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108 | Setting up a Special Needs Trust

William McVey, ChooseFI’s Chief Technology Officer, walks through investment options available to meet the financial demands of special needs children and the strategies he’s used to prepare for his children’s future.

Episode Overview

William’s Backstory

  • Although he is financially independent now, William didn’t put much thought into finances until 2014, after his wife passed away.
  • William was motivated to learn more about managing his own finances when he realized how much money he was spending to have someone else manage his money.

529 ABLE Accounts

  • The 529 ABLE is an account to help prepare for the financial future of children with special needs, with the same contribution limits as a 529 Education Plan.
  • Qualifying expenses include almost anything that would be required by someone with special needs to improve quality of life.
  • A 529 is a state-level account, filled with post-tax money, but withdrawn tax free.
  • Up to $100k in a 529 ABLE is shielded from consideration when someone applies for social security disability coverage.

Special Needs Trusts

  • Setting up a special needs trusts helps your special needs child by shielding even more than $100k from Social Security and state aid considerations.
  • Special needs trusts are not differentiated from any other sort of trust with regard to federal taxes, so William recommends keeping most of your assets outside of the trust, then populate the trust through a will, beneficiary designations, and transfer on death directives, after passing away.
  • Instead of designating beneficiaries in your will, you can designate a trust, or you can have a personal trust that rolls its assets into the Special Needs Trust
  • Professional trustees are available to hire, but William opted for trustees that he knows personally, and included funding in the trust for those trustees to consult lawyers and/or other advisors, should they need to.

Estate Planning and Life Insurance

  • How does William plan for his children’s future (finances, care, and management of both), beyond his lifetime?
  • How did William’s boys impact his FI number and his current investment strategy?
  • Lawyers and financial planners can be certified to manage special needs accounts and preparing for the care of special needs people.
  • William’s current living expenses are coming from his taxable account, with the hope that the special needs trust will eventually contain his pre-tax 401k and IRA converted to Roth IRA, so his boys have less taxes to pay.
  • What are the differences and cost/benefit of term life insurance versus whole life insurance?
  • If you have someone(s) who are dependent on your income, you should be insured.
  • William’s boys received Social Security survivor benefits that helped pay for their care while William was still working after his wife passed away.
  • Choosing when to leave his 9-5 job was a decision to focus more on his children, rather than choosing to stop working.
  • Although he worked for nearly 20 years as a computer programmer, William enjoys using his coding skills to build projects in which he’s personally interested, including projects for ChooseFI.
Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. American Express is a ChooseFI advertiser. Disclosures.
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