Patrick Cadigan  0:00  
Welcome. This is the postsecondary transition conversation. We focus on the ins and outs and everything in between of the transition process for families of students with disabilities. I am one of the hosts. My name is Patrick Cadigan. I am a public school transition coordinator. As always, I have a co-host, and who would that be?

Meghan Smallwood  0:18  
I am Meghan Smallwood, and I am also a public school transition coordinator. Well, today we have Betsy Larson with us. Thank you for joining us, Betsy.

Betsy Larson  0:28  
Yeah, thanks for having me.

Patrick Cadigan  0:29  
Oh, sorry...

Meghan Smallwood  0:30  
Yeah, go ahead.

Patrick Cadigan  0:31  
No, see that was... 

Meghan Smallwood  0:31  
Patrick was the one who reached out and made the connection, so I was going to let you share how that went.

Patrick Cadigan  0:39  
Betsy, the reason that we wanted to have you on today was a little bit of your background. You are a financial planner, but not only a financial planner, but a financial planner for families of people with special needs. Did you, did you want to talk a little bit about that, and what that looks like?

Betsy Larson  0:57  
Yeah, yeah, so basically I work with people who I kind of say that they, we need to plan for a three person retirement, because sometimes people kind of look at special needs planning and they will kind of think I'm just planning for my child, like just what do I need to do for my child, that's all that they really think about, but I say no, we need to make sure that you're also enjoying your life and that you work so hard to be able to enjoy your retirement and achieve all the goals that you've set out to achieve, so let's make sure that that can happen while we're also planning for your sibling or child with a disability, so that's really where I...lies.

Patrick Cadigan  1:35  
So needless to say, it's A) very specific and then B) we would consider it to be fairly niche. So, what drew you into special needs financial planning? Is there a personal experience that shaped your approach?

Betsy Larson  1:50  
Yeah, so I actually have four little sisters with Down syndrome that I, that have really become like the core of my life, like I've got a daughter too, and I obviously I adore her, but my sisters are everything to me. So I always knew that I wanted to go into something related to the disability, and it just so happens that my dad is a financial advisor and has been my whole entire life. So he actually, about seven years ago now, asked me to join his practice, and I was coming in, basically nothing. I had worked for a manufacturing company for like eight years prior. It was nothing that I wanted to do, but it was just paying the bills. And so my dad had me come on, and I was starting on the business a little bit. And then I was talking to a friend of mine who has a son with pretty severe disabilities, and he and she was just telling me, like, I don't even know what to do, so I just started to kind of look in, realize it was a really, really under served community that government benefits, and all of the planning that surround having a loved one with a disability is just so, so much bigger than what most financial advisors are planning for, or even just know about, so I really took it upon myself to, to really get a good education and understanding of what needs to happen and what needs to be planned for for these families, so it all started with my sisters, and then it just sort of evolved into me turning into this special needs financial advisor.

Meghan Smallwood  3:19  
I love that, because I can totally relate, that's where I have a sister with a disability, and that's why I went into the field of special ed, so it's always like near and dear to your heart, and how can you support those families after you've experienced what they're going through as well? 

Betsy Larson  3:30  
Exactly, yeah.

Patrick Cadigan  3:33  
One of the ways that we managed to hook up with Betsy was longtime listeners will know that we do out what we refer to as pod shares, and that's when Meghan and I cannot, for one reason or another, we couldn't do a recording, and we had found Betsy's content on YouTube, and one of the videos that struck us was the Six Pillars of Financial Planning as we were watching that video, Betsy, you describe financial planning as a bucket plan with now, soon, and later buckets. Can you break down what that looks like for a family who is just now beginning on this journey?

Betsy Larson  4:17  
So, basically, when it comes to the bucket plan, I a lot of times when people are thinking about their money, they're thinking about, okay, I'm in my working years, I'm accumulating my money, and then once I retire, that's kind of my distribution phase, that's why I need to start tapping into that money I've been saving for so long. The way that I like to think about it is sort of a accumulation, preservation, and then distribution phase, so with the now bucket, that's the money that's going to be what you need to live on now, so whether, whether you're working now or you're, or you're retired, and you're, and you're having to actually take money from your, the assets that you've saved so far, um, the now money is going to be money that you need for like this year, whether that's from income. Or or your accounts, the money that I see in this preservation bucket, which I think is really important that we see it as, as that is, it's going to be safer money. This is going to be money that's going to be that we're still investing it, and we're still making sure that it's doing something for you, but it's going to be a lot more, a lot safer, so it's not going to have those large market swings, like maybe your, your later money would have, because you're going to be having to take money out of these accounts sooner rather than later. We don't want it to be as suscept, or as, as in the market, or as susceptible to market fluctuations as the, as the later bucket, because when you're taking money out, say that you need to take out $10,000 then it's a down market that day. It's a lot harder to to recapture those earnings when you're having to take money from a from a negative, you know, market day, rather than if you're taking it from money that we is pretty safe and secure. So, so what we like to do is, we like to say, okay, you need this money for this year, that's your now bucket. We, and then we need about this much money, we project all of this, all of your costs, and things like that, for basically the rest of your life, and this, these are all these, all are fluctuating numbers, because life changes and things happen, but we, we project what you're going to need for the next 10 years, and we say, okay, we're going to have, we're going to say that this money is going to be a little bit more conservative. It'll still do something for you, but it's going to be more conservative. And then anything left over, we're going to have the market do its thing with it. We're going to let it run, and we're not going to care if the market's going up and down, because we don't need this money for over 10 years. And then the way that I like to do that is, so I do it in a couple of different ways with my clients, sometimes I do it for, you know, people want projections for just their children, so what we'll say, we'll say, okay, this is what their income is, so that whether it's their social security or their SSDI payments, things like that, and then we project how much they're going to have to be living on, so we know exactly, so I can project about how much we need to have for that child. Some people want to do it for the whole family, so I prefer to do it for the whole family, because oftentimes it is the parents who are going to be having to pay out of their pocket a lot, of you know, often for their children with disabilities, so I will take the whole family's income, the whole family's expenses, and then we will start to bucket that money, and then a lot of times that later money we're going to use that for legacy planning, so that go into a special needs trust. Now, once the special needs trust is actually going to be starting distributions, that's when we start to bucket that as well. So, there's a lot of different buckets, but it all kind of means the same thing. You know, even especially when, when it comes to a special needs trust, we really want to bucket that money, because we really want to make sure that that money is preserved for as long as possible. So, knowing that you keep the now money, the money they're gonna need this this year, basically in cash, you know, because you don't want that to fluctuate at all. The 10 year money, we keep that a little bit safer, but at least speeding inflation, and then the later money can be a little bit more risky, to not, not super risky, it is especially stressed, we need to be, we need to be careful with it, but it can be a little bit more aggressive, so that it's working harder and can last as long as possible for the family.

Meghan Smallwood  8:28  
I think that's important for families to consider, because I know we have state funding for those with disabilities here for lifelong services, they have SSI, and then a lot of families are like, well, we don't have to worry about employment, they're not getting a job, they're not getting a paycheck, but you do have to consider how to, like you said, put the money in buckets to think about the long-term plans, because I know how, how scary it is to think about what's going to happen when you're not around anymore, but it is a conversation that needs to occur, and you need to be prepared, you know, in case something happens, and in case that state funding, the way things are going, is not stretching as much as it can, so...

Betsy Larson  9:09  
I mean, these families know too that state funding does, does the bare minimum. You know... 

Meghan Smallwood  9:15  
Yes. 

Betsy Larson  9:15  
...if you want to be able to live any big quality of life, you want to try to plan for those assets for as long as possible.

Meghan Smallwood  9:22  
Exactly.

Patrick Cadigan  9:24  
We have had so many conversations. Meghan and I have been doing this for a couple of years, and one of the things that we had noticed, as far as the trend in the data of our discussions, was is that when we would talk about the financial side of things, or financial pieces, our numbers would go up, so we know that it's an.. it can be an overwhelming piece for families, and it can worry them quite a bit. So, what are some of the biggest mistakes, or blind spots, if you will, that you see families make early on? And then, how do you, as a financial planner, how do you encourage families to avoid. Did those blind spots, those mistakes.

Betsy Larson  10:03  
Yeah, so I think that one of the, one of the biggest things that I, that I see is people saying, like, I don't have enough planning, I don't need to do planning, there's, I have nothing to plan for or plan with. That's that's a giant mistake on a lot of people's hearts, because no matter what you have, we need to be making sure that government benefits are preserved, that whatever you do have is not, you know, we need to be checking beneficiaries, because even if you have a, you know, a $10,000 IRA or 401K, and you leave that to your child with a disability who relies on those government benefits, that can wash it all away, and they basically start from scratch, if we can get that into a first party special needs trust. It just can get far more complicated. So, first mistake is doing nothing. Second mistake I would say is, like I just said, like leaving a direct investment to your loved one with a with a disability that does rely on those government benefits. You know, often times people will either they'll either, I guess, there's two ways they go about it. They either leave all of the money to that child because they want to make sure that they're taken care of, you know, it's all with really good intentions. I don't think that they did clearly don't mean anything bad by it, but the planning will allow for those government benefits to stay and them to have those that money that you work so hard for for them, and another thing that I have seen people do is completely disinheriting their child and saying, okay, I'm gonna leave everything to their sibling, and their sibling will take care of them, and that can be a big problem, because what if that sibling, okay, first of all, what if a sibling just decides they can't and won't do it, it just is. It's too, too much for them. What if they get married and then divorced? Now that money is going to be possibly lost in a divorce settlement. What if they have creditor issues, and then the creditors come take that money? There's just a lot that can go wrong there. What if that sibling passes away, and they didn't leave a specialist trust as the beneficiary, you know, there's just.. there's so many things that can go wrong. So, just sitting down with an advisor who knows this area, and just having.. even if it's just a conversation, even if you're like, you know, what I.. I don't.. I don't know if I can go, you know, if I can go too deep into this right now, but I at least want to have a conversation to get my mind going. Just have that conversation, you know. Often there's a plenty of us who will do consultations for free, like I will do. You know, I normally do a 20 minute conversation until I get to know someone, and then I'll do a whole hour long, where I look at everything, I kind of just give them an idea of what might need to be done, and I do that complimentary. So, but just at least sitting down and getting some information from somebody, so you can start to get those, those wheels rolling, you know, get the ball rolling, and to start planning for your child. That's a, that's a big one.

Meghan Smallwood  12:52  
You brought up exactly what I've heard family say before. Oh, I'll just leave it to the sibling, that'll protect them, and I'm like, maybe you should...

Betsy Larson  13:01  
Yeah.

Meghan Smallwood  13:01  
...talk to somebody about that.

Betsy Larson  13:03  
Well, and that's that, that's another big thing, is not having a conversation with your whole family about, about you're doing, because I've had people that have come to me, they're like, oh yeah, we have their sibling as the successor guardian, but the sibling doesn't even know, like they haven't had that conversation, or the sibling is the trustee, but they don't know trust rules, they don't know who to come to once that, once they do become the trustee of that special needs trust. So...

Meghan Smallwood  13:31  
Yeah.

Betsy Larson  13:31  
...having those family conversations for those reasons, and also so that if a grandparent wants to leave money to the child, they know...

Meghan Smallwood  13:40  
Yeah.

Betsy Larson  13:40  
...okay, we need to reach the special needs trust, so that's another important part of the planning process, is having that family meeting, so that everybody's on the same page, everybody knows what's going on.

Meghan Smallwood  13:50  
You bring up a great point, because I know I've talked to families before, and I feel like, as a sibling, like you're kind of put in a hard spot, because, of course, you want to take care of your sibling, but it's, you're not always included in these discussions or conversations. I know I wasn't when I was younger, so it's like you're playing catch up. So I always tell families, like, please make sure you're involving the sibling in every discussion, whether it be they're preparing to leave school, the school system, when they're deciding on a placement, keep them involved and knowing who's a provider, who's this coordinator, and then obviously the financial part, and the guardianship, the legal part, but also it's just so important that the parents recognize, like everyone in the family, like you said, if grandparents want to leave an inheritance, that they realize, like, how they go about doing that, because I've seen families where the child was held up by receiving Medicaid because they got an inheritance from the grandparents, and it just sat in his bank account for for a long time, not realizing what it was costing.

Betsy Larson  14:50  
Again, I think it's always important to reiterate that we understand that these are not ill-intentioned... 

Meghan Smallwood  14:57  
Exactly, yeah. 

Betsy Larson  14:58  
...inheritances. Want to, they want to help. It's just us educating them on the best way to help.

Meghan Smallwood  15:07  
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Meghan Smallwood  15:36  
Yes, it's definitely the education piece. You don't know what you don't know, and this is a very daunting area, and I know, Patrick, you had also mentioned something earlier about, like, taxes. Like, a lot of families have asked me, in terms of, like, all this, the trust and the money for their child, how does that play into, like, tax management for them? And I don't know, Betsy, do you know, are there any, like, specific strategies or benefits that they commonly miss or should know about from the beginning as they're going through this process.

Betsy Larson  16:08  
Yeah, I mean, taxes are massive, especially when we talk about special needs trusts. I mean, trusts are taxed, the income in a trust is taxed way higher than normal what our ordinary income tax rates would be, so like for example, in order to be in the 30 37% tax rate for just your ordinary income, you have to make like $768,000 I think it's 67/687, to be taxed at 37%. To be at the 30%, 37% tax bracket for trust income, it has to be $16,000 like it's like it's so it's like nothing, basically. So, what's important is that you, when we're looking at what to put into a special needs trust, is we have to look at what's going to be most tax efficient, because taxes can eat up a trust real, real quickly. So, I mean, maybe just in my field, I think that it's like said all the time, but life insurance is going to be one of the best things you can possibly put into a specialist trust, because it's going to be tax rate, it's immediately put into the trust, it's immediately funded, it is, I guess, upon the passing of the person who was insured, but that's going to be like the easiest, most tax efficient thing to put into a trust, and then we, if they don't have life insurance, or if they want to, if they have additional assets to put in there, we need to be looking at it throughout those parents' lifetimes, or whoever's going to be putting it into the trust upon their death, to make sure that we are, you know, whether it's doing Roth conversions, so that there's a lot more Roth money in there than then IRA money or having non-qualified assets in there, like, like individual accounts, bank accounts, things like that, but having them structured in a way where they're not going to have a ton of capital gains that would cause taxation inside of the trust, things like that. Speaking outside of the trust, there are a couple really great tax tax advantage accounts, like the ABLE account. I'm sure that you guys know all about the ABLE account. That's...

Meghan Smallwood  18:07  
Oh yeah.

Betsy Larson  18:07  
...a great account, because it, it doesn't impact their, their government benefits until there's over $100,000 inside of the account. It grows tax free, and it's distributed tax free, as long as it's for a qualified disability expense, and I, you know, I think that the IRS made a qualified disability expense pretty vague on purpose, because they want them to be able to spend the money. Basically, anything that that is spent for a person with a disability is going to be a qualified disability expense, which I, which I love. So, yeah, I'm huge proponent the able account? I think they work really well in tandem with a special needs trust. I don't think it's one or the other, I think it's both. And yeah, those are just some tax ideas for that I always bring up when I'm doing my planning.

Meghan Smallwood  18:54  
Yeah, we've had some good conversations about able account and the importance of, like, you don't have to choose able account or special needs trust, you can have both.

Betsy Larson  19:03  
Yeah, I mean, what I love is, so I'm a huge proponent of giving everybody more independence, right? Whether you have a disability or not, we all want to be independent. So, what I like to see people do is, because at Able account, I don't like to have too much money in an Able account, just because there's that Medicaid payback provision once that person passes away, so what I like to say is, okay, take that special needs trust, hopefully it's a third party, so that it can, it doesn't have that Medicaid claw back, and then just put some money into the Able account from the special needs trust, so they can go out and spend some money, they can go to the movies or do something, just do something for themselves, right? And just have that little bit of independence, use their little fast link card, and I think that that makes a huge difference for a lot of people when...

Meghan Smallwood  19:49  
Yeah.

Betsy Larson  19:49  
...they can pay for something themselves.

Meghan Smallwood  19:51  
For sure.

Patrick Cadigan  19:54  
Hey listeners, we thought that this would be a good place to pause the discussion, but make sure you come back. In two weeks time, because Betsy has more to talk with us about, she's going to talk with us about how she sees guardianship, share some information about letter of intent, legacy planning, and much more. So, we'll plan to see you back here in two weeks' time.

Meghan Smallwood  20:24  
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