Fulfilling special needs: insurers are playing a critical role in helping families with children with special needs meet the emotional and financially challenging task of planning for the future.

Like every mother, Nadine Vogel worries about her children's future. But she may have more to worry about than the typical mother. Her older daughter, now 12, was born with a neuromuscular disorder, and will always need special care for day-to-day living. Her younger daughter 4, has a heart condition, but may have surgery in the future and not need special support for her entire life.

Even as Vogel juggled the additional duties that all parents of children with special needs face, she was haunted by the thought of what would her children do if something happened to her or her husband. Who would take care of the children? What money would be available to help them?

Under the best circumstances, financial planning can be a complex issue for families, but for families with special-needs children, it's a daunting, often emotional, task. Besides deciding who will become the guardian of children who won't be able to live independently, even when they become adults, these families are also challenged to provide for the children's future care without jeopardizing the state and federal aid that they will likely rely on to help them live. People with disabilities who are age 18 and older, and who rely on Supplemental Security Income for room and board and Medicaid for health care, can lose their benefits in most states if they have more than $2,000 in assets, and even $1,000 in some states.

These are issues that many families have to face. Nearly one of every five Americans--49.7 million people--reports a disability, according to the U.S. Census Bureau. One out of every nine children under 18 in the United States receives special education services. Birth disabilities, such as cerebral palsy, autism or Down syndrome, contribute to these numbers, but annually, 11,000 people suffer spinal cord injuries and 1.5 million suffer a traumatic brain injury, according to the University of Alabama National Spinal Cord Injury Statistical Center and the national Centers for Disease Control and Prevention, respectively.

Insurers and other financial services providers are tapping into this market for special-needs planning by dedicating resources and advisers trained in more than just financial matters.

Beyond Financial Planning

As a certified financial planner, Vogel had been accustomed to tackling complex financial questions for families: how much money to save for retirement, for college education. But when it came to families like her own--with children with special needs--there wasn't much information available, she said.

"I realized that I was not the only person in the world looking for this information,'" Vogel said. "We needed to do something bigger than what I could do."

Vogel started a nonprofit group, Special Needs Advocate for Parents, to share information with other families with special-needs children. As a vice president of Metropolitan Life Insurance Co., Vogel successfully lobbied for the company to launch a formal program to focus on helping these families meet financial goals.

"MetLife's corporate vision is to build financial freedom for everyone. If we are going to build financial freedom for everyone, we have to have a special program for families with special needs," Vogel said.

MetLife agreed, and MetDESK, MetLife's Division of Estate Planning for Special Kids, was established in 1998.Vogel is vice president of marketing for MetLife, and responsible for MetDESK, which offers strict training to MetLife financial services representatives to keep them up-to-date with the latest federal and state laws. The company plans to add another 100 specialists to its existing 150 MetDESK specialists in the next few months.

The program offers free advice to families on how to coordinate services for children with special needs and how to plan for the future. The program helps families tackle guardianship issues and build a "care plan"--a document that details specific information about the child's likes and dislikes--so future guardians will have a blueprint to help the child continue to live the life his or her parents envisioned.

"We go way beyond financial planning in the general sense," Vogel said. "A specialist will refer families to medical advocates, social support groups, services in their local community ... it's not just planning for the future, but planning for today."

These services are offered for free, but families often wind up buying products, such as life insurance, from MetLffe. "While we're doing this for the needs of the community and it's the right thing to do, it is a profitable business for MetLife," Vogel said. She declined to release specific revenue information about the program.

Planners have to consider the importance of handling emotional as well as financial issues. "Most of our discussions have nothing to do with money," said Mary Anne Ehlert, a financial planner and president of Vernon Hills, Ill.-based Ehlert Financial, which also specializes in financial planning for special-needs families. One of sex children, Ehlert was inspired by her late sister, who was born with cerebra palsy.

"Our lives were different, but we did not know it. When I got older, I started to see my parents' concern." Ehlert said. "They didn't want to give us the responsibility for Marcia; they felt our lives were altered enough without giving us this responsibility."

Ehlert created an eight-step process for families. Ehlert Financial uses a team approach, with social workers. insurance, financial and investment people. "It's not just about the money. It's where is my child going to live, how is my child's social life going to change? Insurance plays a big part, but it's just a piece of it," she said.

Like Vogel and Ehlert, those who get involved in financial planning for special needs often have a personal interest. About 70% of MetDESK's representatives either are parents of children with special needs or have close relatives with special needs.

"That doesn't make them a better planner; it does give them a better sense of what the family is experiencing," Vogel said.

David A. Weingarten, of Wealth Advisory Group, a New York City-based Guardian Life Insurance Agency, also specializes in financial planning for families with children with special needs, and also has firsthand experience. His son, Adam, was born with Down syndrome in 1984 and will never be able to live independently.

"After the shock wears off, you step back and look at life. The one thing I want to provide for my family,

and for all families with special needs, is that they have all their documentation in place, their protections in place, "Weingarten said.

He works with families and attorneys to make sure wills, powers of attorney, health-care proxies, living wills and letters of intent--similar to MetDESK's care plans--are in place.

"The financial aspect comes at a certain point in the meeting process, but all the emotional processes need to be taken into consideration. You have to know how disturbing and how difficult it is for a family to make these plans, "Weingarten said.

Planning for Two Generations

Part of the challenge in financial planning for families with children with special needs is it's difficult to predict how much money families, need to set aside.

"While most financial planners are trained to tell someone how much money they will need to retire and send their children to Harvard, the problem with planning for someone with special needs is no one knows what it is going to cost, and the cost often far exceeds what someone can save," said John Nadworny, a financial planner with Waltham, Mass.-based Bay Financial Associates, and the father of a 12-year-old boy with Down syndrome.

It can be as expensive, or even more expensive, then sending a child to an Ivy League school every year for the rest of his or her life. For instance, the average cost of lifetime care for a quadriplegic injured at age 25 is $1.35 million, according to the University of Alabama.

"It's almost like you have to plan for two generations," said Weingarten. "How many families have problems planning for their own retirement, let alone planning for their child."

Chris Sullivan, who is vice president of Special Needs Financial Service at Merrill Lynch and is deaf, said "When a special-needs loved one is involved, there are many issues that need to be addressed. First and foremost is determining how much assets to set aside for the special-needs child on a lifetime basis."

A severely disabled child may not be expected to earn income at all, so parents need to plan carefully and determine all future care plans associated with the child. For instance, who will be the guardian? Where will the child live--at home or at a group facility? How much medical expense is expected on a lifetime basis? Will the child's needs be greater as he or she ages?

Once a financial plan is completed, it's important for families to also inform relatives of the financial plan, Ehlert said. "We have to make sure that some ex-spouse or in-laws or distant relatives don't leave anything directly to the child in their will, because they'll undo what mom and dad have done," Ehlert said. "We'll write letters on behalf of the family to ex-spouses and in-laws, not asking them to leave anything, but saying if they do, please contact us or an attorney. We see a lot of policies being written wrong. Agents need to ask if there's a disabled child in the family."

Uninformed agents, eager to make a sale, often name the child its the beneficiary of life policies, Sullivan said.

"The result becomes a tragic one because the moment the last surviving parent becomes deceased, the life insurance policy is activated and the funds go into the child's personal account. The child immediately" loses all government support ... the solution is to create a special-needs trust and name the trust the beneficiary of the insurance policy," Sullivan said.

Funding the Trusts

While people with disabilities can't have more than $2,000, or in some cases $1,000, in assets in their name and still qualify for Social Security and Medicaid, a special-needs trust can give them funding for "extras" that wouldn't be allowed otherwise. (See "What Is a Special-Needs Trust," 7 page 70.)

Special-needs trusts can be funded by real estate, mutual funds and stocks, but life insurance is the most commonly used vehicle, said MetLife's Vogel. "Life insurance is tax free and probate free, and it's a way to create an estate when one is not there."

Complicating the emotional difficulties in financial planning for families with special-needs children is the fact that most of these families aren't wealthy. Low-income families, whose incomes are below twice the poverty line, are almost 50% more likely than higher-income families, whose incomes are above twice the poverty line, to have a disabled child. Families receiving welfare benefits are nearly twice as likely as higher-income fan, lies to have a child with a disability or severe disability, according to the Institute for Women's Policy Research.

"Families with kids with severe disabilities are often not two-income households, because one parent has to always be home for the child," Nadworny said.

That's where life insurance can be a godsend, planners said. Families can use a life insurance policy to create an asset to provide for the future needs of the child with disabilities.

Second-to-die policies are commonly used. That policy covers two lives, but doesn't pay until the second death.

"As long as one parent is alive, they will make sure the child is OK," said Ehlert. Second-to-die policies are permanent, not a term policy, and are typically cheaper than other types of policies, she said. They can also include a rider so when the first person dies, it triggers income to fund the rest of the premium, so the remaining parent doesn't have to continue to pay premiums. When the second parent dies, the policy funds the special-needs trust.

Life insurance also can give a family an equitable way to divide an estate because a stand-alone insurance policy can be used to fund the special-needs trust, while the rest of the estate can be divided among the other children.

Nadworny cautioned that although second-to-die policies are often appropriate, they can be oversold. "It can be a very instrumental tool, but we have to make sure there's adequate lilt" insurance to protect the surviving spouse. With younger parents, second-to-die policies are cheap, but the surviving parent needs money to care for themselves. It might not be there when you need it the most."

He encouraged parents to also consider long-term-care insurance for themselves. "You can't buy long-term-care insurance for the child, because they'd qualify for it today. It could help protect the parent's estate."

Sullivan encouraged both families with special needs and insurance agents to use the "Special Needs Calculator" at http://askmerrill.ml.com/specialneeds as a quick check to determine how much is needed to maintain the lifestyle of the child with special needs.

Insurance companies should recognize the needs of families with children with disabilities and consider offering life insurance policies with smaller face values, Nadworny said.

"Some in the industry are going to larger minimum policies. It's easier for insurers to not want to write policies that might be smaller, but perhaps a family could afford a S 100,000 policy instead of a $500,000 or $1 million policy," he said. "Or perhaps they could make some exceptions for minimum face values for families with special needs. It's important for them to be sensitive.

Future Plans

Because state and federal laws and regulations are constantly changing--along with interest rates, the stock market and the economy not to mention the needs of children with disabilities--financial plans for families with special needs are never really finished.

Financial advisers and planners need to stay current with that changing world, said Vogel.

"I don't think this is something you can dabble in," Vogel said. "'You can't go to a one-time training session. You need that training every month. We fire providing not just lifetime care, but quality of life for a kid. When planners are looking at getting involved, they need to keep this in mind. You never really know what the future holds."

Weingarten said families need to review their financial plan every year or so. "What we talk about today will become obsolete next month, a year from now, two years from now, "Weingarten said. "We base the plans on assumptions today, but everything changes tomorrow."

What Is a Special-Needs Trust?

A trust is a legal agreement that transfers property or assets to a trustee--the person or entity responsible for all fiduciary and administrative duties of the trust--for the benefit of a designated beneficiary.

A special-needs trust is a specific kind of trust established under federal law in 1993. It's established with someone else's money or assets--parents or family usually--for the benefit of a person with disabilities.

A similar trust, called a pay-back trust, is established with the child's money or assets and is likely to be used if the child receives a court settlement payment or is unexpectedly named as the beneficiary of an estate.

Some states require any unused money in a pay-back trust to be used to reimburse state funds when the beneficiary dies. Other states allow unused funds in trusts to be distributed to additional beneficiaries.

"We call that an 'oops' trust;' said Mary Anne Ehlert, a financial planner and president of Ehlert Financial, a Vernon Hills, Ill.-based company that specializes in financial planning for special-needs families. She said pay-back trusts are often used when the child with special needs receives an unexpected cash payment.

"The beauty of a special-needs trust is it is supplemental income for a child, in addition to the child getting Medicaid and Social Security," said Maryalice Raushi, president and chief executive officer of New York Life Trust Co. Raushi, a financial planner and banker, specializes in working with inheritance issues for families with children with disabilities.

Adult children cannot have assets in their name of $2,000--or $1,000 in some states--and continue to receive state and federal funds. Trusts allow them to have access to funds that can pay" for some extras, while not jeopardizing their state and federal aid.

"They can't make more than $800 a month. They can't own a home directly, but a home can be put in a special-needs trust for them," Ehlert said.

Trusts also can be used to fund transportation costs, annual independent check-ups, medical and dental expenses, equipment, training, education, insurance, rehabilitation and sometimes things such as computers, vacations and athletic equipment.

The trust can have an individual trustee, a corporate trustee or both. The trustees are responsible for handling how the money is spent.

"We like the individual trustee with the corporate trustee. The individual trustee is someone who really knows the disabled person and knows what they need. But if you just appoint one individual, and they become disabled or senile or die, you want someone else to be there, forever, for the child. Corporate trustees have the experience you need," Raushi said. New York Life Trust acts as a corporate trustee, and also manages the funds in the special-needs trusts, which must be kept in high-quality, low-risk investments. The company does not sell life insurance directly, but is a subsidiary of New York Life Co., which has 7,000 life insurance agents.

Trusts can also be pooled together to make an affordable option for participants. For instance, The Family Trust, a Pittsburgh-based company founded by the ARC (formerly known as the Association for Retarded Citizens) of Pittsburgh, offers three types of trusts: a pay-back special-needs trust, which pays back the state after the beneficiary dies; a common law or discretionary trust, and a pooled trust. All the trusts are for people with disabilities.

The Family Trust, a nonprofit organization, accounts for the individual funds in the pooled trusts separately, but pools the funds together for investing. Currently there are 560 people in the pooled trust, and more than $10 million that's managed through two banks, said Maria Smith, director of The Family Trust.

"It's great for people who don't have a lot of money. We have some very small accounts in the fund. It helps people who may be working while on Social Security save up for something," Smith said. "They can use it like a savings account."

She said many banks require a minimum of $250,000 to $1 million to establish an individual trust. The Family Trust has no minimum amount.

One individual in the trust received a $1.5 million medical-malpractice settlement that would have become Iris when he turned 18. "If the money was in his own name, he would have had to pay for his own services, and the money would have been gone in four years," Smith said. "We are working with his mom to build a house for his specific needs with that money."

Disabilities * by the numbers

49.7 Million

The number of Americans, about 1 in 5, who have at least one disability.

18.2 Million

The number of people age 16 and older with a condition that makes it difficult to go outside of the home to shop or visit a doctor. This group accounts for 8.6% of people who are this age.

21.3 Million

The number of people age 16 to 64 with a condition that affects their ability to work at a job or business. They account for 11.9% of people who are this age.

46%

Percentage of people with disabilities who report more than one disability.

40%

Percentage of working-age men with disabilities who are not employed. For women, the rate is 49%.

* Individuals have a disability if any one of the following conditions is true: they are age 5 or older and have a sensory, physical, mental or self-care disability; they are 16 or older and have difficulty going outside of the home; they are 16 to 64 and have an employment disability.

Source: U.S. Census Bureau, July 2003