How Flexible Estate Planning Can Improve Your Retirement

Episode: 189
Originally Aired: March 1, 2017
Topic: How Flexible Estate Planning Can Improve Your Retirement

The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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TOPICS COVERED:

Introduction of Attorney and CPA Jim Lange
Uncertainty Is the Main Problem With Estate Planning
Trusting Your Spouse Is Crucial to Estate Planning
Caring for Surviving Spouse Is Main Goal of Planning
Despite Uncertainties, Doing Nothing Is Not a Wise Plan
Disclaimer Allows Flexibility in Designating Beneficiaries
Contingent Beneficiaries Don’t Have to Receive Equal Amounts
Make It Crystal Clear Who Gets What After You Die
Endorsements for Lange’s Cascading Beneficiary Plan

Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at paytaxeslater.com. Now get ready to talk smart money.

1. Introduction of Attorney and CPA Jim Lange

Dan Weinberg: And welcome to The Lange Money Hour. I’m Dan Weinberg along with CPA and attorney Jim Lange. Thanks so much for joining us this week. Now, clients and regular listeners to the program know that Jim is not your typical estate attorney. His planning is comprehensive. He wants you to make the most of what you’ve got while you are alive and after you die. So to that end, this week we’re going to talk about Lange’s Cascading Beneficiary Plan. It’s a key component of Jim’s flexible estate-planning techniques. We’ll be discussing the history of the plan and why it’s such an important piece of the estate-planning puzzle. We’ll touch on things like trusts, having multiple contingent beneficiaries, the relevance of the stretch IRA and much, much more. We have a lot to cover, let’s get right to it. Hi, Jim.

Jim Lange: One of the things I really wanted to emphasize, and actually for the whole show, is the area of estate planning. I’m going to introduce a concept that mainly applies to married couples, but it would also apply to widows and widowers and other people who have families. One of the problems with estate planning … in our office we’ve done, I think 2,392 wills, trusts and estate plans, so when people come in initially, we review their documents and the biggest problem that we have seen consistently through the years is that most of the plans that we see are what I would call fixed in stone: This is what’s going to happen when somebody dies. This much money, this percentage, et cetera, is going to go to these heirs regardless of what the needs of the survivors are at the time.

That, I don’t believe, is the best method to plan for our estates, and I’m going to be introducing a concept of flexible estate planning that actually has quite a bit of notoriety. It’s called Lange’s Cascading Beneficiary Plan. By the way, you could find it in Google. You could also just type in Cascading Beneficiary Plan. There will be thousands and thousands of entries, the vast majority of which point back to me. We have been using some variation of it since the, let’s say early to mid-’90s, and it has proven very effective over time. But it is based on flexibility.

I want to talk about what I like to see many couples, not everybody, but many couples and even individuals have in their wills, their trusts, their beneficiary designations of their retirement plans, their insurance and other estate-planning documents. But let’s start with the problem. The problem in estate planning … let’s say that you’re married and it’s time to either redo your existing wills and estate plan or perhaps you don’t have one at all and it’s time to get one. Maybe you listen to a program like this and you realize, “Oh, gee. I thought I was in good shape, but maybe I’m not in good shape at all.”

2. Uncertainty Is the Main Problem With Estate Planning

The problem with estate planning is uncertainty. We just don’t know what is going to happen. For example, I’ve been doing projections which I do think have a lot of value, for over 30 years now, and very frankly I’ve never been right. Something different than we thought was going to happen happened. We all thought that the husband was going to die first, but in reality the wife died first. We all thought the market was going to do well at a certain period and the market did badly, or we thought the market was going to do badly and it did well. We were anticipating some expensive long-term care costs and there were none, or we weren’t expecting any long-term care costs and there were some.

The market is volatile, so what’s going to happen to the market is very hard to predict, and I would say that with President Trump that there’s probably even a greater degree of unpredictability whether you are a supporter or not. So you have all this uncertainty. Who’s going to die first? How much money will be left? What are the needs of the survivor? What are the tax rates going to be? We’ve talked quite a bit both on this program and in my websites on the death of the stretch IRA. I just wrote a book, which, by the way, is available for free if you go to paytaxeslater.com.

You’ll see that actually there’s a lot of information for free, but the latest and greatest if you will, is a book called The Ultimate Retirement and Estate Plan for Your Million Dollar IRA. It covers the death of the stretch IRA. Right now, it’s just a proposal that we think is going to be law, but the treatment of your estate is very frankly radically different if that law is in effect or whether it is not. You as the responsible steward of the family money, both while you are alive and then after if you should pass and your spouse survives you, and then after both of you are gone, I think it would be a terrible thing not to plan intelligently, not to cut taxes both while you’re alive and after you’re gone. We don’t even know now in 2017 what the law is going to be in 2017. Same with capital gains rates, etc.

Let’s assume for the moment that you have what I call a Leave It to Beaver marriage. All right. So what is a Leave It to Beaver marriage? We’re talking about the original husband’s original wife and same kids, not a family with kids from his marriage or a family with kids from her marriage — not that there’s anything wrong with that. But the plan that I’m going to be talking about is really more for the traditional Leave It to Beaver family where the husband and the wife have the same kids and the same grandkids. By the way, I am also part of a Leave It to Beaver family myself.

3. Trusting Your Spouse Is Crucial to Estate Planning

I’m also going to assume for the purposes of this plan that you trust your spouse. All right? Now, this is a very interesting issue because this plan does require you to trust your spouse. Many of the listeners on this show right now who have actually been in the room with me when the question comes up, I always turn either to the husband or wife first, there’s no particular order that’s important. But I turn to one and I say, “Do you trust your spouse?” All right? By the way, I don’t always get a yes. Sometimes I get a long hesitation and then a yes, but I do need both people to trust their spouse in order for this plan to be effective.

The other thing that I should mention is that this plan is effective not just for your will, which typically controls probate assets, but if you establish a revocable trust. A revocable trust is a method of transferring assets actually while you’re alive and then without the necessity of going through probate effectively transfers assets at your death. The other thing is that even your will and/or your revocable trust, that might not control the majority of your wealth. For most of our clients the majority of their wealth is not controlled by their will or their revocable trust that would typically control, let’s say, individual accounts titled in a single name.

But the vast majority of the assets might be non-probate assets that might be controlled by joint tenancy like you, typically, married couples will own their house jointly or by the entireties, tenants by the entireties, or the beneficiary of the IRA. Remember, it is the beneficiary of your IRA or your 401k, 403b, SEP, Keogh, et cetera, that controls what happens to your money when you die. So really I’m talking about a coordinated estate plan that includes all the assets, the probate assets, the revocable-trust assets, the IRA 401k, 403b qualified-plan assets, the Roth IRA, et cetera. When you are taking a look at that, it often makes sense for one beneficiary to get one type of an asset where it might make sense for a different beneficiary to get a different asset. If we had more time today I would spend a lot of time on what is known as the stretch IRA and then the pending legislation known as the death of the stretch IRA.

Basically what the stretch IRA is is it is the ability for the beneficiary of the IRA, 401k, 403b, SEP, et cetera, to at least some extent defer income taxes over their entire lives. Let’s say for discussion’s sake you die with a million-dollar IRA and you leave it to your child under existing law. Let’s say for discussion sake that your child is 55 years old, and I don’t know the exact factor with [IRS] publication 590, but let’s say it’s roughly 30 years. Then what would happen is your child would take one over their life expectancy, which is found in publication 590, or one over 30 times the balance as of December 31 of the year after you died, and that child would have to take a minimum required distribution of the inherited IRA. Again, this is current law and this is known as the stretch IRA. The following year it would be one over 29 times the balance. The next year would be one over 28 times the balance.

Basically this idea of stretching or deferring the IRA is very powerful because we are putting off the time that the beneficiary has to pay taxes. I’ve always been a big fan of don’t pay taxes now, pay taxes later except for the Roth. That actually includes the accumulation stage while you are still building your retirement plan, the distribution stage after you are typically retired and you are living on your portfolio, and now I’m even talking about the same concept. Don’t pay taxes now, pay taxes later, even after you are gone. To the extent that you can stretch the IRA by having, let’s say, a child as the beneficiary. That is great. How can you stretch the IRA even longer?

Well, let’s say you name a well-drafted trust for the benefit of the grandchildren. Let’s assume by the way, that that well-drafted trust has five specific conditions in order to qualify as a designated beneficiary of the inherited IRA, but instead of taking say, one over 30, which might be the child’s life expectancy, it might be one over 60 or one over 70, which would be the grandchild’s life expectancy. Now we have a much smaller minimum required distribution of the inherited IRA for a grandchild than we do for a child. The child would have a lower minimum required distribution than the surviving spouse. So if all we cared about was saving taxes for the family at least under existing law, we would name the grandchildren before the children and the children before the surviving spouse.

4. Caring for Surviving Spouse Is Main Goal of Planning

As wonderful as tax planning is, very few people want to do that because most people, tax savings isn’t their primary goal. Their primary goal is to take care of their surviving spouse first. Even if that isn’t the best tax solution, that is what most people want to do, and that’s what we do. Typically people say, “Hey, the most important thing is while we’re both alive that we’re both taken care of sufficiently and that we can spend as much money as we would like and never run out of money during our lifetimes.” Then the second most important thing is what happens after one spouse dies. Well, we want to take care of the surviving spouse, so we can’t name grandchildren as the primary beneficiary of the IRA or for any other assets, for that matter, if the goal is to take care of the surviving spouse. Nor can we name children even though, at least under current law, that is the most tax-efficient thing to do. No, we have to name the surviving spouse because that is typically what people want to do, which is to take care of their surviving spouse.

We have this, let’s say, tension where the best tax strategies might be to name grandchildren, then after that children, then after that spouse. But that’s the exact opposite of what people typically want to do in terms of providing for their family. That is, first they want to provide for their spouse, then they want to provide for their children, then they want to provide for their grandchildren. That is going to be one of the, let’s say, tensions. Now, it’s becoming even more complicated and one additional degree of uncertainty that I’ve just mentioned earlier, is we don’t even know even in 2017 what the law is regarding the stretch IRA and the pending death of the stretch IRA. So in September 2016, the Senate Finance Committee voted 26 to nothing to kill the stretch IRA, but they did provide a $450,000 exclusion. Well, we don’t know if that exclusion is actually going to happen. We don’t know what the law is going to be, so we have this additional degree of uncertainty.

5. Despite Uncertainties, Doing Nothing Is Not a Wise Plan

How do you plan now in these uncertain times? Let me tell you one plan that I don’t support, which is the traditional thinking. The traditional thinking would say, “Hey, there’s going to be changes that we can’t predict all the time. There’s going to be changes in the tax law. There’s going to be changes in investments. There’s going to be changes in the needs of the survivor.” We don’t really know what’s going to happen, but you can’t do nothing, so why don’t we just take our best shot? Why don’t we try to guess what’s going to happen and we’ll prepare all the estate-planning documents, the revocable trust, the beneficiaries of the IRA, the beneficiaries of the Roth IRA, the wills, et cetera, et cetera. If the situation changes then we’ll redo the documents.

Well, let me tell you what the problem with that is. I’ve been an estate planner since 1984. I actually did it as a CPA before that, but that’s when I graduated from law school and formally started drafting wills and doing estate planning. Let me tell you one of the misconceptions about estate planning. The general advice is, you’re supposed to look at your estate plan every two or three years. Let me tell you what is more typical. I meet a new client, they come in with their will and I read their will. It says, “Oh, it says here that if something happens to both of you, little Johnny will be taken care of by Uncle Frank and Aunt Sue. How old is little Johnny now? 47?” The point is, is that people do not redo their wills every two or three years, maybe every 10 or 20 years might be more accurate.

So to do a traditional, fixed-in-stone, this is what is going to happen when I die, when the spouse dies, when both of us die, and to think that you’re going to change that every time there’s a major change in circumstances is just not realistic. To me, if I have somebody’s attention and they are interested in redoing their will or maybe they hear this program and realize that their will and estate plan could be dramatically improved, I want to come up with a plan that will have a long shelf life, meaning that if the assets go up they don’t have to change any of their documents. If the assets go down they don’t have to change any of their documents. If they change the tax law, they don’t have to change any of their documents. They might have to change their strategy.

6. Disclaimer Allows Flexibility in Designating Beneficiaries

On the other hand, changing strategy is different than having to go to the attorney, redo documents, pay the attorney and rethink our mortality and all the downsides of having to redo your documents, particularly if it can be avoided. Before I get into the ultimate solution, I’m going to give you a hint. I’m going to talk about a legal concept called disclaimer. All right, so what is disclaimer? A disclaimer means that you do not have to accept something that is left to you. Let’s say for discussion sake that I am married and let’s just keep one Roth IRA account in mind. Let’s say that I have a Roth IRA for $100,000 and I name my wife Cindy as the beneficiary of the $100,000 IRA. Let’s say I die.

If Cindy wants to, she can accept the $100,000 Roth IRA. She can do a trustee-to-trustee transfer, which would be effectively rolling the Roth IRA into her account. It would continue to grow income-tax free. Under the existing law, there would be no minimum required distributions on that Roth IRA until she died, but for a number of reasons it might be more advantageous for that Roth IRA to go to our daughter, who is now 22 years old. If my wife says, “You know, now that Jim has died and I’ve gone to the attorney or advisor or some combination thereof, I realize I don’t need that Roth IRA. And the CPA or the attorney or somebody showed me how it can be much more effective for our family if our daughter gets that Roth IRA and I don’t.”

Well, what if I don’t want that Roth IRA? If it is fixed in stone that I have to receive it, well that might not be the best plan. So what our plan says is … by the way, Cindy is my primary beneficiary actually on all the assets that I own, but I also include a concept called disclaimer. If I leave money to Cindy, and again here we’re talking about a $100,000 Roth IRA, but it can be everything else, she can always say, “I don’t want it.” You can’t force somebody to accept a bequest or an inherited IRA. They can say, “I don’t want it,” or, “I don’t want part of it.” What they can’t do is say, “I don’t want it. I want it to go to my daughter. I don’t want it. I want it to go to my friend. I don’t want it, I want it to go to my charity.” They can either say I want it or I don’t want it or I want part of it.

Well, let’s say in the planning process that knowing that Cindy could disclaim an IRA or any other asset that I own, wouldn’t it make sense — but she can’t direct where it goes — wouldn’t it make sense when we prepare the document to say, “In the event that Cindy doesn’t want it or doesn’t want all of it, here’s where it will go.” Well, in my case, my daughter’s 22 years old. Though she’s actually very responsible fiscally, still, 22 is still too young, so we have a trust for her benefit. Rather than saying my wife has to accept it, I make it very, very clear in the document that she has the right to, the legal word is to disclaim, the inherited Roth IRA or any other asset. Then what happens if she disclaims it? I say where it goes. It would go to our daughter.

Let’s say for discussion sake that I were to die soon and with the attorney and the financial advisor and her own opinion … by the way, she has nine months to make this decision. She could say, “I disclaim,” or, “I don’t want part of this Roth IRA.” In this case we specifically have language in the beneficiary form to make it crystal clear. In the event that Cindy doesn’t want all or a portion of her Roth IRA, or again, any of the other assets, then here is what will happen. Then what will happen is that money would go into a trust for our daughter, and then all the terms of the trust would be spelled out and the trust would meet the five conditions in order to qualify as a designated beneficiary of an IRA or a Roth IRA, and we could achieve the tax savings that we need.

If on the other hand my wife was not in a position that she could afford to disclaim, she could keep the entire amount. So this is a little bit of a hint of what is coming up after the break, which is going to be a further explanation of what I believe is the best estate plan for the Leave It to Beaver married couples. I talked about the possibility of starting my estate plan by naming my wife, Cindy, as the primary beneficiary of, I had mentioned the Roth IRA but it could be all my assets, traditional IRA, 401k, some people have 403bs, after-tax dollars, et cetera, et cetera. I mentioned the possibility of including the right for her to, the legal word is disclaim, which is basically say, “I don’t want it,” or, “I don’t want a portion of it.” The key to the Lange’s Cascading Beneficiary Plan is to say where it will go in the event that the beneficiary disclaims. So I’m going to start by naming my wife first. The second beneficiary or the first contingent beneficiary would be a well-drafted trust for the benefit of my daughter.

Now, let’s say that I am planning for the long term, and knowing that I might not get around to redoing my will and estate plan for a number of years because who are some of the people who are the worst in terms of getting their estate plan done? Of course, it’s the estate planners. It’s a little bit like the cobbler of shoes, et cetera. What might be the choice in the event that neither my wife wants or needs it nor my daughter wants or needs it? Let’s look into the future where if I am so lucky and so blessed that my daughter herself would have a child. We had already had a short discussion on the stretch IRA where we established that the inherited IRA or inherited Roth IRA would be worth more to a grandchild, and again specifically in trust for the benefit of a grandchild, than it would be for a child, and it would be more beneficial for a child than it would be for my wife.

What if we have a document that makes it crystal clear? OK, my wife or my husband is the primary beneficiary of, let’s say, all accounts, but again we’re talking about one particular account. The first contingent beneficiary typically would be children equally. Mine would still be in a trust because my daughter is only 22 years old, but let’s say that your children are responsible and mature and they’re in their 40s or however old they are. They would likely be the logical first contingency. First, you name the spouse and then you specifically include language in the beneficiary designation, in the will, in the revocable trust, in all the documents that say, “In the event that the spouse doesn’t want or need it, then it would go to the contingent beneficiary,” who would typically be children equally. By the way, it doesn’t have to be equal and you might have special circumstances for one child.

7. Contingent Beneficiaries Don’t Have to Receive Equal Amounts

Let’s say for discussion sake you have three children and one of them happens to be a spendthrift. What you would typically do is the contingent beneficiary would be one third for child Number 1, one third for child Number 2 and one third in a spendthrift trust for child Number 3. That way, we make sure that child Number 3 doesn’t do anything real stupid and blow all the money. The other thing is you might have a child who is in a bad marriage or maybe you feel uncomfortable with the possibility that your future ex-son or daughter-in-law … right now they’re your son or daughter-in-law, but there’s at least a reasonable chance that they will at one point be your ex son or daughter-in-law, in which case you might have a third to child Number 1, a third to child Number 2 and a third specifically to a trust that we call the “I don’t want one red cent of my money going to my no good son- or daughter-in-law trust.” So it doesn’t have to be kids equally.

That would be the first contingent beneficiary. Then a lot of times we will include a second contingent beneficiary even if that beneficiary isn’t alive. In my case, I not only have Ericka as my … that’s the name of our daughter who’s 22 and actually a trust for her. She is not only our beneficiary, but our contingent beneficiary is a trust for her children. Now, she isn’t even close to being married now. Why would I include a trust for her children when she isn’t even close to being married and she isn’t, let’s say, isn’t looking to get pregnant, married or unmarried. Why would I do that? Because if I do nothing there is a reasonable chance that she will get married and have children, and it is possible that it’s going to make more sense for our family that if I die, it might not make sense for Cindy to receive a particular account or a portion of an account. It might not make the most sense for our daughter to receive that account or portion of the account, but it might make sense to have a trust for the benefit of our grandchildren.

Now, in our case, it’s easy because we only have one child. Let’s say you had three children. Then the second contingent beneficiary would actually be different sets of trusts for each child. Let’s say you have three children and let’s keep it simple that you have three sets of grandchildren, each set from one child. Typically, you would name the children equally, and what I’m throwing into the mix is you give each child the right to again, the legal word is disclaim, all or a portion of any of the assets that they inherit whether it’s an IRA, Roth IRA, et cetera, into a well-drafted trust for the benefit of their children, your grandchildren. Not their nieces and nephews, so not some of your grandchildren from other children, but just their children. Because they’re going to want to choose between either keeping it themselves or having it go into a trust for their children.

Now, the typical will or trust will have provisions for a grandchild, but it usually says something to the effect that the grandchild doesn’t get anything unless the child predeceases them. Well, the odds that your child will predecease you aren’t anywhere near as great as the odds are that it will make a lot of tax sense in the event that a child can afford it to disclaim, and particularly with an IRA or a Roth IRA where the beneficiary can be a trust for grandchildren. I’m anticipating adding flexibility at the spouse level. The spouse can keep it, disclaim it, or keep and disclaim part of it. If they keep and disclaim part of it, the part that is disclaimed would then go to, let’s say children equally. Each child would get the choice of what to do with their share. Then each child could disclaim to their children.

So you could have a situation where you have one death, spouse disclaims to child, child disclaims to trust for grandchild, and since child is still alive — which does not happen in most documents where the only way the grandchild can get any money is if the child predeceases — since the child is still alive we have the luxury of being able to name the child as the trustee for their children or the grandchildren of that child. Again, typically what you would find is you would have a different trustee because the thought of the child being alive and disclaiming didn’t even come up in the discussion. So the typical, what I call “I love you will,” where I leave everything to you, my husband, I leave everything to you, my wife, and in the event that something happens to both of us the assets will go to our children equally. If something happens to one of our children, then any portion that would have gone to our children would go to those children, those grandchildren of the predeceased child.

8. Make It Crystal Clear Who Gets What After You Die

That’s not a terrible starting point, but I guess what I’m adding to this party is the ability for and specifically stated so it’s crystal clear and there’s no ambiguity, if the spouse doesn’t want or need all of it where it would go. Typically children equally. Then if one or more of the children don’t want all of what they are receiving, you say what would happen to that. Again, typically, trust for the grandchildren. So this very flexible estate plan is something that I came up with and have been doing in practice since the early or mid-’90s. I guess 1998 was the first year that I published it in a peer-reviewed journal, which was received very well in The Tax Adviser, but ultimately … back then, by the way, I actually had a different stream.

The stream I’m suggesting now is Number 1 the surviving spouse; Number 2 children equally; Number 3 well-drafted trust for the benefit of grandchildren, and then we would have a different trust for each set of grandchildren. So again, if you have three children with three sets of grandchildren, or even if you have three children and one of them doesn’t have any grandchildren or doesn’t have any children, I would still draft a trust for the grandchild of that child that doesn’t have any children because there might be a child born between now and the time that you die.

The newer cascade is Number 1 spouse with the right to disclaim as much or as little as they want with all the assets. Who would they disclaim to? The contingent beneficiary, again subject to exception, is children equally. Then each child gets the right to disclaim into a well-drafted trust for the benefit of the grandchildren. If the underlying asset is an IRA or a Roth IRA to make sure that that IRA or Roth IRA has a well-drafted trust that meets the five conditions in order to qualify as a designated beneficiary of an IRA or a Roth IRA, because we want to make sure to get the huge tax benefits of having a younger beneficiary. That could apply either with existing law or the $450,000 exclusion that is offered to us in the proposed law.

Dan Weinberg: This week, Jim is talking about flexible estate planning, specifically what he calls Lange’s Cascading Beneficiary Plan. Jim, can you tell us a little bit about the history of that plan?

Jim Lange:Well, sure. I actually came up with the concept of the Lange’s Cascading Beneficiary Plan in the early ’90s. Now, to be fair, I was certainly not the first estate attorney to use the concept of disclaimers, but I was the first one who actually created a structure for it, called it something, which depending on the source that you look at it’s either called Cascading Beneficiary Plan, if you look at some of the snooty journals like The Wall Street Journal, or the Lange’s Cascading Beneficiary Plan that is in, let’s say, one of maybe five or six of the books that I’ve written. But I started using this in the early ’90s. It just made so much sense to me, and very honestly, I couldn’t understand why it wasn’t being used, I won’t say universally because it’s not for every couple, but for many couples that I have described as the Leave It to Beaver-type married couple with the original husband and the original wife and the same kids and the same grandkids.

I have been using it for many years. In 1998, I wrote a peer-review article for The Tax Adviser. Peer review means that there’s a bunch of CPAs and attorneys that would love to do nothing more than to show you how wrong you are in your articles. But it survived the scrutiny of the peer reviewers and it was published then. Then in 2001, there was a tax-law change that I won’t bother getting into the specifics, but it made the Cascading Beneficiary Plan even more powerful. At the time — I still do, by the way — at the time I had an email newsletter. I wrote an article called “The Best Estate Plan for Traditional Married Couples.” I got a call actually the next day from Jane Bryant Quinn, who I didn’t know was a subscriber to my newsletter. She was pretty fascinated with the plan because it made a lot of sense to her.

Interestingly enough, and, by the way, I have enormous respect for Jane Bryant Quinn and also Jonathan Clements. I’ve done many articles with both of them; more so with Jonathan Clements. But Jane and I back in 2001, we were on the phone for, and it was over several phone calls, but for about five hours. Now, this was for a one-page article that appeared in Newsweek. So this is the kind of researcher that Jane is. She wanted to thoroughly understand it, have it written up exactly as it is, and then the other thing, by the way, that she does that hardly any financial journalists do, is that she actually gave me copy of what she had intended to publish so I could double check it for mistakes.

By the way, that’s very rare. Now, sometimes the newspapers like The Wall Street Journal will not allow their writers to send it to their, let’s call it information sources. But even what Jonathan Clements would do when he was there for the 18 years when we did 32 columns together, is he would read the relevant sections to me and then I would say, “Well, yeah, that’s great,” or, “Well, no, that’s not quite right,” or, “Well, that’s right, but we can make it a little bit stronger by saying this or that.” Anyway, so after many hours of conversation with Jane, she actually did publish it and that was when it got its big, big, let’s say popular press. That was in Newsweek back in 2001.

Then The Wall Street Journal picked up on it and I ended up actually doing two articles with The Wall Street Journal on it. The first one was back in 2001, and then years later the same author of that article checked back in and said, “Hey, what is the progress of this?” after it had achieved a lot of notoriety. It was in Kiplinger’s, which is a very good consumer-financial newsletter. It was also in … then I included it in my books. The primary book or our flagship book, which is Retire Secure! We first came up with that, we first published that book, it was with Wiley, which is a very good financial press, back in 2006. We did a second edition in 2009 and we did a third edition in 2015.

In that book, which, by the way, is also available for free at our website… if you go to paytaxeslater.com, there is a thorough description of Lange’s Cascading Beneficiary Plan. Obviously I recommend that you get the latest and the greatest, which is the 2015 edition. Then we included it again in the most recent book that we’ve done called The Ultimate Retirement and Estate Plan for Your Million Dollar IRA. But to be fair, that’s a mini book and that doesn’t have the full discussion of the Lange’s Cascading Beneficiary Plan.

9. Endorsements for Lange’s Cascading Beneficiary Plan

Then you might say, “Well, gee, who thinks that it’s a reasonable plan?” Well, all the endorsers of Retire Secure! That includes Lange’s Cascading Beneficiary Plan, that includes Charles Schwab, that includes Jane Bryant Quinn, that includes Ed Slott, that includes Larry King, dozens and dozens of financial experts, estate-planning experts, investing experts have endorsed the book. It just made so much sense. The other thing that I like to take into account is this isn’t just an idea without any testing. We have been doing this since the early ’90s, so what happens if you are attracting people maybe in their 60s or 70s in the early ’90s and now it’s 20 years later?

Well, unfortunately some of those people have died, and they have died with more or less the identical plan that we are using now known as Lange’s Cascading Beneficiary Plan. Of course, it’s always tragic when somebody dies, but when somebody dies with this plan that gives the survivor so much scope. So let’s take a couple different scenarios. Scenario Number 1, I have clients who are doom and gloom, “Oh, the last illness is going to be expensive. Oh, the market could go down 30 percent. Oh, all these bad things could happen.” Well, let’s say that that does happen. Even though there might be great income-tax incentives to have some of the money disclaimed to children or grandchildren, maybe that just isn’t a realistic possibility. Maybe the spouse needs the entire inherited amount, in which case we have left that spouse with that option.

Or let’s say for discussion sake that there is no death of the stretch IRA law and it might make sense to have money going to grandchildren or it might make sense to have money going to children or IRA money or Roth IRA money or after-tax dollars or insurance or whatever it might be. We can kind of pick and choose which assets go where using the disclaimers that were put in place when both the husband and the wife were alive. Or let’s say that there is a death after the proposed death of the stretch IRA occurs and we have a $450,000 exclusion. Well, now there is enormous tax benefits that would go to a child or a grandchild in the event that the surviving spouse, again the legal word is disclaimed, to this well-drafted trust for the benefit of the grandchild or grandchildren, and we could set that in place.

On the other hand, it might be important for the children to receive that money rather than a trust for the grandchildren. So we have had extensive experience over the years, and what we have done is, which I believe is the goal of estate planning, is we provide or over-provide for the surviving spouse. All right? That’s very important. That’s what people want to do. But at the same time, if we can save a quarter million dollars, a half a million dollars, sometimes more in taxes, by providing some of these disclaimer options, and if the surviving spouse has more than enough money that they can afford to disclaim at least a portion of the IRA or the Roth IRA or whatever assets seems appropriate to disclaim, what is the down side of giving the surviving spouse that option, and specifically laying that out in the will or revocable trust or IRA beneficiary designation?

Further, why not give each child the right to decide what to do with their share? They could either keep it, disclaim a portion of it typically into a well-drafted trust for the benefit of that child’s children, again, not their nieces and nephews, or maybe to disclaim all of it. Again, they can be the trustee of that trust for the benefit of their grandchildren. So we have had the benefit of having these plans in place and people dying over the last say, 20 years, and we have found this to be very effective. There’s been a revolution in estate planning and you see more and more flexible estate plans. I’m not going to be so grandiose to say, “Oh, I changed the whole field,” but I think what I did do is I made it very clear that flexible estate planning makes a lot of sense. Other attorneys have picked up on it, but we are still believers for the Leave It to Beaver original husband, original wife who trust each other, with children and grandchildren in flexible estate plans, and specifically known as the Lange’s Cascading Beneficiary Plan.

You can read about that more by going to our website at Pay Taxes Later and downloading our book Retire Secure! for free. If you’d like a hard copy, you can go to Amazon or you could also get the mini version in our most recent book, which also includes the death of the stretch IRA discussion with an accompanying addendum, and that book is called The Ultimate Retirement and Estate Plan for Your Million Dollar IRA. I do think that if you are married with children and you do trust each other that you should at least consider these very flexible estate-planning documents known as Lange’s Cascading Beneficiary Plan.

Dan Weinberg: OK. Thanks so much, Jim. And listeners, if you’d like to meet with Jim Lange in person, give the Lange Financial Group a call at 412-521-2732, to see if you qualify for a free initial consultation. That number again is 412-521-2732, or you can connect with Jim’s office through his website, which again is paytaxeslater.com. Special thanks as always to the Lange Financial Group’s marketing director, Amanda Cassady-Schweinsberg, and to our producer, Amy Vallella. I’m Dan Weinberg for Jim Lange. Thanks so much for listening and we will see you next time for another edition of The Lange Money Hour, Where Smart Money Talks.

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