A Report For Parents of a Disabled Child
Critical Steps to Protect Your Child After You Are Gone
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Special Advisory Report
For Parents of a Child with a Disability
Three Critical Steps to Protect Your Child’s Financial Security After You are Gone
HIGHLIGHTS EDITION
James Lange,
CPA/Attorney/8-Time Bestselling Author/Quoted 36 Times in the WSJ
Deborah L. McFadden,
Former United States Commissioner of Disabilities
Julieanne E. Steinbacher,
Esq., CELA/LLM in Estate and Elder Law
The following text is the Highlights Edition of what we believe is the best long-term financial & estate planning resource we know for a parent with a child with a disability. To claim your digital and print copies of the complete 55 page Special Advisory Report free of charge, just click the Get Full Report button below.
Our Story
My daughter Erica has a disability that will prevent her from providing for herself. My wife and I worried endlessly, as do most parents of a child with a disability, about ensuring her safety and prosperity after we are gone. Using just three strategies, we took care of that worry. Consequently, Erica will have close to an additional $1.9 million dollars measured in today’s dollars to support her over her lifetime. Using the same strategies, someone with a $500,000 IRA can provide their child with an additional $239,000.
01
We formally established Erica’s status as disabled. This can be achieved after a successful processing of a Social Security Insurance (SSI) or Social Security Disability Insurance (SSDI) application. This critical step is what qualifies her as an Eligible Designated Beneficiary (EDB) thus enabling her to stretch distributions from the inherited Roth IRA and IRAs over her lifetime. For a successful SSI application, Deborah suggests three keys. First, use the language of “I CAN’T” in your application, specifically describing what your child cannot do. Second, include letters from your child’s doctors that explain how their disability prevents them from performing the activities of daily living. Finally, keep in mind that SSI has asset limits, so your child can only have ready access to up to $2,000. If you submit the application the month after your child turns 18, the Social Security Administration won’t include your income or assets in the application, provided you do not have any joint bank accounts with your child.
02
We optimized our Roth IRA planning. Roth IRA conversions can make the biggest difference for many families with a disabled child. $1,297,500 of the $1,890,544 savings for Erica came from us doing Roth conversions and contributions.
03
We drafted an optimized estate plan with appropriate wills, trusts, and IRA, 401(k), and Roth IRA beneficiary designation forms. We drafted a trust that allows the trustee to “stretch” the inherited Roth IRA over Erica’s lifetime. To do that, the trust must be drafted to meet four specific technical conditions. If even one mistake is made and the IRS looks at it, it will trigger a massive tax acceleration for the beneficiary. An error of this type will jeopardize all your efforts to protect your beneficiary.
The Three Main Strategies
01
We formally established Erica’s status as disabled. This can be achieved after a successful processing of a Social Security Insurance (SSI) or Social Security Disability Insurance (SSDI) application. This critical step is what qualifies her as an Eligible Designated Beneficiary (EDB) thus enabling her to stretch distributions from the inherited Roth IRA and IRAs over her lifetime. For a successful SSI application, Deborah suggests three keys. First, use the language of “I CAN’T” in your application, specifically describing what your child cannot do. Second, include letters from your child’s doctors that explain how their disability prevents them from performing the activities of daily living. Finally, keep in mind that SSI has asset limits, so your child can only have ready access to up to $2,000. If you submit the application the month after your child turns 18, the Social Security Administration won’t include your income or assets in the application, provided you do not have any joint bank accounts with your child.
02
We optimized our Roth IRA planning. Roth IRA conversions can make the biggest difference for many families with a disabled child. $1,297,500 of the $1,890,544 savings for Erica came from us doing Roth conversions and contributions.
03
We drafted an optimized estate plan with appropriate wills, trusts, and IRA, 401(k), and Roth IRA beneficiary designation forms. We drafted a trust that allows the trustee to “stretch” the inherited Roth IRA over Erica’s lifetime. To do that, the trust must be drafted to meet four specific technical conditions. If even one mistake is made and the IRS looks at it, it will trigger a massive tax acceleration for the beneficiary. An error of this type will jeopardize all your efforts to protect your beneficiary.
To request the full (55 page) Special Advisory Report, click the button below.
Report Co-Author Deborah McFadden and family with daughter, Tatyana McFadden, 20 time Paralympic medalist, at the finish line celebrating her first place finish in the Boston Marathon.
Some Additional Strategies To Consider:
- Sometimes, the best solution is to have a Special Needs Trust that allows your child to receive benefits from your inheritance without jeopardizing his/her eligibility for government aid.
- Use an ABLE account to save and invest money for your disabled child in a tax-advantaged way and without affecting eligibility for government benefits.
- If your child inherits certain 401(k), 403(b), or other type of non-IRA retirement plans, consider planning for your child to convert the balance or a portion of the inherited retirement plan to an inherited Roth retirement plan after you pass. This little-known strategy is particularly profitable if you are in a high income-tax bracket and your disabled child will be in a low tax bracket.
Implications for Roth IRA Conversion vs Traditional
IRA Inheritance
Assumptions For Figure 1
• Starting balances: $65,000 after-tax investments; $250,000 traditional IRA in 1998.
• 28% income tax rate on distributions for parent; 15% for disabled child.
• 28% Roth conversion tax rate (1998) – $249,000 Roth conversion (1998).
• 15% tax on growth of after-tax investments.
• Distributions are not spent by parent.
• 6.5% rate of return (3.5% inflation).
• Parent converts traditional to Roth in 1998 – $249,000 (parent age 41; child age 2).
• Parent dies at 85 in year 2041 when disabled child is age 46.
• Figure shows child stretches retirement plan for 40 years when child is age 86.
Assumptions For Figure 2
• 6.5% rate of return.
• Traditional IRA assets = $500,000 + $152,000 after-tax dollars at death.
• Roth IRA assets = $557,000 + $0 in after-tax dollars at death.
• Owner dies age 85.
• Child inherits at age 54.
• In “inflation-adjusted” dollars.
• Tax rates = per AGI.
• Child Social Security = $25,000 (plus 3 percent inflation).
• Expenses = $103,000 [18 years from now (plus 3.5% inflation) which is less than $4,650/month in today’s dollars].
• Child with traditional IRA runs out of money when he is age 88.
• Child with Roth IRA has money through age 100.
Hear what experts are saying about the Special Advisory Report
“Combining warmth and compassion with functional hard-headed advice, the dream team of Jim Lange, Deborah McFadden, and Julieanne E. Steinbacher have provided families of children with disabilities with the guidance they need to achieve financial security.”
Burton G. Malkiel
Professor of Economics, Princeton University and Author, A Random Walk Down Wall Street, fully revised 50th Anniversary Edition, 2023
James Lange
CPA/Attorney/Registered Investment Advisor
Jim’s tax and estate planning strategies have been endorsed by The Wall Street Journal (36 times). He is the author of 8 best-selling books. Some of his books have been endorsed by Charles Schwab, Larry King, Jane Bryant Quinn, Roger Ibbotson, Ed Slott Bob Keebler Larry Kotlikoff, Jonathan Clements, Paul Merriman and Burton Malkiel.
James Lange
Julieanne E. Steinbacher
Esq., CELA/LLM in Estate and Elder Law
Julieanne is the founding shareholder of Steinbacher, Goodall & Yurchak, an elder care and special needs planning law firm, with offices in Williamsport, State College, Wyalusing and Wysox, PA. As a former social worker, she has a unique perspective on children with a disability. Each of her law offices has social workers on staff to help families coordinate care and benefits.
Julieanne E. Steinbacher
Deborah L. McFadden
Former United States Commissioner of Disabillities
Deborah McFadden was appointed by President George H.W. Bush as U.S. Commissioner of Disabilities and was instrumental in the writing and passage of the Americans with Disabilities Act. For years, she has been recognized as one of, if not the top expert in the country helping individuals with disabilities qualify for SSI, SSDI, and other crucial resources. She is the mother of two USA Paralympic athletes. Her daughter Hannah is ranked third in the world in rock climbing. Tatyana has won 20 Paralympic medals including eight gold medals. Tatyana is one of, if not the most honored, and recognized athletes with a disability in the world.
Deborah L. McFadden
To request the full (55 page) Special Advisory Report, click the button below.
