Financial Planning for Special Needs Kids with Dr. Bryan Jepson
INTRODUCTION
This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We’ve been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.
Dr. Jim Dahle:
This is White Coat Investor podcast number 396 – Financial planning for special needs kids with Dr. Bryan Jepson.
This episode is brought to you by SoFi, helping medical professionals like us bank, borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings accounts, as well as an investment platform, financial planning and student loan refinancing, featuring an exclusive rate discount for med professionals and $100 a month payments for residents. Check out all that SoFi offers at whitecoatinvestor.com/sofi.
Loans are originated by SoFi Bank, N.A. NMLS 696891. Advisory services by SoFi Wealth LLC. The brokerage product is offered by SoFi Securities LLC, member FINRA/SIPC. Investing comes with risk, including risk of loss. Additional terms and conditions may apply.
Welcome back to the podcast. Hope you’re well this winter season. We’re into December already. I hope you’re taking care of any end of year financial planning items you might have maxing out retirement accounts. I hope you’ve opened up all the accounts you need to. If not, it’s going to be a big rush before the end of the year. If you need to do that, don’t forget lots of things actually allow you to do them after the first of the year these days.
While it’s most convenient to take care of your backdoor Roth during the calendar year, you don’t actually have to do that. You can do it into the next year and still get that contribution in place. But let’s get things taken care of and keep our financial ducks in a row so we can concentrate on what really matters in life, which is our families, our own wellness, our patients that we’re taking care of, and those who depend on us.
QUOTE OF THE DAY
Our quote of the day today comes from Tony Robbins, who said “Success is doing what you want when you want, where you want, with whom you want, as much as you want.” There’s a lot of truth to that.
We have some bulk book discounts available here at the White Coat Investor. Thank you so much for discussing money and encouraging financial literacy. Some of you I know buy books in bulk and pass them out to trainees or your residents or colleagues or for a special meeting or whatever. We do offer a discount. If you’re buying 25 or more copies of any of our books, we will give you a discount on them. Just contact us emailing at [email protected]. We’ll give you an even bigger discount if you’re ordering more. If you’re ordering 100 plus or something, we’ll give you a bigger discount.
INTERVIEW WITH BRYAN JEPSON
We have a really great discussion today. I’ve got Bryan Jepson coming on here. I learned after we finished the interview that I have a lot more connections with him than I realized I did when we lined up this interview. I’ll mention those after we finish the interview.
For those of you out there with family or friends or yourselves who have special needs kids in your family, this is some really important information. Let’s learn about a fairly complicated area of financial planning today, financial planning for a family with a special needs kid in it.
All right, our guest today on the podcast is Dr. Bryan Jepson. Bryan Jepson, MD, also has a master’s in finance. He’s a chartered special needs consultant. He’s a CFP candidate. He works at Targeted Wealth Solutions as an advisor and has also been a practicing doc. So welcome to the podcast, Bryan.
Dr. Bryan Jepson:
Yeah, thanks. I appreciate it. It’s fun to be on.
HOW UPBRINGING INFLUENCED VIEWS ON MONEY
Dr. Jim Dahle:
Let’s introduce you a little bit. I’m going to set a few things about you, but let’s talk a little bit about you before we get too far in this conversation. Tell us a little bit about your upbringing and how it kind of shaped your views about money.
Dr. Bryan Jepson:
Yeah, it’s a good question. I grew up in Utah, actually, five boys in our family, middle class neighborhood, actually, probably lower middle class, if I’m being honest about it. But my parents did not have college degrees. My dad was an entrepreneur at heart, but never really was very lucky in his business ventures. And so, money was always a bit of a stress for us, especially as I was growing up. I was one of the older of the five of us.
And so, we basically had our basic needs met, but anything extra, we had to find a way to pay for it ourselves. And we did a lot of that starting from the beginning, mowing lawns, paper route, working at McDonald’s. I worked as a phlebotomist in college. There was palpable money stress, I think, in our house. My parents did their best to shield us from it, and I think for the most part they did. But I was old enough and aware enough that I knew that they were stressed out about finances pretty much all the time.
Dr. Jim Dahle:
You got out of the house at that point. Where’d you go then for your education and mentoring?
Dr. Bryan Jepson:
I went up to the University of Utah. My parents were always very supportive in terms of education and just helping us to really achieve our goals and helped us get scholarships and grants. So I was able to get through undergraduate without any debt. And then I ended up going to medical school at University of Utah as well, which is a state school for us. That helped a lot financially as well. My debt certainly wasn’t as big as it could have been coming out.
And so, yeah, that’s kind of how I grew up. I think I’ve always had a saver mentality based on my parents’ frugality, but also sometimes it’s kind of a scarcity mentality. And I can see that myself. And that’s part of who I am. I’m trying to overcome that a little bit.
CAREER EVOLUTION FROM MEDICINE TO FINANCE
Dr. Jim Dahle:
Yeah. Now, you’ve had an interesting career since you finished your training. Tell us about some of the evolutions your career’s had. I’ve met a number of docs that have become advisors at some point in their career. But tell us how that career path went for you.
Dr. Bryan Jepson:
Yeah. Yeah. My career is definitely not typical. After medical school, I went to residency in emergency medicine in Grand Rapids, Michigan. Pretty much came out of that with the standard future ahead of me in emergency medicine. I got a job in Colorado and it was a good job. And everything was going along. At that point, like a lot of your listeners, that’s when I became really interested in personal finance. This is way back when. I’m a little long in the tooth so this is back in the 90s, the 1900s.
Dr. Jim Dahle:
Last century.
Dr. Bryan Jepson:
Last century. As I started practice, I was very interested in personal finance, was just reading everything I could. There wasn’t a White Coat Investor blog at that point.
Dr. Jim Dahle:
Sorry about that. I didn’t know enough as an undergraduate to start it.
Dr. Bryan Jepson:
Yeah. But anyway, there were some websites and I read a lot of books and just got interested in investing in real estate and all this kind of stuff that a lot of your listeners are interested in as well. But then my life took a hard right turn about two and a half years after I got out of residency. So I hadn’t been going for very long. We’d actually decided at that point to move back to Utah because that’s where all of our extended family was. And I moved back to Utah. You will know Jordan Valley Hospital, I worked there.
But about two and a half years in, like I said, that’s when my second son was diagnosed with autism. And at that point everything changes. For parents, when you have that come into your life your focus immediately goes to different directions. And that’s definitely what happened to me. And as my wife and I tried to figure out what we were doing and what autism was and how to help our son, we did everything that we could to figure out what resources are there, which were a lot less back then than there are now.
And part of that for me is that I started looking into the biological side of autism and seeing what research shows and what I could understand about that, which led me to eventually, I opened up a clinic in Utah, just a nonprofit clinic. It kind of led me towards some integrative and functional medicine practice. So, I did that while I continued to work in the ER full-time.
Ultimately, that led me to moving to Texas to be part of a bigger multidisciplinary clinic that I helped to found. I actually left emergency medicine at that point and did functional medicine for autism for about five years, full-time. And that was in Texas. But while we were there, we decided to adopt another child who also was severely impacted by autism, which was a decision of the heart, but was also really difficult as we had now two kids with significant special needs, and also our oldest son who we were trying to make life not completely about autism for him and let him have his own life.
But at that point, I was basically 24-7 autism. So, I was working in an autism clinic. I was lecturing all over the place, talking about just autism treatment and then home with autism. And so, it was pretty stressful for our family.
I went back to the ER to decrease stress. And also because of just for our own financial futures. That kind of medical practice certainly isn’t highly reimbursed and definitely not compared to emergency medicine. And now that I had two kids that were going to likely have lifetime support, I decided I just need to go back to ER and focus on our family and our own financial future. So, that’s what I did which was not an easy thing after five years out, but made it back in and been doing it ever since. We ended up moving back to Colorado and ironically back to the same job that I came out of residency to initially.
But for me about, I don’t know, four or five years ago, I could see the writing on the wall for me in terms of, call it what you will, burnout or just feeling stagnant in the career or just tired of nights and weekends and holidays. There’s lots of reasons, I think, that docs kind of start looking around a little bit, but I started doing that and said, “Okay, well, I was in decent place financially, but I’m not ready to mentally hang it up and just retire.”
So, I kind of looked back and said, “If I were not a doctor, what would I have enjoyed doing?” And really finance was something that just really interested me. And so, at that point, I decided that I wanted to dive in deeper on the academic side of it, went and got a master’s in finance and risk management. And part of that is just so that I could really learn the nuts and bolts, but part of it, too, is I figured that that would help for me to find any kind of employment in that field, since I’m coming from a completely different background.
So, I did that. And then finance is very broad and trying to figure out, “Okay, well, what am I going to do within finance?” I really migrated toward financial planning, started this certified financial planning process and met Targeted Wealth, which I can thank you for, because they were listed on your blog as one of your vetted companies.
And so, I reached out to them and I really thought that they met all the criteria that certainly I was looking for in a place to work and a lot of the criteria that you have listed as a good company to look for, for a financial advisor including fee only and low cost. We’re definitely on the lowest end of your range of appropriate fees and philosophy of low cost investing. All this stuff that I thought was important, I found in them. And so, one thing led to another and they hired me and here we are.
CHARTERED SPECIAL NEEDS CONSULTANT
Dr. Jim Dahle:
Very cool. Now, you’ve got a designation that not very many financial planners have, this Chartered Special Needs Consultant. Tell us about that, what that covers, what that took to get that? Is this one eight hour class or what does it take to get this designation?
Dr. Bryan Jepson:
Yeah, it’s more than that. It’s almost like a semester of school. There’s three different classes that each take six weeks or so, I think, to get through them. And you have to go through those three and then take a test at the end. I pushed through it pretty quickly. A lot of it I felt very comfortable with because a lot of it is teaching about how to communicate with disabled people and I know all that stuff.
Dr. Jim Dahle:
Yeah, having run an autism clinic for years and aside from your work in the ER, and having a couple of kids with special needs, I can’t think of anybody that might be more qualified at this point to talk to people about special needs.
Dr. Bryan Jepson:
Yeah, I flew through that part of it pretty quick, but the rest was just really diving in on all the nuances of the financing and of special needs families.
Dr. Jim Dahle:
Yeah, we’re going to talk quite a bit about finances, especially in these families. Before we get to that, though, as a physician turned financial planner, what surprised you the most about working with docs as clients?
Dr. Bryan Jepson:
Good question. To be honest, it’s the docs that are not my clients that surprised me the most. Meaning I’m constantly surprised at how many doctors don’t pay attention to their finances. They just don’t pay attention or they act on bad advice without due diligence. It takes you a lot of effort to get to where you are, and where you are is a great opportunity to become financially independent. As a high income professional, you should be on the path to financial independence. And so, why doctors don’t pay attention to that, that’s what surprises me more than anything.
I like how you designate different pathways, I guess, the doctors can take, whether it’s a delegator or a validator or a DIYer. And I’m fine with any of those, but just choose one of them, do something, do something. I get the DIY thing. I’m a DIY to the nth degree, to the point that I became a financial planner. I’ve never actually used a financial planner myself. I got a master’s degree instead. So, I get the DIY. But if you’re going to be a DIY guy, be a good one. Actually do the research, take the time, put the effort in so that you know what you’re doing. And if not, then get some help, but do something.
HOW TO TELL IF YOU ARE A DELEGATOR, A VALIDATOR, OR A DIYER
Dr. Jim Dahle:
Yeah. So, what do you think is the easiest way for somebody in the beginning to tell if they’re a delegator, a validator, or a DIYer?
Dr. Bryan Jepson:
I would say, if you have an hour of exit time, how do you spend it? If you’re a DIYer in finance, you’re probably reading the White Coat blog, or you’re looking at your stocks or you’re trying to learn stuff and it gets you out of bed in the morning. It’s something that you’re interested in doing and you love learning about it. That’s a good DIYer.
For me, a validator is you like to learn some stuff, but you don’t take the time to fill in all the holes that are out there. And then the delegator is you know it is important, but you just have no interest in doing it and you’d rather pay somebody else to do it. That’s the last thing that you want to do with that hour of time is read anything about finance.
It’s almost like car guys. I just think about it as if you want to change your oil. There’s some guys that really love to get their hands dirty. And they’re going to go out there and try and fix their car and do the oil changes. And then the validators are like “I know that I could save money, I probably should do this. And I can watch a YouTube video and hope to do it right.” For oil changes, I’m a delegator. It’s not worth it to me. So I’m happy to pay for somebody else to do it. And so, that’s how I would use that as a metaphor, probably.
Dr. Jim Dahle:
That’s the beautiful thing about being a DIYer or when it comes to being your own financial planner and asset manager. There is no better paying hobby out there than managing your own finance, just because the cost of even reasonably priced advice is not insignificant, especially when you start applying compound interest to it for many years.
Dr. Bryan Jepson:
Yeah, yeah. And again, as long as you do it well, because there’s also a big cost of screwing up.
Dr. Jim Dahle:
Absolutely agree with you. If you’re not going to do it well, get some help. You don’t have to screw up too badly to blow through $10,000 a year when you have a significant portfolio, especially.
QUALIFYING FOR GOVERNMENT PROGRAMS LIKE MEDICAID AND SOCIAL SECURITY
All right, our subject today is planning for special needs kids. Now, I think we all understand how you got interested in this between your practice and between your own kids. I don’t think that’s too much of a mystery there. But let’s talk about some of the more specific aspects of it. And I’ve thought of what I can think of with this, but feel free to throw in additional information that maybe I haven’t thought of when it comes to these sorts of planning.
But let’s talk a little bit first about Medicaid, Medicaid planning for a disabled kid in a high income family. Somebody that’s a White Coat Investor listening to this has a disabled kid in their family. How can they qualify or help their child to qualify for Medicaid, government programs, etc?
Dr. Bryan Jepson:
Yeah, I think the first thing to address is, why should you try to qualify? You’re high income. Do you need to go Medicaid? I think a lot of us have the presumption that Medicaid is for poor people. For the special needs family, I think those families need to kind of get over that. And look at Medicaid, not as a welfare program, but as an entitlement program, because it actually is. You pay into the Medicaid system, through taxes, Social Security tax, FICA tax. You’re paying into that as an insurance plan, in case you get disabled, or someone in your family gets disabled.
And so, I look at it more, it’s almost like insurance. If you’re paying the premiums, why would you not take the payout if you need it? And for special needs, in particular, Medicaid is really a lifeline for them to have needs met that become incredibly expensive over a lifetime. Primarily things like housing, vocational assistance, health insurance, extended long term care.
Lots of times, if we’re thinking about long term care for the normal family, most people don’t stay in long term care for more than a year or two at the end of their life, because they just don’t live that long, once they get to that point. But special needs families, or special needs individuals, that could be their entire life that they’re needing extra support. And if you’re paying that out of pocket, you better have a lot of money, because it’s going to eat into that really quickly.
The other reason is that some services that Medicaid offers are not even accessible if you don’t have Medicaid. You can’t even access it through private pay. And so, it really is important for special needs families to maintain that eligibility. And it’s a challenge to do that. But let’s face it. Raising kids, raising a disabled child is expensive, and not just in the things that you have to pay for. There’s a lot of opportunity costs, also. In my house, my wife could never work outside of our home, because she has been taking care of our boys throughout their lives. And they’re in their mid-20s now, and will continue to need our full support. And for me, it’s not like I could be gone working 18-20 shifts a month or whatever and just leave it all up to my wife. I’ve cut down shifts that I probably wouldn’t have if I didn’t have this situation.
I would add to that, that lots of times, especially when your kids are young, that’s money that you could be investing that’s going to help your long term future that you’re paying for services for your kids. There’s lots of opportunity costs. And there aren’t very many special needs families who are so wealthy that they can totally support without any assistance. There are some.
Dr. Jim Dahle:
Is it hard to qualify for Medicaid when you walk in there to qualify for Medicaid? They’re like, “What do you make?” And you’re like $375,000. They raise their eyebrows and go, “Well, you’re not going to qualify.” How does that work exactly?
Dr. Bryan Jepson:
It’s not hard, because… Well, I should say this. It can be hard to qualify for SSI. And that’s really what the government benefit is. It’s social security income. And when you qualify for that, Medicaid is an add on. So, you’re not qualifying for Medicaid, necessarily, you’re qualifying for SSI. You have to demonstrate disability.
Sometimes it can be difficult if it’s not clear what your needs are. There are strategies to be able to be sure that you can qualify for that. One way to think about that is, you have to explain to the people that are qualifying you all the things that your kids can’t do like normal people can do. And as parents, that’s kind of hard, because we’re always trying to encourage them and help them to do everything that they can do. But you have to have a change of mindset when you’re trying to get them eligible for Social Security and show them without assistance, without support, they cannot do this.
And that’s really what SSI is based on, is based on what a typical person can do. And if they can’t do that without help, then they should qualify. So that’s part of it. It’s getting them qualified for that.
In terms of the income side of it, you qualify your kids for SSI when they become 18. That’s the earliest that you can do it. And at that point, they’re considered adults. And so, it’s all about their assets, not your assets. As parents, your assets don’t come into play at all.
Dr. Jim Dahle:
It’s not like going to college that way.
Dr. Bryan Jepson:
No.
Dr. Jim Dahle:
If you go to college, the FAFSA wants you to put all your assets on there. There’s no equivalent of the FAFSA for a disabled kid turning 18.
Dr. Bryan Jepson:
Right. Yeah. It’s all about their assets. But that’s why it’s important, which we’ll talk about coming up here, to protect money that you set aside away from them as individuals, because that will disqualify them. The limit that they can have is $2,000 in assets. And their income has to be less than I think it’s $1,900 or $1,970, or something like that per month.
Dr. Jim Dahle:
But what about before 18? What do they qualify for before 18? Anything or nothing at all?
Dr. Bryan Jepson:
Before 18, it is based on the parents’ income. If you as a parent have a very low income and very low assets, then your kids can qualify. Obviously, very few of our listeners would qualify for that.
Dr. Jim Dahle:
They qualify for what? SSI or Medicaid or what?
Dr. Bryan Jepson:
Both.
Dr. Jim Dahle:
Both. Okay, based on your assets.
Dr. Bryan Jepson:
Yeah. Up until 18 is the parents’ assets. After 18 it’s the child’s assets. Now there are exceptions. There are some conditions that have really high medical need, you can qualify for Medicaid in spite of parents’ assets. So, there are exceptions. But for the most part, that’s the delineation is the age of the kid is 18. 18 is actually a really important pressure point, if you want to say it that way, for special needs planning.
Dr. Jim Dahle:
What other government assistance is out there? Either from states or federal government, besides SSI and Medicaid?
Dr. Bryan Jepson:
Well, some of the other entitlements would include vocational rehab. That’s something that if you qualify for SSI, they can still help you find a job and get job training. And some of that includes money for education. As a SSI disabled qualifier, you can actually get your college paid for because the hope is that they will be able to come off of Medicaid at some point, if they’re able to support themselves.
And so, there’s a lot of job training, things like that, if you have SSDI, so that’s based more on if your parents have retired, or are deceased, or are themselves disabled, then the child qualifies for SSDI, which is Social Security Disability Insurance. That does not have an asset limit. And then you become qualified for Medicare in that situation. So, there’s that. And plus a lot of the states have waivers which are Medicaid based waivers, which can help pay for all kinds of things like day programs for adults, or a respite care or a personal assistant to help them go do stuff or whatever.
There are a lot of other benefits that some of them are paid for by the state, and are not entitlements. So it all depends on the state you live in, and how much money that state is putting into that program. And some of them are federally mandated entitlements.
Dr. Jim Dahle:
What about charitable or nonprofit organizations that can help in these sorts of situations? Are there any that you think of as go to organizations that every parent ought to know about?
Dr. Bryan Jepson:
Well honestly, it’s kind of disability dependent because each disability has their own advocacy organizations. For autism, there’s one called the Autism Resource Center, which is ARC, for short. There’s the Autism Society of America. There’s a bunch like that, that are really strong advocacy groups. And every disability that has a name to it will have something similar to that. And it’s a really good resource for people to do that. Because generally, they’re parent driven organizations, or just people that are very focused on that, and they can really guide you towards the resources that you need.
Because as a parent, especially as a new parent, it’s overwhelming, emotionally overwhelming, just trying to figure it all out, knowing what to do. You’re in a totally different world than you ever thought you’d be. And so, I definitely encourage people to reach out to find the applicable organization, because they can help you also with finding the resources that are out there.
TOOLS TO HELP PROVIDE FINANCIALLY FOR YOUR SPECIAL NEEDS CHILD
ABLE ACCOUNTS
Dr. Jim Dahle:
Now, this $2,000 limit. Age 18 and $2,000 and $1,900 or whatever it is in income, and I think there’s probably a little variation by state there. This becomes very important when it comes to planning for this now adult child’s future. So, there’s a lot of tools that can be used. Can you tell us a little bit about the best way to use each of these as you try to stay under those limits of assets so they can still qualify for SSI and Medicaid? Let’s start with a relatively newfangled tax-protected account, the ABLE account. How should those be used?
Dr. Bryan Jepson:
Yeah, you’re right. In order to save for your kid’s future, you have to be able to earmark assets for them and it can’t be under their name. The main ones are the ABLE account and special needs trusts, and there’s some nuances and there’s some differences and pros and cons of each. The ABLE account is basically started from a law, it’s called…
Dr. Jim Dahle:
I think it’s the ABLE Act.
Dr. Bryan Jepson:
ABLE stands for Achieve a Better Life Experience. Achieve a Better Life Experience Act, and that was passed in 2014. It took a couple of years for states to get the funds going, but over time, most states have added it. I think there’s still a couple that don’t have ABLE accounts as part of their state. It’s usually administered by the same program in the state that 529s are administered in.
Dr. Jim Dahle:
Which is cool, because presumably that means they’re now competing with each other the way 529s have, to have better accounts.
Dr. Bryan Jepson:
Yeah, exactly. And that brings up a good point because you don’t have to use your state’s ABLE account. You can look around and find the ones that are the best, but unlike 529s, you can’t have more than one per individual. For 529s, you can have as many 529s for that beneficiary as you want, and as many people can contribute to it as you want, as long as each individual contributes less than the gift tax limit, that’s fine.
But with ABLE accounts, you can only have one per beneficiary. There is a limit about how much you can contribute to that account, regardless of who’s contributing. The current this year is $18,000, it’s the gift tax limit. But you can’t have grandparent contribute $18,000 and you contribute $18,000 or whatever. It’s $18,000 total, which is different than 529s.
Now the individual can also contribute some if they have a salary. So, if they are working, they can contribute to the ABLE account up to the poverty limit, which I think this year is something a little over $15,000. So they can contribute as well.
Dr. Jim Dahle:
They can contribute $15,000 or they can contribute some money up until they’re making more than $15,000?
Dr. Bryan Jepson:
They can contribute up to the poverty limit. So they can contribute up to $15,000 per year, in addition to the $18,000 that someone else contributes. The good thing about that is that that money does not count as an asset to the individual in terms of their government eligibility. And so, it gives them an opportunity to spend money on pretty much anything. As long as it’s for the beneficiary, it’s a very broad definition of stuff that you can spend it on.
It’s basically kind of like your 529 where you can have a debit card, you can write a check. It gives them a lot of independence. It’s easier, you don’t have to have a trustee, doesn’t cost any money other than maybe just a minimal setup fee in some states. There’s a lot of advantages to it, but there’s also some qualifiers. If you have more than $100,000 in that account, it does start counting as an asset until you spend it down below that. And you can’t put more than the total, like a 529 limit, which is usually $400,000 to $500,000. That’s the most that you can ever contribute to an ABLE.
That may not be enough to last your lifetime so you may need a special needs trust to build up a larger asset base, but it’s a good mechanism, I think, to just help with the day-to-day spending.
Dr. Jim Dahle:
Now, there’s a weird rule with ABLE accounts that doesn’t apply to very many other tax protected accounts. And I don’t think this has been changed. I think this is still in place, but you really want to spend the whole thing during your life, because if there’s anything left, the government can claw back to reimburse Medicaid, if you die and still have money in the account?
Dr. Bryan Jepson:
Yes. That’s one of the downsides for sure is the Medicaid payback provision. Now, some special needs trusts have that as well, a first party special needs trust, which we can talk about in a minute, that also has Medicaid payback provision. Some of the states are doing away with that, with the Medicaid payback for ABLE accounts, and some of them have it, but they don’t enforce it.
And so, the problem is that if you live in a state that has a Medicaid payback provision and your ABLE account is in a state that doesn’t, you still have to pay it back, because it’s based on the state where you live, the Medicaid payback provision is. And so, yeah, ideally you spend that down. You spend that down before they die because after they die, that money first pays back what they’ve been charged in Medicaid from the time that the ABLE account was started. It’s definitely one of the downsides.
Dr. Jim Dahle:
Now, you might be allowed to get whatever your state’s 529 total limit is $400,000, $500,000 in there. But my understanding is a lot of states start counting it as the beneficiary’s assets once it gets to $100,000 or so.
Dr. Bryan Jepson:
That’s right. Yeah, over $100,000, that’s it. It’s an asset at that point. And so, you would lose your SSI. Lots of times you can lose your SSI, but not lose your Medicaid. So you may still have Medicaid option for a while. But ultimately, if you need that SSI income, then you need to spend below $100,000. And that being said, SSI income, there’s not that much. But yeah, you would have to spend it down.
Just one other thought on ABLE before we move past that. If you have a 529 account, like you have a child that you’ve been saving in a 529 for and they become disabled, or you determined that they’re not going to be eligible, or they’re not going to be able to go to college because of a disability, you can actually roll over 529 money to an ABLE account. But it’s limited. You can only roll it over $15,000 per year, or whatever the maximum contribution. But if you plan ahead and you kind of know that they’re more likely to need an ABLE account than a 529, then you can start rolling that over before they’re 18. Because 529s count as an asset for disabled kids.
Dr. Jim Dahle:
Yeah. Didn’t Secure Act 2.0 change one of the ABLE account rules too? Something about you used to not be able to contribute if they weren’t disabled before age 26 or something. Didn’t something change there recently?
Dr. Bryan Jepson:
Yeah, good point. An ABLE account, you needed to be disabled before age 26. So starting in 2026, they’ve changed that to age 46. People that are disabled as adults can still contribute now. Yeah, that’s a good provision.
SPECIAL NEEDS TRUSTS
Dr. Jim Dahle:
All right, I think we’ve beaten the ABLE accounts as much as we can. Let’s talk about the special needs trusts, different types, when you might want to use those instead of an ABLE or in addition to an ABLE.
Dr. Bryan Jepson:
Yeah. Basically there’s a couple of main types. One is a first party trust and one is a third party trust. And the difference is where is that money coming from? Whose money is it? If it’s the disabled person’s money, then it needs to go into a first party trust. For example, if there was a legal settlement and they got a big payout from that, but it came to the individual in the individual’s name, it’s that person’s money, but that would immediately be an asset and really disqualify them from government benefit. And so, you can create a first party trust for that money to go in that would protect that money.
The downside of a first party trust is that there’s a Medicaid payback provision. If it’s not spent down, all that extra is paid back to the state for the Medicaid services that they have used. If there’s anything left after that, you can give it to a secondary beneficiary.
First party trusts are a little bit more expensive to set up. They usually require a corporate trustee. And sometimes it’s actually the court that mandates it. And so, it’s more of a legal process. If you don’t have that much money to really actually kind of make it worth it, there’s something called a pooled trust, where it’s basically run by a nonprofit organization that a bunch of people pool their money together. They have a joint trustee. It’s an individually marked account, but they pay like they would out of a regular special needs trust.
But when that person dies, often that money goes into the pool to help other disabled people rather than Medicaid. Even though Medicaid can access some of it, especially if there’s anything left over. So, those are first party trusts.
Third party trusts are what most people have, and what most people think about from a special needs planning perspective. And that’s money that’s not the beneficiary’s money. It’s money that parents put in or grandparents put in or whoever puts in to the trust on the behalf of the disabled person. Basically the benefit of that is that you have a trustee, you have to designate that person who can help. Well, it’s their job actually to ensure that that money is going to the beneficiary in a way that makes sense. It’s a supplementary trust. That’s important is that it has to be a supplement to the government provisions. And the wording on that is actually quite important.
But the trustee is in charge of paying that out on behalf of the beneficiary. The good thing with third party trust is that there’s no payback provision and that there’s no maximum amount that you can put in. You can have as many people put money in there as much as they want to. And after that individual dies, you can have secondary beneficiaries that get the extra money. A lot of people do this for their family where they put the amount that they need for their special needs child and then list their other children or grandchildren as a secondary beneficiary. And so, it flows through to them. I think that’s really the biggest benefit.
And to ask, to figure out, “Okay, should I do an ABLE or should I do a special needs trust?” One of the other downsides, I guess, of a special needs trust is that there are certain things that you can’t pay for without losing some of your eligibility or at least some of your SSI income. If you pay for housing out of the special needs trust, that comes out of your SSI check. So, you don’t get as much SSI for supplementing their housing. You can do that through an ABLE account though. What some people do is they pay the ABLE account from the special needs trust and then the ABLE account pays the housing. There’s ways that you can use them together.
The other thing is they’re a little bit more cumbersome to administer. You have to have a trustee, you have to file tax returns. There’s taxes owed on income in the trust. For that reason, some people don’t fund it until their death. The parents, it’s a testamentary trust. So it’s not funded until they die and then they don’t have to administer it throughout their life. But there’s pros and cons of each. You can do it either way.
Dr. Jim Dahle:
What are typical amounts that a doctor family might put into a trust or an ABLE account in your experience? Do you put $100,000 into an ABLE account and a few hundred thousand dollars into a trust and call it good? Or are people leaving millions behind in these trusts?
Dr. Bryan Jepson:
That’s where the financial planning part of it comes in because part of that is how much faith you have that those government benefits will be around for your kid’s lifetime. And some families feel pretty strongly that they feel pretty safe about it and some don’t. And so, to figure out how much to put in, you really have to figure out about what their expenses are and what kind of life and supplement that you want for your disabled child. And that’s going to be family dependent. But in general, for some people, yeah, it’s a couple hundred thousand. For some people it’s millions. It’s a couple million.
And so, part of what I try and do is put the pieces together. From a financial planning perspective, the most important thing is to be sure that the parent’s plan is in good shape. It’s kind of like the oxygen in the airplane idea. If you’re not taking care of yourself, you’re not going to have much left for anybody. And so, we try and be sure that we do a comprehensive plan for the parents first, and then we start looking at what their needs are. There’s a wide range of needs and expenses. So you really have to figure out what you want their life to look like, and then figure out how much you expect that to cost, and then project that forward. Part of that is investment returns, and just figuring all that stuff out.
Dr. Jim Dahle:
Yeah. Do they tend to fund that at death or well before death? What’s kind of typical there?
Dr. Bryan Jepson:
I’ve read different things from different sources where some people feel strongly just fund it at death, and some people feel strongly that they’d rather fund it as a living trust. I think the benefit of doing it as a living trust is that you can practice with it a little bit. You can be sure that the trustee has a sense of how to do it, and you can start funding stuff while you’re alive with them. Whether it’s take them on a vacation or stuff like that, you can pay that out of the trust. Really anything that helps your disabled child, you can use the trust to pay for it. And so, there’s lots of things that families would want to do and use the trust for that. I think every family is a little bit different on that.
IS PERMANENT LIFE INSURANCE A GOOD IDEA IF YOU HAVE A SPECIAL NEEDS CHILD?
Dr. Jim Dahle:
Yeah. Now you’ve been around this long enough, both in the financial space as well as in the medicine space that you’ve seen how whole life insurance salesmen are looking for any opportunity possible to sell a whole life insurance policy. One of which is, “Hey, if you’ve got a special needs kid that’s a great reason to buy a whole life policy.” What do you see as the role of a permanent life insurance policy in a family with a special needs child, if any?
Dr. Bryan Jepson:
Well, it’s a good question. And let me start by saying I have no skin in the game. I don’t sell insurance. And I agree with you for the most part, and just in terms of your philosophy with regard to life insurance, and term is the way to go for the vast majority of people. But if you think about why you buy insurance, we buy insurance because you’re transferring risk. That’s basically what insurance is, is a risk transfer. For life insurance, the risk that you’re transferring is the risk of dying too soon before you have money to finance your family. Most doctors, we suggest that they buy term insurance because by the time their term is done, hopefully, they’re going to be financially independent enough that they can self-fund that risk. And so, it’s no longer needed.
But for special needs families, you have to remember that you’re planning for two generations. And so, that risk extends beyond the typical doctor family. And if you get to the point where you are planning and you don’t have the resources that you feel like you can fund that risk, I think that’s when insurance is reasonable or not just reasonable, a good idea.
Maybe one of the benefits of having a whole life policy is that your risk is just extending. And if you end up at an older age and realize that you still don’t have enough money to fund your kid, and then you’re into a pretty big term premium as an older age. But for me, I can see some value in it, but I would probably do a second-to-die policy because it’s cheaper. The premiums are less. And if you do like a universal policy, you may be able to pay in for 10 years and then just have the cash value pay the premiums. Then you have a long-term plan to fund your special needs trust that will die with you.
And so, I think that it’s not completely unreasonable and it’s not unreasonable as an estate planning tool, also. If you have a grandparent or somebody that wants to fund a special needs trust through an insurance policy, they pay the premiums and can leverage their gift. So, I don’t think it’s crazy.
Dr. Jim Dahle:
Have you bought a whole life or other permanent policy to help fund your children after you’re gone?
Dr. Bryan Jepson:
I actually did buy a second-to-die policy, but that was before I was a financial planner. I was working on just trying to get our estate set up to help with setting up special needs trust and all this kind of stuff. They talked to me about a second-to-die policy. And at that point, I felt like I wanted to kind of be able to transfer that risk. So we bought a second-to-die policy, which I’ll probably be able to stop funding after a total of 10 years.
Dr. Jim Dahle:
But you’re still happy you got it.
Dr. Bryan Jepson:
I’m not unhappy. It’s one of those.
Dr. Jim Dahle:
I’m hearing a little bit of mixed feelings.
Dr. Bryan Jepson:
I have mixed feelings because it’s one of those things that ultimately if I live long enough, I’ll be able to self-fund it. The reason to do it would be at that point, I didn’t feel like I was there. And so, the gamble that would have been, “Okay, well, another term policy for however long it would take.” And that’s a very reasonable thing too. But it is what it is. I’ll probably hang on to it.
Dr. Jim Dahle:
What else should parents of special needs kids know that we haven’t yet talked about?
THE IMPORTANCE OF TIMING WITH PLANNING FOR SPECIAL NEEDS PEOPLE
Dr. Bryan Jepson:
There’s a timeframe for everything in special needs planning. And it really fits in their pressure points along their life. When you’re first diagnosed, what you’re focused on as a parent is different than when they’re 18. And when they’re after age 22, it’s different than when they’re 18, because that’s when they age out of educational assistance programs through public education. And as you’re an older parent, you’ve got to start thinking about, “Okay, well, what’s going to happen to them? Where are they going to live if we’re not around anymore?”
There’s a lot of things that special needs families have to think about. What most families, it’s plan for your own retirement, help your kids get through college and then whatever you have leftover is great. It’s a little bit different because again, you are planning for another generation. And so, there’s nuances. There’s just a lot of landmines. That’s the biggest thing. It’s so easy to lose benefits.
I’ll tell you, I can speak from personal experience. Social Security is watching. They are keeping track of your assets. I had a couple of months where my son had $2,004 in his account and they came back and he lost his benefit for that month. And so, it’s just stuff like that on top of just trying to get through the day to day of being a parent of someone with those kinds of needs. There’s a lot to keep track of. And so, I would just encourage everybody to get the help that they need to at least learn the process and get on a good path for that.
Dr. Jim Dahle:
Yeah, it’s complicated financial planning, isn’t it?
Dr. Bryan Jepson:
It is, it’s different, it’s different. It adds a whole different element because you have to do all the other stuff too. You have to do all the other stuff too to be sure that you’re in good shape. And most times you have other kids to take care of too. There’s a lot to it for sure.
Dr. Jim Dahle:
Well, it has been wonderful to learn more about how to take care of special needs kids, how to do financial planning for a family with special needs kids. We’ve been talking with Dr. Jepson, who is not only a practicing emergency physician who has taken care of autism kids in an autism specific clinic, but also for this discussion, a chartered special needs consultant and available at Targeted Wealth Solutions, one of our long-term advertisers that we’ve had here at the White Coat Investor. Thank you so much for your time today, Bryan.
Dr. Bryan Jepson:
Yeah, you bet. Can I just add one other thing?
Dr. Jim Dahle:
Yeah.
Dr. Bryan Jepson:
In terms of just to help with special needs families, one thing that I like what you say to doctors is often that you introduce your blog or your podcast as thank you for what you do because we don’t hear that enough. I think special needs families need that too. And it’s tough, it’s a tough life. There’s a lot of challenges and there’s a lot of things that you have to do and it’s isolating, but to those families, first of all, thank you for what you do. Second, enjoy the journey, try, because these are special kids.
I have obviously a personal soft spot for them, but they will change your life in a good way. And if you’re a doctor that are helping with them, just take a few more minutes with these families, just take a little bit more time, smile, help them just understand that they may be having a really bad day. Anything that you can do can make a huge difference in their life. And so, I’ll just add that.
Dr. Jim Dahle:
Yeah, well said. It’s challenging to be a caregiver for a year of your life. When we’re talking about doing it for multiple decades, it’s a whole other level of commitment and challenge and difficulty. Thank you to those of you out there taking care of the special needs people, whoever they may be. Whether they’re kids or whether they’re now elderly. We all need a little bit of help in this life. Some of us might need a little more help than others. And thank you for those of you out there giving it.
Dr. Bryan Jepson:
Okay, perfect.
Dr. Jim Dahle:
All right, I hope you enjoyed that. I discovered during and after the interview that Bryan used to work in my group. So, he knows half of my partners. All the partners in my group that are older than me he knows. And so, a fun connection that we’ve had to be able to know a lot of the same people and work in the same place actually for a fair number of years.
Thank you, Bryan, for what you’re doing out there, not only in emergency medicine and with your financial planning practice, but for your own family. You’ve done a great service for a lot of people out there that need help with this complicated area of financial planning.
SPONSOR
This episode is brought to you by SoFi, helping medical professionals like us bank, borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings accounts, as well as an investment platform, financial planning and student loan refinancing, featuring an exclusive rate discount for med professionals and $100 a month payments for residents. Check out all that SoFi offers at whitecoatinvestor.com/sofi.
Loans are originated by SoFi Bank, N.A. NMLS 696891. Advisory services by SoFi Wealth LLC. The brokerage product is offered by SoFi Securities LLC, member FINRA/SIPC. Investing comes with risk, including risk of loss. Additional terms and conditions may apply.
Don’t forget about the bulk book discounts we have available. Email [email protected]. If you’d like to order 25 plus books, we’ll give you a discount on them and help you get the word out to other White Coat Investors, potential White Coat Investors, people who just need to become more financially literate, more financially disciplined, so they can concentrate on what matters in life.
Thank you for those of you who’ve been telling your friends about the podcast. I cannot tell you how important this is. Please send them a link to a podcast that you think will help them. If you know someone with a special needs kid, please send them a link to this podcast. This is how White Coat Investor has grown more than any other way over the years. Yes, we try to buy ads every now and then. We even tried advertising in a hospital once. That didn’t work so well, but you know what does work well? It’s just people telling others about something that’s worked really well for you.
So, if we’ve helped you, please pass it on to somebody else, pay it forward. You might change their life. Especially if people get this information early in their career, it can be worth millions to them over the course of their life. That’s a very generous gift you’re making to people.
Another way that helps us spread the word is just to leave five-star reviews for the podcast. It helps more people find the podcast. A recent one came in and said, “Thank you. I’m so grateful for all this podcast has taught me. I’ve been listening since I was in residency about five years ago and the impact WCI and Dr. Dahle have made on my personal and financial life has been profound. Thank you for all you’ve done for my family and I.” That comes from DICWM6. Thank you for that five-star review. It really does help us get the word out.
All right, we’ll see you next week. Until then, keep your head up, shoulders back. You’ve got this, we’re here to help you. Join the White Coat Investor community, help everybody else to become successful along the way. My financial planning might be a single player game, but that doesn’t mean you can’t get a little help from your friends every now and then. See you next week.
DISCLAIMER
The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.
link
