The Life Plan for Wanda
A Case History

Wanda is a 23-year-old moderately retarded female with good socialization skills. She has been out of school for one year; is sporadically employed at fast food restaurants; and receives SSI and Medicaid. She lives at home, but is showing signs of desiring more freedom. This is of concern to the parents (more to Dad than Mom) and they have begun to investigate potential residential options.

After touring a number of facilities, and several more years, they make the decision. They proceed through the evaluations, and once accepted, make the big move. They are fortunate to be able to afford the price tag, and after the usual adjustment period (for Mom and Dad, not Wanda) all seems to be relatively perfect.

They have done an extended estate plan with their longtime attorney and they are very comfortable that if something were to happen to them, Wanda would be well cared for. Since they do have one other daughter, Wilma, they have decided to make the final distribution of their estate 60%/40% in Wanda's favor. This seemed only fair considering her longer-term needs, plus Wilma could take care of herself. They had special needs trust created so as not to interfere with SSI and the trustee would be Wilma.

Dick and Jane are pretty comfortable at this stage, and, on the surface all does appear to be in good order.

At this point I have been asked to review the overall plan. After an introductory meeting with them, and their other daughter Wilma, I have these observations:

1. As is usually the case, they began their planning process with the attorney, which is putting the cart before the horse. Legal documents are an important piece of the puzzle; however, a plan that is "document driven" will tend to miss the important small pieces. In their own words, they did this plan on an "if something happened to us" basis. The failure to admit to the term "when", as in 100% mortality indicates that the plan will be more about feeling secure rather than being prepared for the inevitable. This will have grave consequences to the whole plan.
    
   The documents should be drafted only after an extensive review of all available options; full discussions with all prospective successor caregivers about their role in the plan; and, a full set of financial projections based on both their personal needs plus the special needs component.
    
   In this case they had only the single track concerning residential care  with no contingencies in the event Wanda had to be moved. To compound that problem, they had not consulted with Wilma or the other relatives about being placed in a successor role. Wilma, although not yet married, was employed in an industry that did require relocation from time to time. She was devoted to her sister, but was upset at not having been consulted. It was apparent that she was not comfortable being tagged as a trustee for Wanda.
    
2. In reviewing the distribution provision in the will (60% to Wanda's trust and 40% to Wilma), the basic question is …WHY? On what basis was this exact percentage determined? And, 60% of what? I always ask, "How much will be available, at the second death, to actually distribute. Surprisingly, no one can give me a reliable number. If there is just a little left over after the two lives, it may prove to be a disappointment to Wilma; however, it will be a disaster to Wanda. It will also be a problem for the residential facility where she is a resident.
    
   The far more reliable approach would have been to first establish the expected costs associated with living at Your community, preferably using a conservative mortality projection. The attached TABLE 1 is the financial analysis I have developed to answer the HOW MUCH question. You will notice the highlighted column, when Jane can be expected to reach her mortality year, it will require $568,770 in assets to continue Wanda's residential funding. Unfortunately, this is the first time Dick and Jane have actually seen the financial consequences of their decisions. And this from a family that has done all the estate planning they ever want to do. Needless to say, the game is now in overtime.
    
3. They have noticed , in column 1 of TABLE 1, the impact of 3% inflation on the annual tuition. Immediately they realize that they have not adequately projected their retirement income needs to reflect this cost. Using their retirement goals, plus the residential costs, I was able to answer the question: "How long will the money last?" The answer was that, under present conditions and expectations, they would have around 19 years of full benefit, then be reliant on social security for income.
    
4. Typical of many plans is the failure to focus on the details. The two that jump out in this plan are; first, that 66% of their assets are in instruments that pass by a beneficiary designation (life insurance, 401K etc.) yet they assume that the will is responsible for the distributions. They have not changed any of the designations to reflect the new plan, thus thwarting what little good planning they had done. If they had died with the plan as it was, all the insurance, 401K and IRA funds would have been split evenly between the two daughters, while the rest would have gone according to the will. The consequences of this are apparent and needs no additional comment.
    
   The second structural problem is more complex. I will describe it but will not spend any time elaborating here. It has to do with the concept of "entitlements". The plan is built around the notion of preserving SSI and Medicaid, when in reality, due to the nature and timing of Wanda's disability, she will lose her eligibility for SSI when her parents retire, become disabled or die. In technical terms, her access to Medicaid via SSI ceases, by law. Although the special needs trust will play an important role, it has been improperly applied in this case.
    
   As you might imagine, I have, by this point in the proceedings ruptured Dick and Jane's bubble. But, as I say often, my job is not to tell you what you want to hear; instead it's to show you the outcomes of your choices; and to challenge you every step of the way.  The good news of this case is that Dick and Jane were able to make the appropriate changes to better protect Wanda. Unfortunately, not all families are so lucky.

TABLE 1