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Tax Considerations when you have a Special Need Trust - Leo Rotman
Website: https://www.riverfg.com/Our-Founder-and-Firm.1.htm
Email: [email protected] (preferred)
Phone: 781-398-1351
Facebook: @RiverFG
Leo Rotman is a Financial Advisor and Founder of River Financial Group, LLC. He's also a dad, he's walked the walk and understands firsthand the challenges we face as parents. His firm works exclusively with families and individuals who have disabilities.
Before you determine how to fund a Trust you need to know what you need to pay for. Step 1 of planning is understanding what your objectives are. What do you want for your child? This is a moving target. Your goals will change as your child ages. Especially if your child gains independence.
Leo shares a few ways you can fund a Special Needs Trust. You can put just about anything into a Special Needs Trust. He uses an analogy of putting gas into a car. Some assets, like cash, are very efficient and flexible, your "high octane gas". Others, like pre-tax retirement accounts, are much less efficient or "low octane".
Pre-tax retirement accounts, like 401(k)s and Traditional IRAs, have required minimum distributions. This means the money HAS to come out at some point. When you are alive, they have to start by the time you turn 72 (2020). When you die there are different rules. It's important to understand these rules and take them into account when you plan.
The money coming from these accounts will be taxed as income. All Trusts, not just Special Needs Trusts, pay taxes at the highest rate. In 2020 this was 37%. They reach this level at a much lower level than people do. In 2020 the threshold to reach the 37% tax bracket was $12,950 of income. Roth retirement accounts do not pay ANY income taxes. Brokerage accounts will pay capital gains tax on the gains.
Life insurance death benefits are typically tax-free. They are also "perfectly timed with the need". Leo explains this means the insurance provides the death benefit when it's needed most. Leo very briefly touches on the different types of life insurance. This will be its own episode.
Having life insurance can give you permission to spend your money (retirement accounts) on yourself. You know there will be money available when you die. I don't think I would've started my business if I didn't have the life insurance I have. It gives me the confidence I need to put the money I'm earning back into the business, rather than saving it for my son. I know my son will be provided for as long as I can pay the insurance premiums.
The point of this discussion is to stress the importance of planning. I think it was Benjamin Franklin who said "if you fail to plan, you are planning to fail." This is still true, over 300 years later.
As an Amazon Associate, I earn commissions from qualifying purchases.
For more information about True North Disability Planning you can find us here:
Web: https://truenorthdisabilityplanning.com/
Blog - https://ejorgensenwordpresscom.wordpress.com
Podcast (ABC's of Disability Planning) - https://anchor.fm/abcs-disability-planning
Waypoints - https://waypoints.substack.com/
Facebook: @TrueNorthDisabilityPlanning
Twitter: @NeedsNavigator
Resource store (free downloads too) - https://www.teacherspayteachers.com/Store/True-North-Disability-Planning
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Website: https://www.riverfg.com/Our-Founder-and-Firm.1.htm
Email: [email protected] (preferred)
Phone: 781-398-1351
Facebook: @RiverFG
Leo Rotman is a Financial Advisor and Founder of River Financial Group, LLC. He's also a dad, he's walked the walk and understands firsthand the challenges we face as parents. His firm works exclusively with families and individuals who have disabilities.
Before you determine how to fund a Trust you need to know what you need to pay for. Step 1 of planning is understanding what your objectives are. What do you want for your child? This is a moving target. Your goals will change as your child ages. Especially if your child gains independence.
Leo shares a few ways you can fund a Special Needs Trust. You can put just about anything into a Special Needs Trust. He uses an analogy of putting gas into a car. Some assets, like cash, are very efficient and flexible, your "high octane gas". Others, like pre-tax retirement accounts, are much less efficient or "low octane".
Pre-tax retirement accounts, like 401(k)s and Traditional IRAs, have required minimum distributions. This means the money HAS to come out at some point. When you are alive, they have to start by the time you turn 72 (2020). When you die there are different rules. It's important to understand these rules and take them into account when you plan.
The money coming from these accounts will be taxed as income. All Trusts, not just Special Needs Trusts, pay taxes at the highest rate. In 2020 this was 37%. They reach this level at a much lower level than people do. In 2020 the threshold to reach the 37% tax bracket was $12,950 of income. Roth retirement accounts do not pay ANY income taxes. Brokerage accounts will pay capital gains tax on the gains.
Life insurance death benefits are typically tax-free. They are also "perfectly timed with the need". Leo explains this means the insurance provides the death benefit when it's needed most. Leo very briefly touches on the different types of life insurance. This will be its own episode.
Having life insurance can give you permission to spend your money (retirement accounts) on yourself. You know there will be money available when you die. I don't think I would've started my business if I didn't have the life insurance I have. It gives me the confidence I need to put the money I'm earning back into the business, rather than saving it for my son. I know my son will be provided for as long as I can pay the insurance premiums.
The point of this discussion is to stress the importance of planning. I think it was Benjamin Franklin who said "if you fail to plan, you are planning to fail." This is still true, over 300 years later.
As an Amazon Associate, I earn commissions from qualifying purchases.
For more information about True North Disability Planning you can find us here:
Web: https://truenorthdisabilityplanning.com/
Blog - https://ejorgensenwordpresscom.wordpress.com
Podcast (ABC's of Disability Planning) - https://anchor.fm/abcs-disability-planning
Waypoints - https://waypoints.substack.com/
Facebook: @TrueNorthDisabilityPlanning
Twitter: @NeedsNavigator
Resource store (free downloads too) - https://www.teacherspayteachers.com/Store/True-North-Disability-Planning
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