HS 377 - Financial Planning for Families Caring for Those with Special Needs
HS 377 asks you to turn the legal structure into a funded, invested, monitored plan: what will care cost, what resources will pay for it, and how will the trust be administered after the parents die.
Costing lifetime care
Build a life care plan rather than one headline number: housing, support staff, therapies, transportation, assistive technology, medical copays, recreation, advocacy, trustee and advisor fees, and a contingency. Then net out what benefits actually cover - Medicaid waiver services but not room and board, SSI for food and shelter, Medicare only after 24 months of SSDI entitlement or at 65. Index the shortfall for inflation and discount it to today.
Funding and investment
Permanent life insurance inside an irrevocable life insurance trust is the standard tool for a survivorship need: it creates a death benefit when the second parent dies, outside the taxable estate. Second-to-die policies cost less but pay only at the second death, leaving a gap if the first death removes income. Invest trust assets under the prudent investor rule with a total-return approach, but weight liquidity above growth: the trust must pay for care in a bad market year. Hold one to two years of distributions in cash or short duration.
Coordination and administration
Name a successor trustee who is trained, not merely willing. Consider a corporate trustee for longevity paired with a family member for institutional knowledge. Update the letter of intent, review beneficiary designations annually, and coordinate SSI reporting, ABLE contributions, and trust distributions so nothing is miscoded as income or in-kind support.
Worked example
Supplemental care needs are $30,000 a year for 40 years. At a 4% real return the present value of an annuity due is about $618,000, so a $750,000 death benefit covers the need plus fees and a buffer, while a $250,000 policy does not. State the discount rate and inflation assumption explicitly; the arithmetic is the answer.
Traps
- Insuring only one parent, or relying on term coverage that expires before the survivor's need.
- Investing the whole trust for growth, forcing sales during a downturn.
- Ignoring trustee fees, tax return preparation, and compressed trust tax brackets.
- Assuming government benefits pay for housing, supervision, and recreation.