.jpg)
The Other Side Of Deaf
The Other Side Of Deaf
S2 E4: Financial Planning When Your Child's Future is Uncertain
Host Crystal Hand interviews financial expert James Lange on how to prepare for the future and make sure your child with a disability is finically secure in the future and have everything they need even if they outlive you. Going over topics like Social Security Disability Benefits, Health Savings Accounts, ABLE accounts and how to set up your estate planning to benefit your child the most after you die, Jim gives us practical advice on how to navigate this complex issue.
James Lange is a CPA and an estate attorney who has been practicing for more than 35 years. Jim is the author of nine best-selling financial books, including his most recent book that has co-authors, Retire Secure for Parents of a Child with a Disability. Jim wrote that book after he figured out the best long-term plan for his family which includes an adult child with a disability and realized his solution has universal value to most families with a child with a disability.
To get a free copy of the book and/or register for the free Summit go to:
New Book! - Retire Secure For Parents of a Child with a Disability (disabledchildplanning.com)
This podcast is produced and owned by Crystal Hand and not associated with any other company, business or government entity. "The Other Side of Deaf" podcast and associated websites and social media pages represent the opinions of the host and her guests on the show and do not represent or reflect the opinion of any organization the participants are employed or associated with. The content here is for information purposes only and should not be used for medical or legal purposes.
Crystal:
Hello welcome back to the other side of deaf this is Crystal hand your host. Today we are going to talk about something that is probably an unpopular topic not because it's controversial but because let's face it no one likes to actually think about money. We like to have it and spend it yes, but thinking about saving money or how to prepare in the future most people try to avoid it. Or it's so low on their to-do list it never really gets done. Now you may be asking yourself what do finances have to do with being Deaf or hard of hearing? Why would I talk about this on my show? Well for many parents and caregivers out there that are raising a child that is deaf, finances can be a really big deal expecially if that child is not what we would call “vanilla deaf”, meaning deaf is the only diagnosis. You all know that I'm a big believer that deaf can do anything and that hearing loss never holds you back but what happens when being deaf or heard of hearing isn't the only medical issue? Many parents are dealing with additional concerns like a CMV diagnosis or genetic syndromes like Ushers or Downs or maybe a child was born premature and has other disabilities. When that happens, parents often have to think not just how to support their child in the present but also what happens to their child in the future. I often hear from families of children with multiple disabilities that one of the biggest stressors for parents is what happens to my child when I'm gone? How will they support themselves and how do I make sure they are taken care of. If your child has a large language deprivation or a disability that doesn't allow them to work full-time in a job that supports them, how do we make sure our children are financially secure? Well today my guest is an expert in this field and he is here to guide us through all of this. James Lang is a CPA and an estate attorney who has been practicing for more than 35 years. Jim is the author of nine best-selling Financial books including his most recent book “Retire secure for parents of a child with a disability” which he co-authored with Deborah Mcfadden and Julian Steinbacher, all who are experts in this field. Jim and his wife Cindy have a daughter with a disability and he wrote this book after he figured out the best long-term plan for his daughter's Financial Security and realized his solution has universal value to most families with a child with a disability. There's a lot to talk about and learn today so buckle up and let's get started.
Hi James how are you?
James:
Good thank you for having me crystal.
Crystal:
Well thank you for being here. So, we're gonna dive in because we have a lot to cover today, I'm really excited about having you on here because I think this is a topic that a lot of children with disabilities um their parents don't really dive into. Um we tend to get overwhelmed with all of the other stuff, the medical and all of the appointments and everything, but this is such an important topic and it's really really exciting. So, tell me how you got into doing this? You've been a financial adviser like I said for 35 years. What made you get so passionate about helping other families with their finances?
James:
Well for a long time I didn't specialize in parents with a child with a disability. I was really kind of an IRA guy so that was kind of my area of expertise. And I wrote books and I built a very successful business and I still have that business. And then while this is going on, my wife and I are raising our daughter who always had some problems ever since maybe Junior High but we were always hoping that well somehow she's going to be okay. And you know so we took her to every specialist that you can imagine. We dragged her all over the country, different places different modalities Etc and it became obvious that she would never be able to work. So, now the issue was I'm 67 my wife is roughly my age. You know let's say that we have enough money to provide for ourselves and for our daughter for the rest of our lives well she might survive us by 40 years. And this became our biggest worry. What's going to happen to our daughter after we die. So, luckily, I had the perfect background to answer that question because I was an IRA guy and there's things that you can do with IRA that are much different than other people might do. I was a Roth guy doing Roth conversions. I was an estate attorney. I understood you know special needs trusts and other trusts etc etc. So, I came up with the solution and we executed it and it was life-changing for us. First the actual fact of oh okay we figured out a way she's going to be instead of running out of money she'll have $1.9 million and basically that's a direct transfer from Uncle Sam to our daughter and that doesn't even include government benefits like SSI or SSDI. So, we had this what I thought was this fabulous solution we experienced it ourselves we made the let's say conceptual adjustment. And then here's the other side benefit that I kind of didn't realize is our anxiety level went way way down. All of a sudden, we weren't worried. oh well we're still worried. we're worried about frankly some of the non-financial aspects. But the other thing that I didn't know was how worried our daughter was. You know here she is not able to work you know with let's say sufficient money to live right now but she kind of didn't really know. She just kind of assumed that I was going to watch after her, but she didn't know that that I was working on a plan that would provide her a good income for the rest of her life. And when she found out her anxiety level went way down and it's the nature of her condition and frankly most of us if our anxiety goes down the rest of our health improves. So I was just so happy and I thought okay I want to tell the world about this and I got working on a book and I was fortunate enough to have two wonderful co-authors who covered areas that I did not have expertise and we wrote what I humbly think is the best financial resource for parents of a child with a disability
Crystal:
Okay, so that is an amazing story. So, I love to hear that because I think it's so much more powerful when a professional that has a child with a disability can really understand all of the nuances that goes with it because it's something completely different than most parents thing and I want to read a quote from the book that just really struck me and this was in chapter 12. She writes “raising a child with a disability is expensive. Many parents and children have quieter and less spoken concerns. We have examples of what it means to be a parent but having a child with a disability brings a whole lot of different challenges” And I just thought that that was such a great thing to put in the book because as Financial professionals, all three of you that have co-authored this book um you really have thought this through from a parent perspective of someone who has a child with a disability and that's so powerful to kind of be able to relate that. So, let's talk about your book a little bit. How did you get connected with your co-authors and how did that all come together?
James:
Well, the first co-author that I was able to recruit was like the perfect co-author for me. Her name is Debbie Mcfaden. A real quick story with Debbie and her daughter- roughly 36 years ago Debbie as commissioner of disabilities under GW Bush was in Russia on business and she was visiting an orphanage. And there was a six-year-old little girl who had spinabifida, didn't have the use of her legs, the orphanage didn't have resources. She got around on her hands. Debbie actually ended up adopting this girl, bringing her back to the US, getting her appropriate medical care, getting her a wheelchair. Debb's a big believer in getting kids with disabilities active and involved in competition Etc. Anyway, her adopted daughter was just beating everybody in races and now she is a 20time par Olympic champion, multiple world champions, Marathon Champions. So, it was really wonderful. Debbie knows more about qualifying for SSI and SSDI which are government benefits than anyone I know or even can think of. And it so happened that she was a client of mine and I thought boy wouldn't it be wonderful if she was willing to be a co-author and write this section on SS I and SSDI. And you know she eventually agreed. That just added so much credibility to the book you know her her daughter this famous par Olympic Athlete Debbie former Commissioner of disabilities with 400 attorneys working under her. Is that a nightmare or what? Working with 400 attorneys. And then a a mutual friend acquaintance recommended that I work with an estate attorney Julia Steinbacher who works in this area. And Julie she's just a wonderful estate attorney. In fact, even though at the time I had a very good Law Firm I went to Julie for our legal work because she's a specialist and as good as the a state attorney that I was working with was or is he wasn't a specialist. And Julie knew a lot of stuff that most the state attorneys don't know and the other thing is she actually had social workers on staff because she knows a lot of times people have not just financial issues. And it was very nice to have one office that had you know multiple capabilities. So anyway, we started out with a it was a 55 page report and there was obviously demand for the our information and then we decided to write a book. The book as written is a tremendous resource and frankly that is by far the driving force of my professional activity right now is to get the word out about this book.
Crystal:
Yeah so, I have to say when you pick up this book it was very easy to navigate. Often times financial books, I'm going to be honest I'm not a financial person, so it's like all Chinese to me right? But when I picked up your book and you're able to go through the table of contents and it really says like okay let's talk about this or let's talk about that go to that chapter. And what I really love about your book is that at the end of every chapter there is the key points page which really summarizes like these are the important things you needed to get out of that chapter. And that was really helpful for somebody who may not, like myself, may not understand all of the things that you said in the chapter, but I can look at that and say okay I think I got it that is really really helpful. So, anybody who might be listening if you kind of feel like oh I'm not sure I'm going to be able to read a financial book this is something that is probably the easiest financial book to navigate. So just don't have these expectations it's going to be overwhelming.
James:
Thank you for that for whatever it's worth we've always put a ton of time into the table of contents and because it is so voluminous the book and it's so intense people assume it's AI not one word of that is AI. It's all the three co-authors and we did want to make it accessible and in fact if you read nothing other than the summaries at the end of the chapters that would go a long way.
Crystal:
So, let's start diving into that's in this book. So, the first thing that you talk about your three step of big things is Social Security benefits for Disabilities. So, first of all let's talk about what's the difference between SSI and SSDI and how does somebody qualify for that?
James:
Okay, just to give people an idea of how important this is - it is mission critical. Qualify for SSI or SSDI. It is the golden ticket if you only had one thing to do it's to get your child qualified for SSI or SSDI. All right so let's talk about the differences in the program. SSI is basically a poverty program. You are very limited by how much money you're allowed to have. You are very limited into how much income uh you are allowed to earn. So you basically have to be broke and one of the problems with SSI is that until you turn 18 they're going to, at they being the Social Security Administration, they are going to include your parents income in assets into the test of whether you have too much money and for the vast majority of people that will push them over the limit. So, they're not going to qualify until the child is 18. So, there's other things that we can do, and we can certainly talk about that but basically that will delay applying for and qualifying for SSI until the child is 18 years old. But when when the child is 18, and you have to plan this right you can't be giving your child money. You can't have a trust fund that doesn't qualify. There's a lot of things financially you can't do and you have to prepare for this but that's typically what most people are going to do. We want to get that child qualified for SSI typically when they are 18. Now SSDI on the other hand it's not a poverty program and it is based on work records. And it might be the the work record of the child themselves and now we're talking about an older child, Maybe they did work for a while and they lost the ability to work or um in our case when my wife became old enough to collect Social Security our daughter is collecting in effect off my wife's working record and that is more liberal in terms of how much money you're allowed to have. How much income you're allowed to have.
Crystal:
So, what I thought was really interesting in the book which kind of reframed it for me was that SSDI is not, and Social Security, is not a welfare program correct?
James:
Correct.
Crystal:
So, I think that that's something that I know that I had misconceptions because in my mind I was like well, I don't want my child to live on welfare. I don't want my child to have this kind of mentality and so you explain that it's not that case because it's actually based on us putting money in just for just like us for social security benefits.
James:
I feel absolutely compelled to comment on something you said. Well I don't want my child to be thinking they're collecting welfare right.” You have to get over that. Everybody listening, you have a long hard road to hoe from where you are to financial security for yourself and your child. Not only for your life but your child's life. This is very very difficult you have to get that head stuff out of your mind you you're going to try to get every single benefit that the government is willing to give you. You're going to take any legal tactic you can to get your child qualified. You're going to do everything that, in my opinion, you should be doing everything you can and you need to take the time. And I know that you're fantastically busy you know, putting up with the day-to-day problems that you have. You need to do this. It's critical. We have a tough job to provide for our child for what might be 30 40 50 years after we're gone. Take advantage of everything.
Crystal:
The other thing that I thought was really interesting in the book was that you talk about when applying for these benefits you have to take off the hat of my child can do anything and you have to put on the hat of my child can't. And in the book you say if your description to the to the government doesn't make your mom cry then you didn't do it correctly. So, let's talk about how do you apply to Social Security.
James:
Which by the way we didn't really quantify the benefit but you're talking I don't know somewhere in the ballpark of 800-1000 a month um but more importantly you're you're getting Medicare and you're getting other insurance benefits. You might qualify for vocational rehab. You might qualify for equipment, special computers, you know there's a lot of benefits available and there's a couple ways you can do it. One you can be a do-it-yourselfer and I and I think Debbie Mcfaden did a great job in providing as much information as possible for the do-it-yourselfer. Now that is Debbie's business um and very frankly I wish I had known that Debbie did that when we were applying because it was a grueling process because it's basically you have to prove to the government or what it really is it's it's going to come down to basically one Social Security uh administration employee that your child can't do all these things. Which is what you brought up. You get the doctors to write the child can't do this, can't do that. You get the teachers, any caregiver - I can't I can't I can't. So, in Debbie McFadden's case she was applying for SSI for her daughter who was an above the knee ampute world champion or at least world world class rock climber. All right now that woman I would bet anything could go up the steps faster than you or me hopping on one leg okay. But did they, did she write that when she was qualify applying? She said no. She cannot walk up a flight of steps like a regular person because she only has one leg. All right, what she can't do. Not what she can do.
Crystal:
And that is so hard for parents, as I said before, we don't want to think of our child not being able to do something. So having that kind of concept of being able to take that hat off and say okay we got to change our mindset for this application that's really really hard but you know you're saying it's it's an important step that we have to get over we have to be able to do this and we have to emphasize all the things that we wish were different.
James:
So, when we were talking before, we got on you said, well a lot of the people that do qualify not only have a hearing impairment, but they have other problems. Well lay it on them. You know, tell them about all the other problems and any cognitive problems, anything that would keep somebody from working. Again, I'm not saying to lie but you want to put it in the worst light for your child that they can't do all these things because this is going to make such an important difference. So if you're do it yourselfer, I think Debbie did a great job in describing, that now that said if you can't afford Debbie's fee or somebody who works in that area, I think which her value is just so great, but whether it's Debbie or somebody else finding somebody to help. We didn't. We did the application on our own and my wife spent hundreds if not thousands of hours putting everything together and we were denied. And we did get an attorney to help us with the appeal but the attorney frankly wasn't all that helpful and it was my wife's dogged determination. And you know going to all the doctors because we want lots of third-party evidence and doctors and teachers and people who know your child are the best and we finally got the the notice that we did qualify.
Crystal:
So, let's switch gears. So, talk to me about ABLE accounts. So, what are they and how do they work and why should parents have them?
James:
All right, ABLE accounts are wonderful and I'll start with what might be the most accessible description of it. You know how sometimes you're trying a new food and somebody says well it tastes like chicken and you go oh okay now I know. Well the ABLE account is like the 529 plan for parents of a child with a disability or even the child themselves. But what it really is it's either you or an other relative or sometimes the money comes from the child themselves takes some money, uh typically after tax dollars that is, not Ira dollars and then contributes it to an account that grows income taxfree and then depending on when the child wants or needs to spend some money and assuming that that money is withdrawn for a qualifying use, and the able account qualifying uses are pretty liberal in terms of what a child can do with it. You know they can pay rent. They can pay for food. They can pay for equipment. They could do you know most normal expenses that a child with a disability would have and the wonderful thing about it is it isn't considered a resource for SSI. So it gives a child some spending money if they will on things that would be a reasonable uh use for that money and it grows taxfree. The problem with it is that you can't put in hundreds of thousands of dollars or else frankly I would because it's wonderful. It's also a little bit like a Roth IRA. You put in after tax dollars, it grows tax-free assuming ,well with the Roth it doesn't have to be a qualifying use but you take it out it's tax-free, So to me it's almost always something that is part of our recommendations but that said it does doesn't tend to be a game changer.
Crystal:
So it's like a savings account?
James:
That's exactly what it is it's a it's a tax-free savings account.
Crystal:
Do you get interest from that?
James:
Oh sure! Yeah, typically you're not going to get as many investment options as you would if you went to Vanguard or somewhere like that or even as a 529 plan, but you should still do it and it is a great source of money for your child. Again, if it's capped out at 170,000 and you're trying to provide for your child for the rest of their life that alone, is it's going to be a good thing but that's not the game changer. But it is something that we always recommend. And I have myself and it's also a nice way for other relatives to contribute to the welfare of the child in a very tax-efficient manner.
Crystal:
So, to recap - so it is a savings account you can have for your child that does not count towards income towards SSI that would disqualify them and it's taxfree and and you can gain an interest and you can have up to 100 to $170,000 in there and they can also spend it on living expenses. So that was a misconception that I had. I thought that ABLE accounts you could only use for like medical equipment and things like that. But you're saying that no you can use that for rent living expenses all of those things.
James:
Yes
Crystal:
Wow that's that's a pretty good deal right? Like for somebody's thinking I don't have a lot of money to put away where can I start that can help.
James:
It's a great start. And the other thing is maybe you put away some money in a 529 plan hoping um at some point that your child would be able to go to college and that you could use that and there is a method of transferring the 529 to the able and also it's very limited but being able to transfer some Roth to the ABLE.
Crystal:
So if you have a college fund for example for a 529 college fund and your child doesn't use it you can transfer that to an able account?
James:
The short answer is, if you jump through some hoops, the answer is yes.
Crystal:
Okay well that's interesting information. What about health savings plans?
James:
HSAs are wonderful. They're even better than a Roth. They're even better than an ABLE account. So with a regular retirement plan contribution like an IRA or a 401k you put some money in a retirement plan you get a tax deduction it grows and a certain point somebody withdraws it you have to pay tax. Not only on what you put in but also on all the growth and dividends and interests Etc when when you withdraw the money. With a Roth IRA, assuming you meet the qualifications, you put money in or a Roth 401k you put money in taxfree, it grows and eventually you take it out assuming quality qualifying it comes out taxfree. With an HSA you get a tax deduction going in so that's just as good as an IRA and it's better than a Roth but then when you take the money out for a qualifying medical expense you don't have to pay taxes so it's better than an IRA it's better than a Roth IRA it's better than an ABLE account. So, I've been a big big fan of hsas forever. Again the biggest problem with hsas is that there's limitations on how much money you can put in and how much money you can accumulate.
Crystal:
But that is a great thing. So if you have access to a health savings plan you should be using it.
James:
Definitely
Crystal:
Okay
James:
Definitely. The other thing is you know who's kidding, whom you have to take care of yourself first right? And typically what happens is uh for example the way I'm doing it is I'm putting in as much as I can and I'm letting it build and build and build tax-free and then presumably um when I am older her um and I have medical expenses I'll take it out tax free and ultimately I'm going to pass more money to our daughter in a Special Needs Trust which we'll talk about later but um
Crystal:
Yeah and actually, that is the next thing I was going to talk about, so in your book you talk about special needs trusts for children with disabilities, which I had never heard of before. First of all, a lot of people don't even know that in your will you should be not just willing something direct to your child you should put it in a trust so that you can have them be the beneficiary. That's kind of a tax shelter. But you're saying that there's a special needs trust and that's different. So how is that different than us just willing money to our children or putting it into a different type of trust and sending it to our children? How is that different?
James:
I feel compelled to do a little bit of background on estate planning for a parent with a child with a disability. So, first I want to tell you how critical it is. Let's say that the estate attorney or the financial advisor or somebody who is helping a couple who have um otherwise healthy children without a disability and let's say that I screw it up. I didn't do a Roth when I should have. I did the paperwork wrong. I missed something and a child ended up with $500,000 less than they would have otherwise. Now that's pretty horrible right? Gee the kid could have had $500,000 after mom and dad died but instead because the attorney botched it they have nothing that's terrible. But presumably if that child is healthy and maybe they're an adult by the time I and my wife die they'll be able to make a living they'll be able to provide for themselves. Would it have been a lot better if they had an extra 500,000 absolutely. So it's real bad but it's not an absolute tragedy. Let's say that the child does have a disability, they're not able to work independently and they have to rely on the government and their parents inheritance and the adviser or the attorney or somebody botched it. So instead of having a $500,000 cushion or $500,000 more they have nothing. That is a tragedy. Your kid running out of money during their lifetime is that is a tragedy. Nobody wants to have a broke kid that is just completely subject to the whim of the government and who knows what's going to happen in the future in the different states etc etc. It is Mission critical to get this right and the problem is so few people are getting it right. And again qualifying for SSI and SSDI is number one. Getting your estate planning right that is number two.
Crystal:
Let's just take a second to unpack that a little bit. So, that is such a thing that I think so many parents with children with disabilities our greatest anxiety as you were saying earlier is what will happen to my child when I'm not around. When I'm not there to take care of them. When I'm not there to manage all of the things. How is my child going to be able to survive if they can't work? If they can't do these things. And so that's one of the reasons why this subject is so important right because it is a major stress point for parents. It's one of the number one stress point. So, let's talk about the special needs trust.
James:
Okay, well first I'll I'll I'll kind of go backwards a little bit and just talk a little bit about what a trust is and then the difference between a regular trust and a Special Needs Trust. Let's say for discussion sake that you have no reason to believe that your child isn't anything other than you know healthy normal. They'll have a good productive life. They'll be able to work etc etc. And you're writing your will or your or your trust and you might have say something like in the event that my wife and I die before my child reaches age 30 or something like that then I leave the money to a trust for that child. And the terms of the trust are the child gets the income they get to write principal for health maintenance support and education and then it's particular ages maybe a third at 30 a third at 35 a third at 40 then at age 40 we release everything else. And that way that it protects the money from the child themselves. If the child does something stupid. It protects the money from creditors including future ex spouses or maybe a accident or whatever it is. And that's that's prudent. Now let's take the next step. Well my child doesn't qualify for SSI or SSDI but they do have some major problems and I don't trust the child to make good financial decisions that will last his lifetime his or her lifetime. So therefore I'm not going to say oh by the way the child can have the whole thing when they're 40. Maybe you keep that trust intact for the child's entire life. And we do that a lot with you know particularly for maybe a child that has a drug problem or an alcohol problem or sometimes people got caught up in other people taking advantage of them and particularly if there's maybe a mental impairment and we just we just don't want to leave it to chance that the child will make sure it's okay. And maybe whether it's a loving relative or or even a bank we name the loving relative preferably as the trustee and they watch over the money let's just call that a standard protective trust that doesn't end when the child is 40. So why not just do that? And that's what I'm going to guess a bunch of your listeners already have. The problem with that that will ruin the qualification for the government benefit because of income and because of net worth. So the child has a couple hundred thousand dollars in this trust the trust is throwing off some income and in addition it's net worth that will be held against the child. So, they might lose their qualification for the government benefit or worse they might have to give back some of the money that that that you left the child after you died. They have to give it back to the government because they now have money. So it's it's a terrible thing for a child who has a a disability to be left with a standard creditor trust.
Crystal:
Yeah and I thought what was really interesting, that I've heard a lot of families will do especially with children who might have an intellectual disability, that like you said may not be trusted with money, one of the things that you talk about is that a lot of people will put a relative or a sibling in charge to handle that trust but that's a bad idea because you don't know after you die whether that that sibling or that relative is going to do their due diligence. In in fact they sometimes take advantage of having that money and may not give it to your child and so having that as a solution is kind of not the best solution as rather than having your child be the beneficiary right?
James:
There's a little nuance there . What I really don't like and I have seen in practice is so let's assume that you have one child that is able one child that has a disability. So you say okay I trust the child that is able. I'm going to leave them all my money with the understanding, not the written understanding but the oral understanding, that they're going to use that money or half of the money for the benefit of the child with the disability. That way the child with a disability can apply for benefits and can honestly say I don't have any money of my own. And maybe that'll work out all right. And maybe the child typically a sibling you know will be honorable etc etc. But by the way maybe they're not. Let's take another case. So let's say for discussion's sake uh Crystal you have two you have two children let's say that one of them ends up being able to work and won't have a problem in terms of earning money and they'll be financially responsible and the other one does have a problem so you say okay I'm gonna leave everything to the one who is okay. Then they get married. Then they get divorced. Uh oh, there goes the money that you meant for the other child. What if they go bankrupt? What if they run over a football player toe while they're driving and they get sued for millions of dollars? It's way too risky. So that's why I don't like just giving it the the money to one child with the understanding that they're going to take care of their sibling. Now by the way, I'll tell you I have seen it work so I'm not going to say never even consider it for one second and it's never worked because I'm guessing more times than not that it will.
Crystal:
But there are risks to it?
James:
And the thing is it's it's a risk that we can't can't afford to lose. Even if somebody did a study and they came out and said hey it's going to work 80% of the time, I'm not happy because the 20% that it doesn't work the stakes are so high. But if you have an honorable um sibling that you trust that person would probably be okay to be a trustee. It's not their money and the trustees has relatively specific things that they can use the money for that might work out better than naming a bank just because they know the sibling. And they say oh they're not a financial expert, well they can hire a financial expert. They can hire an estate attorney. They can hire somebody that could help them and pay them on an hourly basis. However, it is done and if that attorney financial advisor whomever CPA doesn't do a good job, they can fire him and go somewhere else. If you name the bank as the trustee, you've kind of given up a lot of your power. I'm not saying don't ever do it because sometimes the the siblings are ready to cut each other's throat and it would just be a terrible thing but it's typically not my first choice if we have a responsible loving sibling who we think would do a good job.
Crystal:
So, naming a sibling a trustee of the money instead of having it their money that they just give out to them, so having that set up so they're a trustee but they it's not actually their money?
James:
Yes
Crystal:
Okay, so that's that's good to know so so you're also saying, just to kind of clarify, so that I understand, so a Special Needs Trust is different because it doesn't go against their benefits for SSI and it also allows them to have withdrawals throughout their life instead of limited correct? Am I understanding that correctly?
James:
Yes, but it's not a tanudrum. And the reason is just like we were talking about the ABLE account is so liberal and what you're allowed to spend money for if the money was considered the child's money then the government could say no benefits. So, it has to be drafted in such a way that it's very obvious that it's not the child's money. Where protective trust by the way they would deem that to be the child's money and they would deny benefits or even try to get them back. So, with the Special Needs Trust the attorney has to kind of get it just right well the child can do this this and this but they can't do this this and this. and you know we have a lot of experience on what language works and what language doesn't. And it's not like the attorney sitting there with a blank computer and says well I think I'm going to start writing. No no we all have form books and we use the form books that work. The problem though is you have to get that part just right if the underlying asset is an IRA. We can get to that if we have time. You have to get four specific conditions. You have to get that right um and then there's going to be another nuance that I'm going to introduce you have to get that right. So, one of the problems, and it's a big problem by the way, that parents of a child with a disability face is finding an appropriate attorney to draft these documents and to be able to trust that attorney. And to make it worse the attorney has to be licensed in the state of the residence of the person drafting the will or the trust. So, let's say that there's this if you're fortunate enough to live in Pennsylvania you could go to Julia Steinbacher one of the co-authors and she knows her stuff. I'll vouch for her personally. But if you live in the 49 other states, Julie isn't licensed in those other states. Now she has some connections there, as I do. But finding the appropriate estate attorney is is not it's not so easy.
Crystal:
So, what should parents be looking for when they're looking for an attorney? s there like you need to be looking for certain certifications or is there something specific where when they're going down the list of all the people in the area what should they be looking for?
James:
Well, the first piece of bad news in my opinion, is subject to pretty rare exceptions, I would prefer the parents go to a specialist. I again when I was doing my plan, you know we had an estate planning Law Firm we drafted 3,000 wills and trusts beneficiary designations and I think the attorney who was, he now owns the firm, but who was then working for me was fabulous and I could have had it done for free. But no, I went to Julia Steinbacher because I knew that she would have more specific expertise than even this excellent State Attorney that could have done it for free. Maybe you'll get lucky and maybe the estate attorney will do a good job but it's very hard to get everything just right and to me I want somebody who's done 10 20 a hundred of these not never did one or one or two and they're floundering in a form book that they don't understand. Uh the other thing is if somebody has done this for a long time, they probably going to be in a better position to advise the trustee and beneficiaries after you're gone. So, they or their firm is because usually if a firm takes on this specialty and it's a big deal for a firm to take on. You know you don't just say wake up in one day and say, oh okay I think I'm going to uh go into this specialty I'll spend five hours a week for a month reading about this. No, this is a big deal. If you're going to take this on that's the kind of person who I typically want, because even a lot of things that that are are not all that problematic for preparing a will and a trust for a child who is healthy even just things like guardianship provision that's pretty intense stuff. And I don't want somebody who's never prepared a guardianship provision for a child with a disability to do that. I want somebody has done 10 20 5050 100.
Crystal:
So, if I would Google a state attorneys that specialize in special needs what would I look up?
James:
That's a good start. I'm a little bit biased but I tend to like people who are at the top of their field and people at their top of their field tend to want to teach. So they write books. They write articles. They give workshops for other attorneys. I mean that's not to say that there isn't somebody in a little dinky town somewhere who knows all of it and he doesn't write. He doesn't publish and he doesn't teach. Yeah they they could be but then it's really hard to find and then how do you distinguish. But if you have people who have written for peer- review journals and it sounds self-serving because I have you know I've I've been teaching for 30 years to financial advisors, CPAs, attorneys, and I've written you know 10 books and many many article. But to me somebody who has written and particularly in a peer review journal. So if you go to a respected magazine they're going to have people frankly who are going to look at your article and they're going to try to chop it up and look for mistakes. That's a good start
Crystal:
Okay. Interesting.
James:
Now I'm going to give you some advice that most the state attorneys don't know about. And Crystal I'm going to use you as an example. So let's assume for discussion's sake and you're doing your will right now and let's say that you're saying well gee I'm hoping that when they're 18 that they're going to qualify for SSI or SSDI but maybe they won't. Maybe the government will change their standard. Maybe they'll improve in certain areas whether it's their hearing or other uh potential impairments and you just don't know. And frankly that's the way a lot of parents are. There's some people that are very obviously will qualify and then there's people who pretty obviously won't qualify. But there's a lot of people that frankly could go either way and it might change between the time that you're doing your will and the time that you die. Meaning one possibility, is you assume that your child's going to qualify and you do a will based on that with this Special Needs Trust then the child improves doesn't qualify for benefits now the money is left to this Special Needs Trust, which if you remember is much more restrictive in what it can do to help the child. Well, that's not good. So, if you guess yes, my child will need special needs trust it turns out that they didn't and what they should have had as a protective trust then that that's not great. All right let's go the other way. Oh, I don't think my child will ever qualify so therefore I'll just do a plain old protective trust and it turns out your child did qualify now. You have a trust that doesn't protect government benefits so this is the quandary that a lot of parents have. Here is what I think is a great solution and it's called the toggle. And what the toggle does is you're essentially drafting two trusts. One is, I'm explaining this conceptually not mechanically, one is what I'll call a traditional protective trust, one is a Special Needs Trust and you let the trustee decide not now but after you're gone what trust they need. Oh, the child doesn't qualify for SSI doesn't look like they ever will so we're just going to use the regular protective trust toggle to protective trust. Example number two - oh the child has since Mom and Dad did their will or maybe they child qualified before they still qualify okay now, we're going to do the Special Needs Trust so they in effect push the special needs button. That is a not well-known strategy but is something that I really like and really believe in for a lot of parents who they just don't know how their kid is going to turn out.
Crystal:
Just to kind of make sure I understand this correctly - so you're saying that when you go to your attorney you can ask them to draw up both trusts and then depending on what the rules are and where your child is at the time of your death then they can switch back and forth based on if your child qualifies or if they don't. So you're drawing up both ones and then deciding later which one will be the best option is that correct?
That's correct.
Crystal:
Okay.
James:
Okay and very very few people have that.
Crystal:
Interesting. So, let's get into what your specialty is which is the retirement account and turning a retirement account willing them to your children in a way that they can have access to money. Well first of all let's talk about the different types of retirement accounts and how we can use that to our benefit in order to help our children.
James:
Okay sure. Well, a traditional IRA and you asked me to include other retirement accounts so I'll broaden the question your IRA, your 401k, your 403b, your sep your Kio your let's call it traditional retirement plan. Either you or an employer or both put money into a retirement plan you're not paying taxes on that contribution. So, let's keep it simple. You put in $5,000 in a plan you get a tax deduction if if it is withheld from your paycheck that $5,000 is let's say that goes to a traditional 401K is not taxed. Which is one of the reasons by the way a lot of times when you get your W2 your state wages and your federal wages are different. Your federal wages are often lower because the retirement plan wasn't taxed for the FED but it was for the state. Then that money presumably uh grows and is invested until retirement or minimum required distribution you take that money out and you get this tax deferral that is you weren't paying taxes every year on the income on the dividends on the capital gains but ultimately you have to take it out and pay taxes. And by the way dying doesn't help the problem because then unless you leave it to a charity the beneficiary including a Special Needs Trust is going to have to pay taxes. Okay so that's income tax. All right example number two - you or an employer put money into a Roth IRA,, 401K 403b Etc you don't get a tax deduction but the money is grown income tax-free then when you take that out and by the way, as a bonus there's no minimum required distribution on a Roth like there is for a traditional retirement plan, when you take it out assuming that you're not violating one of the conditions like has to be in there for 5 years it's income tax-free. So, then the question becomes well which one is better and you know I am an attorney, so I'll always answer a question like that as it depends. But I'll try to be useful also unlike attorneys and say that generally the ROTH is going to be better if you have a child with a disability. The Roth is going to be much much better and a large section of the book is devoted to ROTH contributions and ROTH conversions. And one of the ways that my wife and I got a huge start that accounts for a good chunk of the $1.9 million in today's dollars that our child will have instead of being broke is because we were very aggressive with Roth IRA conversions. And we actually made a $250,000 Roth conversion in 1998. That was everything we had by the way in in our retirement plans at our at the time and that alone will probably make it so our child is better off by close to a million dollars just that one $250,000 conversion. Now to be fair I did it the first year you were allowed to do it and I was on top of it and then I did write the first peer review article for Roth IRA conversions. But when you run the numbers even for people with a child who doesn't have a disability in most cases the ROTH is going to be superior to the traditional retirement plan.
Crystal:
So when you say conversions that's basically going to your estate planning or your accountant and saying I want to take the money from my my other retirement accounts and I'm going to put it in a Roth IRA is that correct?
James:
Right. So okay, to me the issue of converting to/ from a traditional IRA to a Roth IRA - how much should you convert, what year should you convert, should you do multiple year conversions, what's going on with the rest of your income what's going on is the child able or is the child going to qualify for SSI or SSDI? and I can get into why that's so different but the Roth IRA conversion. It's not a matter of opinion. It's math. Yes you can argue about what assumptions you're going to use but assuming that you have some reasonable assumptions that you can live with the question of how much and when to convert becomes a matter of math. And people always want to say oh my situation is different. And it's a matter of math and you can see oh okay if you do nothing you're here. If you do some you're here. If you do more you're here. If you do too much you're it's not optimized. So you really want to get this right. And you know I'm not saying that people can't do do it on their own but and CPAs are tend to be better at this than attorneys or financial advisers but again it's a math problem.
Crystal:
Okay so then with your ROTH Ira you can will that to your children is that correct where would that money go? So would it go into the Special Needs Trust?
James:
Well by the way this would not be controlled by your will, it will be controlled by the beneficiary designation of the ROTH IRA. Okay that's mission critical. Typically what I would do is I would name the surviving spouse as the primary and then I might do this toggle trust as the contingent and then the trustee says okay the child qualifies for SSI we're going to toggle it to a Special Needs Trust. So now you have and the technical word for it is an inherited Roth IRA that is now in the hands of trustee who's going to use that money to benefit the child and the fact that the Roth IRA grows income taxfree does not change after death so your Roth IRA that was growing taxfree while you were alive continues to grow income tax free after you're gone.
Crystal:
Wow Okay!
James:
All right but that's not the really big news. The really big news is that under the old rules before 2020 -let's forget about disability for a minute and let's just say that you named a kid who was 40 years old at your death and let's say there was a million dollars in either an IRA or a Roth IRA. Well, the last thing, particularly an IRA, the last thing you want to do is take that million dollars out and pay taxes on it that would be horrendous. You want to take out what's called the minimum which is the minimum required distribution of the inherited IRA, which is taxable, or the minimum required distribution of the inherited Roth IRA, which is taxfree. In 2020 they said subject to exceptions. All that money in the IRA, the inherited IRA or in the inherited Roth IRA that all has to come out within 10 years of the year following the death of the IRA. Where the old rule was the beneficiary could stretch that inherited IRA or better yet the inherited Roth IRA for their entire life. One of the exceptions was this Special Needs Trust. My mantra if you will is pay taxes later. I want your kids to pay taxes on that inherited IRA particularly if it's a child with a special needs over their entire lifetime. And the difference between leaving them a million dollars in a trust that qualifies to be distributed over their lifetime versus one that has they have to pay the taxes in 10 years that additional tax deferral that alone can be worth close to a million dollars.
Crystal:
Okay so that's where this whole your IRA retirement and the Special Needs Trust kind of connect here, is that if you have both you can basically say like okay Uncle Sam you're gonna we're gonna limit the amount of money that you're going to take and my child's going to get at the most amount that is allowed right?
James:
And if it's a Roth then that money's coming out gradually over the life of the child but it's coming out tax free.
Crystal:
Okay so that's that's a big difference.
James:
It's a very big difference because trusts have the highest tax rates there are. So, again the all these things make an enormous difference and for all the work that I do if I could only do one piece of advice it would be running the numbers and developing a long-term Roth IRA conversion strategy.
Crystal:
We've been talking for a long time so I want to kind of wrap all this up you talk about you have three critical things that parents should be doing. So, what are those three things and where should they start. Like if you're today listening to this you didn't know any of this information and we want to get started.
James:
Okay if your child is 18 go SSI SSDI. If they are not um or even if they are next step get your estate plan right. Wills, Trust, Special Needs Trust the whole bit. Then after that and of course this some of this can be done simultaneous get the planning right with the Roth conversions, the ABLE accounts and and here's the thing in my world learning is change of behavior. So, you've you've done a great job of absorbing a lot of the information in the book, well to me that's nice but what's really nice is if you go and do something about it. And but if I could put in a plug for free resources - so our book it's called “Retire Secure for Parents of a Child with a Disability” and again this is my life passion. I am not here to sell the book. Good news. I'm here to give away the book. I would be happy if every person who heard this, both now and then in the future, I would like everybody to take advantage of of the offer to get a digital copy of this book for free. And I want you to do that and then as uh crystal said I want you to look at the table of contents. Okay so you would go to disabled child planning.com/ podcast. Disabled child planning slash podcast. That will take you and uh we will email you the book. I think it's the best resource there is for parents of a child with a disability on the financial side. Now um depending on when these airs we are having a summit on June 18, 19 and 20 and we are having the three authors speak we're having Totianna Mcfaden who is probably the top uh celebrity athlete with a disability, she'll be speaking. We have a bunch of other content experts. And then it's going to be very easy you can pick and choose which speakers you want to hear about. Again, it is free. It's virtual. You can you know listen from your or watch from your living room and it's June 18 19 and 20. And for your convenience I have the same website where you can get the book, you can sign up for the webinar.
Crystal:
Okay, great so I'm actually going to have that link in the description of the podcast so if you are listening to this and you want a free copy of the book and if you are listening to this before June what was the dates again?
James:
18 19 and 20 okay so
Crystal:
And that is in year 2024. So, um so if you're listening to this before then and you want to sign up for the free, we will have that link in the description. So go to the description I will put a link right there so you can just click on it and it will take you right to his site. I'm going to tell you both um as a person like I said who does not understand finances this book is worth having even if it's just a reference. Even if you feel like I can't sit down and read this whole thing - fine it's got a great table of contents. You can pick and choose what you're ready to deal with because some of our parents might not be ready to dive into everything but it maybe you're only ready to start an ABLE account that's fine. But you can go into this book - it'll give you instructions. It gives really nice stories. It's written by people who understand why this is so important. So, click on the link and thank you so much James for being here. I appreciate all the information and uh we will be in touch. But I'm super excited about all this and hopefully everybody else is.
James:
Thank you, Crystal.
Crystal:
If you're just tuning in for the first time to my podcast I encourage you to go back and listen listen to some of my previous episodes from last season where we discuss an array of topics from all different perspectives. Don't forget to like and subscribe to my channel and if you really like my podcast, check out my Facebook and Instagram pages and of course share with your friends. Also check out my YouTube channel where I have the first three episodes of the podcast interpreted into American Sign Language and will be continuing to add more as time goes on. Stay tuned for future episodes coming out but until next time I'm signing off