-stones to help you prepare a Letter of Intent when you meet with your CERTIFIED FINANCIAL PLANNER™ and your Special Needs Attorney to formalize your Life Plan. 

• Residential: If you die or go into a nursing home, where do you want your child to live? 
• Education: What is your long-term perspective of your child’s capabilities?
• Employment: What has your child enjoyed? List their goals, aspirations, limitations, etc. 
• Social/Recreational: What activities make life meaningful for your child? List sports, hobbies, etc. 
• Religion: Is there a special church, synagogue, or other holy place for fellowship? 
• Medical Care: What has worked and what has not? 
• Behavioral Management: Does your child have special behavior problems? What behavior management techniques have been effective in the past? 
• Advocate/Guardian: Who will look after your child, advocate for your child, and be a friend? 
• Trustees: Who do you trust to manage your child’s funds? 
• Other Areas of Concern: What other aspects of your child’s life are important to note? 

To learn how Modera can help you develop a comprehensive Life Plan, please reach out to your team of advisors or Contact Us at advice@moderawealth.com. 

Modera Wealth Management., LLC is an SEC registered investment adviser with places of business in Massachusetts, New Jersey, Georgia, North Carolina and Florida. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. 

For additional information about Modera, including its registration status, fees and services and/or a copy of our Form ADV Disclosure Brochure, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). A full description of the firm’s business operations and service offerings is contained in our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send money. 

This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.

This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.

Often, family members or close friends want to help you by gifting to your child or leaving an inheritance to them. Though this generosity may be appreciated, there can be unintended side effects of gifting outright to someone who has special needs. 

Outright gifts can affect your child’s eligibility for some government benefits if they are 18 or older. This is important to keep in mind because frequently an adult with special needs cannot earn enough income working to meet their own basic living expenses. Medicaid and Supplemental Security Income (SSI) are needs-based government programs designed to cover costs related to food, shelter, and medical care. 

These benefits can be valuable by alleviating some of the financial burden that falls on you as the parent. In turn, they allow you to focus your own financial planning around supporting your child with supplemental expenses not covered by these benefits, saving for your retirement or your future long-term care costs, or providing for your other children. 

Outright gifting also raises concerns about who will manage the assets that are given to the individual and how they will be protected from fraudulent attempts or creditor situations. There are planning strategies that can help with these areas. These strategies cover two categories: those gifts or inheritances that have already been completed, and future gifts and inheritances. 

Completed Gifts and Inheritances

With completed gifts and inheritances, different considerations apply depending on whether your child is a minor or an adult. If you have a minor child who has received gifts or inheritances in their name, the money might be held in a Uniform Gift to Minors Act (UGMA) account or Uniform Transfer to Minors Act (UTMA) account. Any money deposited into a UTMA is an irrevocable gift, which means, even though you’re the parent, you cannot simply transfer the assets into your own account. Instead, the strategy to consider is using these accounts to cover expenses before your child reaches the age of majority. The idea is to allow them to benefit from this money now, while it is shielded from the Medicaid and SSI asset tests. In order to qualify or to continue to qualify for these government benefits when your child reaches age 18, they typically cannot own more than $2,000 in assets. 

If your child received a larger windfall that will not be spent down in time, or if they are already close to adulthood, you may want to consider a “self-settled” special needs trust. This is a trust that is set up by a parent or grandparent where the child is the beneficiary. This trust is funded using your child’s own assets. 

An attorney can help you decide which type of self-settled special needs trust is best. There will be specific language written into the trust document that limits the use of the trust to those expenses not covered by government benefits. If there are any remaining assets in the trust after the life of the beneficiary, the money will first pay back the expenses covered by Medicaid before being disbursed to the remainder beneficiaries. 

Future Gifts and Inheritances

For those gifts or inheritances that have not yet been completed, you can plan in advance by establishing a “third party” special needs trust, where your child is the beneficiary. This trust is funded using assets that are not owned by your child. Like the self-settled trust described above, the attorney who is helping establish the third-party trust should include specific language limiting the use of the money to supplement, not replace, income provided by SSI or Medicaid. Unlike the self-settled trust, any money that remains in the trust will not be used to repay Medicaid. Other remainder beneficiaries are named to receive the leftover assets. 

The assets in both trusts will be protected against creditors should an issue arise with your child in the future. There will also be a trustee named who will oversee the money. This function protects your child if they are unable to manage their own finances or if they are susceptible to fraudulent phone or email attempts to obtain money. 

You will likely name yourself as the trustee so that you can manage the investments and make withdrawals to cover your child’s supplemental expenses. Keep in mind that any payments from the trust should be made for the benefit of your child only and should be paid directly to the service provider. 

You will also name a successor trustee to step in, if something were to happen to you. This person should be familiar with your child and have no conflicts of interest with the money. The person should be financially competent and agree to serve when the time comes. You may also want to consider a professional or corporate trustee as a co-trustee. This trustee can act as the investment manager of the assets or take over the administrative tasks surrounding the trust and help with the coordination of SSI and Medicaid benefits. 

Having a corporate trustee can provide some relief to the other trustee who may have other responsibilities to focus on. An alternative option is to name a “trust protector” who can advise the trustee on issues around investments and government benefits. The trust protector will not have any legal authority over the trust but can provide support when needed. 

Finally, the trust should be accompanied by a Letter of Intent, written by you. This is not a legal document, but it outlines, in specific detail, your wishes for your child when you pass away. This document will be helpful for your successor trustee and other family members who will be supporting your child. 

There are many complexities surrounding special needs trusts and special needs planning in general. Be sure to seek guidance from professionals who have expertise in this area. To learn more about how the advisers at Modera can help you, contact us at advice@moderawealth.com. 

Modera Wealth Management., LLC is an SEC registered investment adviser with places of business in Massachusetts, New Jersey, Georgia, North Carolina and Florida. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. 

For additional information about Modera, including its registration status, fees and services and/or a copy of our Form ADV Disclosure Brochure, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). A full description of the firm’s business operations and service offerings is contained in our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send money. 

This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accountingrelated matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.

This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.

Below I’ve outlined four main areas to focus on when assessing your tax situation. A Certified Public Accountant (CPA) or a tax adviser who is familiar with special needs planning is an important person to have on your financial team. This tax professional can help to ensure you’re taking advantage of all tax deductions that you are eligible for and that you maintain them in the future. 

Medical Expenses 

As of 2019, an itemized deduction is available for medical expenses greater than 10% of Adjusted Gross Income (AGI). For many this is a large hurdle to overcome, but for someone with costs related to a disability or special need, you may be spending double the amount of a typical taxpayer. The key is to be diligent in tracking your medical expenses, obtaining documentation of physician recommended expenses, and planning ahead with your CPA. 

Examples of deductible medical expenses are: prescription drugs, over the counter insulin and/or syringes, dental costs, psychological or psychiatric services, premiums paid for Medicare Part B, and the cost of guide dogs, wheelchairs, etc. Keep in mind that you cannot deduct expenses for non-prescribed medicines, drugs, vitamins, or health foods. 

Some medical expenses that are deductible are often overlooked. These include costs related to special schools and institutions, capital expenditures, medical conferences and seminars, nursing home expenses and long-term care costs, and medical travel and transportation. 

• Special schools and institutions: If your child attends a qualifying special school, you may deduct the entire unreimbursed cost as a medical expense. In addition to tuition, the costs can include lodging, meals, transportation, incidental education costs, supervision at the school, treatment, and training. Private tutoring expenses may also qualify. 
• Capital expenditures: If a physician recommends that a capital improvement should be made to your home for medical reasons, you may deduct the cost in excess of the increase in your home’s fair market value (FMV). If the recommendation is to remove structural barriers, the full cost may be deductible. An example is installing a lift for someone with a physical limitation. The full cost of the lift and installation may be deductible. The ongoing costs to maintain it may also be deductible in subsequent years, if a medical reason still exists. 
• Medical conferences and seminars: If your doctor recommends that you attend sessions to learn more about your dependent’s medical condition in order to assist them, the cost of attending these conferences and seminars, including transportation, is deductible. Lodging and meal costs are not. 
• Nursing home and long-term care: Expenses incurred in a nursing home or long-term care (LTC) facility are deductible if you are chronically ill or the facility is primarily for medical care. In most cases, facilities primarily provide custodial care. The medical care component specifically may be deductible if separately stated on the bill. You may also deduct a portion of the cost of LTC insurance premiums. 
• Medical travel and transportation: The cost of travel to a medical facility, not including trips to improve general health, is deductible. If you use your own personal automobile, you may deduct a certain amount based on miles traveled. Unlike for medical conferences and seminars, a portion of lodging costs for you and one other person may be deductible, if an overnight stay is required. The meals during your stay, though, are not. 

In addition to tracking expenses for a deduction, you should consider a Flexible Saving Account (FSA) to set aside pre-tax money to directly lower your taxable income. This account is used to cover medical expenses throughout the year. Keep in mind that the full account balance must be used by year end. 

Impairment Related Work Expenses (IRWEs) 

You may also deduct expenses that are necessary for you or your dependent with special needs to be able to work. Examples include attendant care services required to prepare for work or required while you work, a reader if you are blind, transportation costs, service animals, medical devices, medication, or other expenses that are necessary in order to do your work satisfactorily. This deduction is considered a business deduction and is not subject to the 10% of AGI limitation. 

Retirement Plan and IRA Distributions 

If you withdraw from a qualified retirement plan or Individual Retirement Account (IRA) before age 59 1/2, your distributions are subject to a 10% penalty. A penalty waiver may apply, if you meet the definition of disability from the Social Security Administration and are receiving Social Security Disability (SSDI). 

A penalty waiver may also apply if you have substantial medical expenses. If distributions are used for medical care, the penalty is waived on amounts less than or equal to your allowable medical expense deduction (excess of 10% of AGI). This holds true whether you are eligible to itemize your deductions or not. Before withdrawing from a retirement plan, you should speak with your CPA and financial planner to determine the best strategy. 

Refundable and Non-refundable Credits 

There are two refundable credits you may be able to take advantage of in 2019: The Earned Income Tax Credit (EITC) and the Child Tax Credit. Both are subject to income phaseouts. 

• The EITC amount depends on your earned income and the number of qualifying children you have. 
• The Child Tax Credit applies to each qualifying child, under age 17. There is also a nonrefundable credit for a qualifying dependent, such as a child over 17 years old or a parent. 

There are two non-refundable credits that may also benefit you in 2019: The Child and Dependent Care Credit and the Adoption Expense Credit. Again, both are subject to income phaseout. 

• The Child and Dependent Care Credit is designed to relieve the burden of two-earner families who incur dependent care expenses. A qualifying dependent is either under age 13, any age if the person is physically or mentally incapable of self-care and qualifies as a dependent, or a spouse who is physically or mentally incapable of caring for themselves. 
• The Adoption Expense Credit may be claimed per child. For a qualified adoption of a child under age 18, expenses related to legal fees, court costs, and other related costs may be eligible for the credit. For an adoption of a child with special needs, you may receive the full credit regardless of expenses. 

There are a few other items that are important to remember when reviewing your tax strategy. If you are elderly or blind, you may claim an additional amount for your standard deduction. If you have high investment income, such as a substantial realized capital gain, you may be subject to the Medicare Surtax. Though the threshold was increased, you may also be subject to Alternative Minimum Tax (AMT) after certain deductions are added back to your income. 

Working closely with your CPA and CERTIFIED FINANCIAL PLANNER™ can help you prepare in advance to create a tax strategy that accounts for all these factors, which may ultimately help to alleviate some of the high costs you may be incurring throughout the year. 

If you need help with tax planning for special needs, Modera advisers who specialize in this area are available to help you. To learn more, please contact us at advice@moderawealth.com. 

Modera Wealth Management., LLC is an SEC registered investment adviser with places of business in Massachusetts, New Jersey, Georgia, North Carolina and Florida. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. 

For additional information about Modera, including its registration status, fees and services and/or a copy of our Form ADV Disclosure Brochure, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). A full description of the firm’s business operations and service offerings is contained in our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send money. 

This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.

This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.

Families caring for special needs children and all the requisite changes that come with them can expect to pay more than twice as much, up to $30,000 per year. It’s a sobering statistic, and while there’s no way to get around those additional expenses or the extra attention caregivers of a special needs child have to deal with and provide, one of the best ways a financial planner can help is to make sure that first and foremost, clients caring for special needs children or an adult with a disability have a life vest to keep them afloat. 

Studies done by The American College of Financial Services indicate 90% of special needs and disability caregivers and family members admit retirement planning isn’t their main priority: caring for their loved one through special needs financial planning is. Of caregivers and those with guardianship who are trying to save, 70% are concerned they’ll have to stop to provide their loved one proper support. This is a noble sacrifice to make, but the truth is clients can’t help their special needs children or loved ones in the long run by jeopardizing their own financial futures. They need to take care of themselves first, so they can then take care of others who need help. 

So what can financial advisors do with their expertise to help clients in these situations? Fortunately, there are some simple, common-sense goals for special needs planning any financial planner can start with. 

Any family, especially those who have guardianship of special needs children or other individuals, should have an emergency savings fund that can cover three to six months of their must-have expenses. Building up a cushion like this won’t happen overnight, especially if family members aren’t high-net-worth earners, so it’s important for the financial advisor to emphasize to them how critical it is to add a small amount of savings into their budget over time. They’ll be grateful for it if an unforeseen problem strikes, like a job layoff or needed household work. In addition, while it’s difficult to estimate future care costs of those with special needs, including Medicaid or eligibility for other government benefits, every little bit helps. Encourage caregiver clients to set aside a little every month into another savings account for retirement planning, or to start building assets their special needs loved ones can access once the caregivers are no longer around. 

In the spirit of planning for the future, those with guardianship of a special needs child or other individual should also look into leveraging any company 401(k) plans they might have to start stashing away money for their retirement and eventual estate planning, or use a traditional or Roth IRA. A solid goal is to set aside five percent of income to start and work up to 10 or even 15% over the next several years. When retirement age finally does come, caregiver clients will be under more financial stress than ever if they’re still caring for a special needs loved one or a person with a disability, and will need all the help they can get. Additionally, end-of-life preparations must be made, and ensuring a special needs child or adult is known legally as the beneficiary of any policies those with guardianship may have is a crucial step to take. 

Finally, a commonly-used saving method among financial advisors for special needs planning and disability-affected families is a 529 ABLE account: clients should consider opening one of these accounts, or perhaps a special needs trust, after they’ve maxed out retirement planning and other savings goals. A 529A can be used, much like a normal 529 college savings plan, to prepare financially for the education of any special needs child or individual with a disability. Since many special needs children or individuals with a disability will also need to attend special schools that cost more than the average education, it’s a valuable part of government benefits caregivers can’t afford to miss out on. 

According to the Center for Disease Control and Disease Prevention (CDC), the numbers have gone from one in 10,000 to one in 54. In addition to the psychological and financial implications of having a child diagnosed with an autism spectrum disorder or any disability, parents of children with special needs are often unaware of the substantial tax benefits available to them and frequently forego many potential tax deductions and credits in determining their tax liability. 

Medical care expenditures alone for a child with special needs can prove astronomical. As a result, parents and their financial services professionals need to become familiar with some unusual Internal Revenue Code provisions in assisting their clients in the planning process. There is a medical expenditure available that often goes ignored by special needs families: medically necessary capital improvements. 

Overview of the Medical Expense Deduction 

According to the IRS, only individuals itemizing their deductions on their federal individual income tax returns can claim a medical expense deduction. Unreimbursed medical expenses are deductible only to the extent they exceed 7.5% of a taxpayer’s adjusted gross income (AGI) through 2020. The 7.5% AGI threshold for the medical expense deduction was reinstated with the Tax Cuts and Jobs Act of 2017 (from prior law’s 10% of AGI) for 2017 and 2018 and was retroactively extended thru 2020 by The Taxpayer Certainty and Disaster Relief Act of 2019. Alternatively, parents who are eligible to participate in tax-advantaged plans through work for funding medical expenses, such as flexible spending accounts or health savings accounts, can set aside limited amounts of money to finance medical care expenses on a pre-tax basis while bypassing the AGI limitation. Flexible spending account pre-tax contributions are limited to $2,750 for 2020. 

The Overlooked Deduction: Capital Expenditures as a Medical Expense 

Under most circumstances, capital expenditures aren’t permitted as a medical expense deduction. As a rule, assets used in a trade or business or held for the production of income are depreciated or amortized over time. Capital expenditures incurred for personal medical expenses are not depreciable nor amortizable. However, a medical expense deduction is available when the capital expenditure is made primarily for the medical care of the taxpayer, the taxpayer’s spouse, and/or the taxpayer’s dependents. To secure a current medical expense deduction for a capital expenditure, the cost must be reasonable in amount and incurred out of medical necessity for primary use by the individual requiring medical care. 

Qualifying capital expenditures for medical expense deductions fall into two categories. First, expenditures improving the taxpayer’s residence while also providing medical care (e.g., a central air conditioning system for an individual suffering from a chronic respiratory illness). Second, expenditures removing structural barriers in the home of an individual with physical limitations (e.g., construction costs incurred for an entrance ramp, widening doorways and halls, customizing bathing facilities, lowering kitchen cabinets, and adding railings). 

Capital expenditures in the first category are deductible only to the extent that the cost exceeds the increase in the property’s fair market value as a result of the capital expenditure. However, expenditures incurred in the second category are fully deductible under the presumption that there is no increase in the property’s value as a result of removing a physical barrier. Further, the entire cost of special equipment acquired to assist an individual with physical limitations is deductible. The following examples illustrate expenditures in both categories: 

Example One 

This past year, Thomas was injured in a severe skiing accident. Thomas sustained a disabling leg injury, which requires him to spend most of his time in a wheelchair. His physician recommends that he install an elevator in his home to alleviate the pressure on his knees from walking up and down stairs. During the year, Thomas made the following expenditures: wheelchair: $3,500, elevator: $19,000, operational and maintenance costs incurred with the elevator: $2,800, and entrance ramp and door modifications: $8,500. According to appraisers, the home increased in value as a result of the elevator by $5,000. As a result, Thomas has a $28,800 medical expense deduction before considering AGI limitations for 2020. 

Example Two

In 2020, Jane, a single mother with AGI of $100,000, fully supported her 20-year-old daughter living with her. Her daughter has no income for the year and was properly claimed as Jane’s dependent. During the year, Jane installed a central air conditioner at a cost of $17,000, which her physician said was required in caring for the daughter’s asthma. After installation, Jane’s home increased in value by $7,000, allowing for a deduction of $10,000 for the central air conditioner. In addition, Jane incurred the following medical expenses in 2020: prescribed drugs: $500, physician expenses: $1,000, and unreimbursed health insurance premiums: $3,000. As a result, Jane has a medical expense deduction of $14,500 before considering AGI limitations for 2020 and $7,000 after subtracting 7.5% of her AGI ($100,000). In addition, if Jane’s utility bills increased $150 monthly after installing the central air conditioner system, her medical expense deduction would increase to $8,800 after the AGI limitation. 

Under either category, costs incurred to operate or maintain the capital expenditure (such as increased utility expenses and maintenance costs to operate the elevator as illustrated in both examples) are deductible currently as medical expenses as long as the medical reason for the expenditures continues to exist. 

Conclusion 

Although many of families caring for those with special needs are aware of the medical expense deduction for special schools and education, the deduction for a capital expenditure for medical care is often overlooked. As illustrated, this deduction alone can result in saving thousands of tax dollars.