By Richard M. Segal
September 1, 2007
|As the parent of a special needs child, Attorney Dan Penning knows what is involved in planning for a child's future.|
It is estimated that one in five families have a "special needs" member.
Parents with a special needs child worry most about what will happen to that child when they are no longer able to care for him or her. If the family is fortunate enough to own a business, planning for the child's life after the parent's death can become complicated.
For many family business founders, it was the idea of the family working together to secure financial futures that formed the vision and offered the incentive. There must be great comfort in thinking that the business entity will continue to support a child who is unable to support themselves. However, the family business is most likely not the best place to put the financial future of a special needs individual.
Individuals with special needs are those who have chronic physical, developmental, behavioral, or emotional conditions that limit their ability to live, think and/or work independently. Basically they are people who cannot make it through life without regular and constant assistance. Certainly there are highly functioning special needs individuals who work successfully, but are unable to perform other life tasks like driving or preparing meals.
At some point in the life of the special needs individual, their advocates and caregivers, who are usually their parents, are no longer able to perform those tasks. What happens then?
Even the highly functioning individual usually runs into increasing needs as life goes on. While they may be able to work successfully as a young adult, that does not ensure long-term success. A family business could provide the perfect work environment for that special needs individual - a custom designed job around caring folks. Later in life, when his or her parents are no longer involved in the business, how would that continue? Would it make sense to make the special needs individual a shareholder or partner so that they can have some control and reap the benefits of the business?
The unfortunate truth is that the special needs individual is likely to end up in a state-supported facility at some point - and likewise become a ward of the state. Funds left to your child may be attached by the government and used in lieu of public funds to pay for the support of the child (who may now be an adult). If your child were to own shares in a business, the state could force the sale and/or liquidation of that business to care for the child. How can you then best provide for the care of your child after your death?
Dan Penning, managing partner of Wright Penning & Beamer Attorneys in Farmington Hills, Mich., knows firsthand the difficulties of dealing with these issues. The father of an autistic son who is unlikely to be able to care for himself, Penning specializes in corporate law and is a business owner, but has been through the planning issues from the side of a parent.
"Providing for the financial and custodial well-being of a special needs individual is only a part of planning-¦a very important part," says Penning. "We want our son to be well cared for and we want our other children to be involved in his care after we are unable to do so. But, we don't want to put undue burden on our other children, or guilt-trip them into being our replacements as custodians - although we do expect them to be his advocates."
Penning says good estate planning is key.
"We aren't sure where our son will be in the future, but we do want to be sure that the funds are available for him. We have set up a 'Special Needs Trust' and funded it with life insurance so that the dollars will be there when they are needed. I referred my own case to an attorney who specializes in Special Needs Trusts. That way our other children will get the benefit of our other assets and our special needs son will be well provided for regardless of what financial path our life takes."
When asked about using the business asset as a funding mechanism for the Special Needs Trust, Penning says he can't think of many circumstances that would make sense for the Trust to own the business asset.
"You wouldn't want the trustee to be forcing the business into bad decisions due to the needs of the special needs individual. If the trustee was also a shareholder in his or her own right, that might constitute a conflict of interest and I would want to avoid that. So, I would recommend a Buy-Sell Agreement, putting the business asset into the hands of the most likely successors to run the business and cash into the estate that can then be distributed to the Special Needs Trust."
|Marcus Murray says it is a mistake to think that a business can provide for a special needs child.|
Marcus L. Murray, a financial advisor and RN with many other credentials, who is with Mass Mutual/Detroit Financial Group in Farmington Hills, says many business owners have done no planning at all, thinking that the business will continue to provide for
their special needs child.
"What a mistake! It is important that the Special Needs Trust be drafted to address issues beyond the financial-¦to address caretaking, lifestyle and so on. It is important that the parents communicate with the trustees, and a long list of successor trustees, what they have in mind for the care of their child. Then they need to fund the need. I usually recommend life insurance because it doesn't make sense to fund a trust with real dollars if you can buy dollars."
Murray adds that many legal issues change when the special needs child becomes of legal age. Caregivers, he says, need to be aware of those changes. Finding the "right" trustees and successor trustees and connecting them with the right legal and financial team is the key to the best long-term care for your loved one.
In the end, no one can be sure that the planning they do will yield the intended results. You can be sure that leaving the financial needs of a special needs individual to a business is a mistake. If you, or someone you love, is in this situation, seek the advice of competent legal and financial advisors - it is the best way to achieve your intended results.
Richard Segal is the chair of the Family Business Council, a membership organization of family-owned businesses. He can be reached at [email protected].