The Best & Most Flexible Solution for Your Estate Planning Concerns: Lange’s Cascading Beneficiary Plan

The Ultimate in Flexible Estate Planning:
Lange’s Cascading Beneficiary Plan

The Ultimate in Flexible Estate Planning: Lange's Cascading Beneficiary Plan

This post is the first of series on Lange’s Cascading Beneficiary Plan, the gold standard in estate planning for traditional married couples.

What is Lange’s Cascading Beneficiary Plan?

Estate planning would be so much easier if we just had a crystal ball. We simply cannot predict the future with much confidence. And the unknowns stretch beyond the plan rules, tax laws, and the investment environment. Family and financial circumstances can change dramatically over time as well. So we are faced with questions like: How much money will you have? How much money will you need? How many grandchildren will you have? Who will live the longest?  An estate plan that is intricately thought through and seems in-line with your testamentary intent today could be completely inappropriate once you die.

In the early nineties, I began thinking creatively about this problem. My objective was to revolutionize my firm’s estate planning practice by drafting documents that could accommodate changing circumstances—the key, as I saw it, would be flexibility within a reasonable set of assumptions. Lange’s Cascading Beneficiary Plan, as it came to be called, uses specific language and disclaimers to provide the most flexibility when it is needed the most—at the time of the death of the first spouse when the surviving spouse and the family have the most current picture of their finances and family dynamics.  We were aiming for less guess work decades in advance!

I thought it was the best thing since sliced bread!  And it turns out, I wasn’t alone.  Not only did my estate planning clients love the idea of giving the surviving spouse the option to make important financial decisions at the time of the first death, Jane Bryant Quinn did too.  She picked up on it through an article I wrote and sent out to my email list.  She first published a description of Lange’s Cascading Beneficiary Plan in Newsweek and from there, it has been featured in dozens of major publications like The Wall Street Journal and Kiplinger’s.  The plan is also featured in my flagship book, Retire Secure!, along with other nuggets of my best retirement and estate planning recommendations.  (By the way, you can download a free copy of the book from www.paytaxeslater.com/books or buy it on Amazon if you’d like a hard copy)!

We have been drafting this type of plan now for more than 25 years.  It works beautifully with our other cutting-edge strategies including stretch IRAs, Roth IRA conversions, and inventive gifting plans. Clients are happy knowing they have flexibility built into their plans, and sadly, but realistically, we have had to execute many plans over the years.  Fortunately, we have also been there to witness the peace of mind that the surviving spouse and heirs get from knowing they are making the best decisions possible given the circumstances.

What to expect in this series:

Over the next few weeks, I am going to spell out the details of Lange’s Cascading Beneficiary Plan.  Sure, I might slip in a current event post or two, but I am going to focus on providing you with a full understanding of what I truly believe to be the best in estate planning for traditional married couples.  I’ll explain which situations LCBP is best suited for, walk you step-by-step though the decision making, discuss how it can be adjusted to fit almost any situation to provide the greatest flexibility and tax savings, and tell you why flexibility will be more important than ever.

Let’s face it, tax changes are coming in our near future, but they will also inevitably change again in the more distant future. That is the nature of the beast. So, having a plan that can adjust to changes, that doesn’t fix things in stone, can give you a measure of comfort that you won’t end up with estate planning documents that have to be redrafted with every single change!  In my opinion, one of the best things you can do for your family is to develop a smart and flexible estate plan that saves them from additional stress and anxiety when you are gone.

Thanks for reading, as always, and stop back soon!

-Jim

P.S. If you want to do a little advanced study on this topic before the next post and video, go to http://paytaxeslater.com/estate-planning/.

 

The Third Edition of Retire Secure has Finally Arrived!

The new edition of Retire Secure! A Guide to Getting The Most out Of What You’ve Got is the distilled and concentrated version of the recommendations we have developed over 30 years. It is particularly useful for IRA and retirement plan owners.

We will soon be sending our clients a copy with a personalized note directing you to what we think will be the most relevant sections for you to read. This personalization has been a huge project, but it’s something that I think will be enormously helpful to you.

Retire Secure! will be available for purchase in bookstores and on Amazon in October. However, if you absolutely cannot wait, the book is available for Kindle and Amazon pre-order here.

Amazon Kindle Pre-Order Retire Secure! James Lange

The core concepts of the current edition are similar to the two previous editions (Wiley, 2006 and 2009). Recent legislative changes, however, have led to important strategy adjustments that are incorporated in the latest edition.

  • In Part 1, The Accumulation Years, we include some new strategies that were not available in 2009.
  • In Part 2, The Distribution Years, we cover how to spend down retirement funds in the right order to manage your assets wisely, but that area is more complicated than ever because of some of the new tax laws. We have also updated recommendations for Roth conversions, and the impact of a potential new law for IRA and retirement plan owners and their families — the death of the stretch IRA. It could be devastating for your children. Though there is no perfect answer, I do address some of the best strategies I know to reduce the pain of the likely changes in the IRA law.
  • In Part 3, we’ve updated the Eddie and Emily Estate Planning case study. Essentially, it incorporates the updated Lange’s Cascading Beneficiary Plan, which many of you already have in your wills and trusts.

If you’ve read previous versions of Retire Secure!, I hope you’ll find the updates and changes enlightening. To make the new material easier to find, I have included a section that highlights the changes. And if you’re new to the book, I hope you’ll take this as an opportunity to really educate yourself on these principles and sound practices. There’s mathematical proof that optimizing the strategies you use to approach saving, investing, estate planning, and distributing assets could mean a dierence of millions of dollars over your lifetime and for your heirs.

It’s my fervent wish that Retire Secure! will help you live a happier, healthier, and more secure life!

Jim

Turning Children Into Financially Responsible Adults

A huge thanks to Neale S. Godfrey, best-selling author and founder of The Children’s Financial Network, for sharing her incredible ideas for raising financially responsible children on the July 29th edition of The Lange Money Hour. Neale was a great guest — full of tips for parents and grandparents on how to make sure that children are financially fluent.

A couple of her strategies are particularly timely given the economy and the time of the year.  For instance, many parents and grandparents are busy doing back-to-school shopping right now and we all know that shopping with tweens and teens can get ugly.  Neale offered a practical solution to avoid arguments and overspending.  For kids age eleven and up, Neale suggests giving them a budget and letting them make their own decisions.  You can set up a bank account or give them pre-paid debit cards, but in the end, putting them in control of their finances forces them to make budgetary choices.

The recession has also forced a lot of adult children to fly back to the nest and Neale recommends hammering out the details of the arrangement before they move back in.  How long do you expect them to stay?  What financial obligations do you want them to take care of?  Having these discussions in advance avoids problems later.  Neale even suggests taking the extra step of drawing up a lease with all of the terms defined.

In addition to setting up a trust, one of Jim Lange’s chief concerns when it comes to minors is the naming of a guardian.  Neale agreed that naming a guardian for your children is absolutely critical and she also recommends sharing the details of the arrangement with your children.

Notice, though, that the key element in all of these situations is communication — full disclosure of the family’s finances.  The problem for many families is that money is a taboo topic.  If this is the case in your family, one of Neale’s books might help.

Her #1 New York Times best-seller, Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children is an excellent choice for adults and Ultimate Kids Money Book is perfect for elementary school age children.  Both are available on Neale’s website www.childrensfinancialnetwork.com.

New York Times Analyzes Roth IRAs

The Tuesday, July 21st edition of The New York Times had an article titled “Converting an IRA Into a Roth? How’s Your Crystal Ball?”. Naturally, this got our attention. Jim Lange was at the forefront of the Roth movement when he wrote the first peer-reviewed article on Roth IRAs for The Tax Adviser in 1998.  Since then, Roth IRAs and Roth IRA conversions have been Jim’s passion.

For many taxpayers, Roth IRAs have not been on their radar because of the income limitations.  Currently, if your household’s adjusted gross income is over $100,000, you don’t qualify for a Roth conversion.  However, a big change is about to take place.  Starting January 1, 2010, all taxpayers will be eligible for a Roth IRA conversion regardless of income.  If you are unfamiliar with Roth IRAs, here’s how they work.  With a traditional IRA, you take a tax deduction now and pay income taxes when you withdraw the money.  With a Roth IRA, you pay the taxes up front and then your money continues to grow income tax-free for the rest of your life and, perhaps, even the lives of your children and grandchildren.

As we get closer to the tax-law change in 2010, not only is interest in Roth IRAs heating up, but so is speculation that the rules may change down the road.  The New York Times article suggests that in the worst case senario, the federal government might try to tax the earnings on a Roth IRA after all.  Or, perhaps, the feds might impose a penalty tax on excessive balances.  This argument is especially hot right now considering the massive and growing federal budget deficit.

Others believe that Roth IRAs will remain the same, but all other accounts would change to be like them.  That means contributions to traditional IRAs would no longer be tax-deductible and pretax savings in 401(k)s and similiar plans would also stop.

Does that mean that you shouldn’t consider a Roth IRA conversion?  Not at all.  As The New York Times also mentions, many advisors believe that Roth IRAs will not only remain the same, but will become even more valuable if income tax rates increase.

If you’ve ever been to one of Jim Lange’s Roth IRA workshops, he answers the question about a possible tax-law change governing Roth IRAs by pointing out that Roth IRAs are part of The Internal Revenue Code (as opposed to Social Security taxes – which were never part of The Internal Revenue Code).  If this law were suddenly changed and taxes imposed at withdrawal, Jim has said in his workshop that this would be “a violation of due process, a violation of the constitution, and you would have a very well-financed revolution”.

Listen to the July 15th edition of The Lange Money Hour which featured one of America’s top IRA experts, Natalie Choate, and you’ll find that Jim and Natalie both agree with two other points made in The New York Times’ article.  First of all, if you don’t have the money to pay for the taxes on a Roth IRA conversion outside of your retirement plan, you should probably not convert.

Secondly, it’s not a good idea to do a 100% conversion.  As Natalie put it, “don’t put all your money on one horse”.  It’s not a good idea to ignore the Roth IRA, and it’s also not a good idea to have all of your money in a Roth IRA.  Diversification is key.

Jim Lange and the rest of our team are still very excitied about the possibilities ahead with Roth IRAs and Roth IRA conversions.  If you’re wondering what to do, we recommend a professional analysis of your situation.  It’s possible that a series of small conversions would work best for you.  The professional staff here has been doing thorough Roth IRA projections for years.  You don’t have to wait until 2010 to get started – for help, call the office at 800-387-1129.