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Ask Todd: Funding a trust is very important · The Financial Exchange Show

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  Speaker 1: This is Ask Todd on the Financial Exchange Radio network.
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  Speaker 1: If you have an existing estate plan or in the
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  Speaker 1: market for one, Todd Letsky is here to answer your
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  Speaker 1: questions and help you plan for a later life. Ask
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  Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
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  Speaker 1: New England for more than thirty five years, helping families
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  Speaker 1: with estate and tax planning, medicaid planning, and probate law.
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  Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
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  Speaker 2: As promised, Todd Lutsky now joins us from the law
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  Speaker 2: firm of Cushing and Dolan. We got phone lines open
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  Speaker 2: because the segment is Ask Todd. It's your chance to
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  Speaker 2: ask Todd your estate planning questions and he'll actually answer them. Yeah,
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  Speaker 2: it's not just you asking, it's him answering as well.
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  Speaker 2: Phone lines are wide open right now at eight eight
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  Speaker 2: eight to zero five two two six three. That is
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  Speaker 2: the number to call to ask Todd your estate planning
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  Speaker 2: questions again. It's eight eight eight to zero five two
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  Speaker 2: two six three. We can normally get through two to
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  Speaker 2: three questions, so get calling early, get calling often to
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  Speaker 2: make sure we get to your question for Todd again.
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  Speaker 2: That number is eight eight eight two zero five two
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  Speaker 2: two six three. Mister Lutsky, How are you doing today?
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  Speaker 3: I am doing just fine. How you been?
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  Speaker 4: Uh good?
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  Speaker 2: I had a busy day yesterday.
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  Speaker 3: Yeah, what are you doing?
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  Speaker 2: I was shopping for cherries and a new microphone stand.
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  Speaker 4: I don't know how cherry's and a microphone stand go together.
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  Speaker 4: Bought it being bought a boom Huh, there you go.
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  Speaker 3: It was good.
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  Speaker 2: Todd want to talk to you a little bit about
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  Speaker 2: gifting strategies. When is it appropriate to incorporate annual gifting
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  Speaker 2: into an estate plan? What role can that fill? And
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  Speaker 2: when do you start to see that talked about? Is
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  Speaker 2: something that makes sense for someone?
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  Speaker 4: Yeah, I think that's fair question, because this gifting guide
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  Speaker 4: really explains that.
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  Speaker 3: But I mean, just because we.
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  Speaker 4: Have this ability to gift away thirteen point nine million dollars, which,
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  Speaker 4: by the way, that is our federal estate tax exemption.
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  Speaker 4: You've heard us talk about that many times. It is
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  Speaker 4: also our gift tax exemption.
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  Speaker 3: Right.
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  Speaker 4: You get to use up that exemption either by dying,
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  Speaker 4: which is not usually on the to do list, or
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  Speaker 4: by gifting before you lose it. That's when tax laws change.
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  Speaker 3: Right.
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  Speaker 4: So, But just because you can gift away thirteen point
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  Speaker 4: nine million and pay no federal gift tax. And remember,
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  Speaker 4: there's no state gift tax in any state except our neighbor.
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  Speaker 4: Connecticut is the only one that I'm aware of that
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  Speaker 4: has that. So otherwise you don't worry about state gift tax.
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  Speaker 4: But I don't want to just gift because there's capital
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  Speaker 4: gains taxes that you have to worry about, not just
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  Speaker 4: death taxes.
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  Speaker 3: Right, So, if I'm going to gift.
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  Speaker 4: Away an asset, I first want to make sure that
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  Speaker 4: I'm getting a federal estate tax benefit, meaning if I'm
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  Speaker 4: under thirteen point nine million or married and double that exemption, right,
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  Speaker 4: was that like twenty eight million in change? Almost, so
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  Speaker 4: it's called twenty seven and change. I probably don't need
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  Speaker 4: to gift to save federal estate taxes. And remember the
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  Speaker 4: federal estate tax rate is forty percent of the amount
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  Speaker 4: over the exemption. All right, Well, if I'm not saving that,
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  Speaker 4: and I'm only saving the state estate tax, and I'll
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  Speaker 4: just choose Massachusetts as an example, I'm only saving say
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  Speaker 4: ten to twelve percent, and I end up giving away
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  Speaker 4: assets that have capital gain built into them. I bought
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  Speaker 4: a house a long time ago. You know the drill.
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  Speaker 4: I got a rental property that I appreciated to zero
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  Speaker 4: and now it's worth a million dollars. Well, I got
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  Speaker 4: a million dollars of gain built into this property if
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  Speaker 4: I give it away, and I'm not saving the forty percent,
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  Speaker 4: and I'm only saving the twelve percent, but I trapped
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  Speaker 4: almost thirty percent long term capital gain in that item
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  Speaker 4: so that my children will pay that when they sell it.
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  Speaker 3: I'm not sure that's helpful, right.
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  Speaker 4: Twenty eight thirty percent versus ten percent not a good
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  Speaker 4: math situation. So think about what you gift and why
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  Speaker 4: you're gifting. If it's just to save a state taxes,
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  Speaker 4: might want to double think it.
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  Speaker 2: Talking with Todd Lotsky from Cushing and Dolan still have
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  Speaker 2: room on the phone lines at eight eight eight to
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  Speaker 2: zero five two two six three. That is the number
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  Speaker 2: to call to ask Todd your estate planning questions. We
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  Speaker 2: are going to take a quick break right now, but
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  Speaker 2: when we come back, it's going to be right to
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  Speaker 2: your questions with Todd. Eight eight eight to zero five
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  Speaker 2: two two sixty three is the number again, it is
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  Speaker 2: eight eight eight to zero five two two sixty three.
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  Speaker 2: Quick break. Then your Questions with Todd.
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  Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
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  Speaker 1: only here on the Financial Exchange Radio Network. You're listening
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  Speaker 1: to Ask Todd with Todd Lunsky on the Financial Exchange
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  Speaker 1: Radio Network.
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  Speaker 2: All right, let's get right to your Questions with Todd Lutsky.
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  Speaker 2: First in the queue, we got Marty in Framingham. Marty,
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  Speaker 2: what is your question for Todd?
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  Speaker 3: Marty? Are you there?
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  Speaker 5: Yes, yes, I am, Thank you for taking my call.
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  Speaker 5: My home in Midfield had a fire. It was totaled,
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  Speaker 5: although it was fully insured. It's going to cost me
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  Speaker 5: about another two hundred thousand dollars to put build a
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  Speaker 5: house back the way we want it. I've got the
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  Speaker 5: money set aside that the insurance company is giving me,
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  Speaker 5: but it's going to cost me another two hundred thousand
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  Speaker 5: dollars of revocable money or other money to get the
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  Speaker 5: house the way we want. The question is, I don't
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  Speaker 5: want to interrupt the integrity of the irrevocable trust which
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  Speaker 5: has been in been in for like seven to ten years.
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  Speaker 5: So how do I fund it without interrupting that irrevocable trust.
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  Speaker 4: So it seems to me that since the insurance company
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  Speaker 4: paid you. That means that when you set up the trust,
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  Speaker 4: you told the insurance company to add the trust as
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  Speaker 4: an additional insured. Correct, yes so, because so, because you
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  Speaker 4: told the trust to add the or since you told
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  Speaker 4: the insurance company to add the trust as an additional insured,
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  Speaker 4: you should go back to the insurance company and tell
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  Speaker 4: them to issue the check pay to the order of
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  Speaker 4: the trust, not you, And that way it goes directly
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  Speaker 4: into the trust, and there's no resetting the five year clock.
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  Speaker 4: In other words, it should be no different than when
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  Speaker 4: you sell a house. Right if the trust owned the
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  Speaker 4: property and you decide to sell and buy another house,
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  Speaker 4: which we all know you can do, out would go
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  Speaker 4: the house to the buyer, and in would come a
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  Speaker 4: check made payable to the trust, because the trust then
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  Speaker 4: would receive the money, and then that money would not
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  Speaker 4: receiving that money would not reset the clock. In other words,
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  Speaker 4: if the house went in seven years ago, to take
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  Speaker 4: your example, and now that house is one hundred percent
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  Speaker 4: protected from the nursing home, and you sell the house
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  Speaker 4: and get money in the trust, that money is one
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  Speaker 4: hundred percent protected from the nursing home, and the buying
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  Speaker 4: and selling does not reset the clock.
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  Speaker 3: Okay, that's crystal clear.
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  Speaker 4: However, in this case, if you've lost the house, which
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  Speaker 4: is kind of like a sale, it's gone, and in
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  Speaker 4: exchange for that being gone, the trust is going to
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  Speaker 4: get paid what it's going to get paid the insurance.
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  Speaker 4: So now in comes the money directly into the trust. Well, well,
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  Speaker 4: there may be no house there anymore like a sale,
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  Speaker 4: but there's money there. Well that money should not reset
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  Speaker 4: the clock, and then you can use that money to
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  Speaker 4: start paying the contractor to build the new property. Now
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  Speaker 4: as to the additional two hundred thousand dollars that you need, well,
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  Speaker 4: if that's not already in the trust like you have
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  Speaker 4: maybe you put a portfolio in or an investment account
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  Speaker 4: in or something like that. If that money is not
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  Speaker 4: already in the trust, well then yeah, you're you're going
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  Speaker 4: to have to contribute that money to the trust to
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  Speaker 4: build the finished building the house. So worst case scenario here,
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  Speaker 4: I see that there might be a new five year
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  Speaker 4: look back period waiting, but only for the new addition,
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  Speaker 4: only for the new two hundred thousand that you put
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  Speaker 4: in the trust. So does that help a little, Yes, sir,
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  Speaker 4: it does, So get that changed with the go get
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  Speaker 4: that check reissued by the insurance company.
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  Speaker 3: That's what I would do.
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  Speaker 4: So hopefully that helps and folks, you know, I'm so
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  Speaker 4: glad to hear that he did his planning and have
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  Speaker 4: the house you know where it belongs. And but for
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  Speaker 4: other folks that haven't done all their planning yet and
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  Speaker 4: are thinking about just oh, I'll just do a quick fix,
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  Speaker 4: I'll give away my assets, well you can. That's what
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  Speaker 4: the law says. Might not be the right thing to do.
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  Speaker 4: So there's a guide called making the most of gifting assets.
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  Speaker 4: Sometimes you want to give things to irrevocable trusts rather
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  Speaker 4: than children. Outright, you got to think about what kind
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  Speaker 4: of asset I give a high basis asset versus a
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  Speaker 4: low basis asset. Maybe for higher net worth people, we
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  Speaker 4: want to give away a lot of assets. Well, I
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  Speaker 4: don't want to give them away and not enjoy it.
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  Speaker 4: I work my whole life for it. Well, spousal lifetime
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  Speaker 4: access trust might be the way to give away assets
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  Speaker 4: and retain some ability to control and enjoy what you
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  Speaker 4: gave away. Right, think about pool trusts, think about special
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  Speaker 4: needs trust So there's all kinds of ideas and ways
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  Speaker 4: to gift or maybe not gift at all, and that
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  Speaker 4: might be the right answer for a lot of people.
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  Speaker 4: Call and get the guide. Folks, we're getting near the
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  Speaker 4: end of the month. It's going to go back in
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  Speaker 4: the eight six six eight four eight five six nine
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  Speaker 4: nine or Legal Exchange Show dot com again eight six
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  Speaker 4: six eight four eight five six nine nine or Legal
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  Speaker 4: Exchange Show dot Com.
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  Speaker 2: Got another one for you here. Let's go to Dan
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  Speaker 2: in Florida. Dan, what is your question for Todd Lutsky?
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  Speaker 6: Todd, First of all, I'm a Massachusetts resident, okay, and
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  Speaker 6: I'm trying to shell to my holdings from the mass tax.
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  Speaker 6: Does an irrevocable trust do that?
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  Speaker 4: So it depends on the kind of irrevocable trust. So
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  Speaker 4: let me explain. First of all, are you married?
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  Speaker 6: No, I was married, she passed away, okay.
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  Speaker 3: So how much are you worth in total? Round number?
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  Speaker 6: Four million?
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  Speaker 3: All right?
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  Speaker 4: And I'm assuming there was no planning done when your
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  Speaker 4: wife passed.
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  Speaker 3: No trust?
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  Speaker 6: We both had, We both had revocable trusts.
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  Speaker 3: Wonderful.
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  Speaker 4: How much of the four million dollars was in your
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  Speaker 4: wife's revocable trust when she died?
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  Speaker 6: None?
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  Speaker 4: Oh, So this is exactly what we talk about all
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  Speaker 4: the time right on the radio. We tell people funding
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  Speaker 4: a trust is so darn important, right. If you don't
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  Speaker 4: fund a trust, it really is just a waste. It's
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  Speaker 4: a bunch of paper doing nothing for you, which is
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  Speaker 4: why we stress funding it. And I'm going to say,
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  Speaker 4: obviously it's it's you know, water under the dam. I
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  Speaker 4: get it, But at this point I just want to
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  Speaker 4: help other people learn. So, because nothing was in that trust,
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  Speaker 4: my hope for you Dan on this one was you
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  Speaker 4: were going to tell me, oh, yeah, we managed to
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  Speaker 4: put about two million dollars worth of assets in my
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  Speaker 4: wife's trust. Well, if you had done that, I would
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  Speaker 4: imagine that that trust is designed to hold a remains
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  Speaker 4: share in emerital share, and then that two million dollars
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  Speaker 4: would be tucked away in your wife's trust subject to
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  Speaker 4: tax when she died. She has a two million dollar
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  Speaker 4: estate tax exemption, so there's no tax to and then
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  Speaker 4: when you die, you would only be taxed on what
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  Speaker 4: you own in your trust, which would be the other
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  Speaker 4: two million. And now, like magic, if you died, you're
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  Speaker 4: under the two million because the assets tucked away in
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  Speaker 4: your wife's trust would be sheltered from a state taxes
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  Speaker 4: and not included in your estate when you die, even
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  Speaker 4: though you would be controlling and enjoying perhaps what's in
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  Speaker 4: that wife's trusts bucket. And then when you die, you're
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  Speaker 4: under two million and lo and behold you pay Massachusetts
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  Speaker 4: zero estate taxes. So, folks, that's for everybody who hasn't
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  Speaker 4: done their planning yet, or have done their planning and
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  Speaker 4: didn't fund one trust. Please learn from this call what
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  Speaker 4: we can do in the future.
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  Speaker 3: Now.
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  Speaker 4: I turned to you, Dan, and I say, well, I mean,
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  Speaker 4: you got four million dollars worth of stuff. At least
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  Speaker 4: you got to step up in basis how long ago
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  Speaker 4: did your mom died?
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  Speaker 1: Here?
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  Speaker 3: I'm sorry, your wife.
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  Speaker 4: Died two years ago, so it's not horrible. So two
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  Speaker 4: years ago, you know you got if you own things
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  Speaker 4: jointly when she died, and I'm assuming you did, right,
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  Speaker 4: We didn't.
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  Speaker 6: You didn't own the second marriage. It was a second marriage,
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  Speaker 6: and she had her preuss I had mine, I see.
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  Speaker 4: But nothing was in her trust. So how are the
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  Speaker 4: assets owned? Did you we own? Everything was in her
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  Speaker 4: name alone?
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  Speaker 6: Yes, she owned her own house. I owned a couple
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  Speaker 6: of houses that they were both in my name and
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  Speaker 6: her hers was in her name.
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  Speaker 4: And did her stuff go to her side of the family,
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  Speaker 4: or did she take care of you with any of it.
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  Speaker 6: And went to her side of the family.
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  Speaker 4: Oh okay, So the four million you have is just
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  Speaker 4: your assets?
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  Speaker 6: Yes, oh okay.
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  Speaker 4: So again the explanation is still very helpful for people.
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  Speaker 4: But in your case, you're worth four million. You know, again,
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  Speaker 4: we're thinking about do we need to make a gift? Well,
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  Speaker 4: I don't know. You have to really analyze your assets.
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  Speaker 4: We just did that example that maybe giving away assets
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  Speaker 4: now just to save ten percent on the amount over
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  Speaker 4: two million, or twelve percent on the amount over two
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  Speaker 4: million might not be the most tax effiicient thing to do.
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  Speaker 3: But if you have cash CDs.
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  Speaker 4: You know, kicking around, and you want to set up
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  Speaker 4: a gifting trust for your children and you don't mind
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  Speaker 4: giving it away, that would be an easy fix because
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  Speaker 4: there's no loss of a step up in basis with cash,
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  Speaker 4: and that money can be tucked aside outside your estate
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  Speaker 4: for a state tax purposes, thereby reducing your state tax liability.
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  Speaker 4: But just sticking them in an irrevocable medicaid trust to
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  Speaker 4: protect them from the nursing home would not reduce your
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  Speaker 4: estate taxes, but might not be bad planning. For you
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  Speaker 4: to protect your assets for your children. Sorry, right time,
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  Speaker 4: but I hope that gives you a little something to
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  Speaker 4: think about.
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  Speaker 2: Mister Lutsky, Thank you so much for the time today.
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  Speaker 3: Always a pleasure.
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  Speaker 1: This has been Asked Todd on the Financial Exchange Radio
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  Speaker 1: network Ask Todd with Todd. Lutsky has been presented by
• 15:12
  Speaker 1: Cushing and Dolan, serving Massachusetts and New England for more
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  Speaker 1: than thirty years, helping families with the state and tax planning,
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  Speaker 1: Medicaid planning and probate law. Call eight hundred and three
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• 15:25
  Speaker 1: The views expressed in this segment are solely those of
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  Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
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  Speaker 1: or tax advice. Please consult with your legal or tax
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  Speaker 1: each other and are not affiliated.