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Ask Todd: How irrevocable trusts protect your assets from nursing homes · 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 Lutsky 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 a state 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: And we are now joined by Todd Lutsky from Cushing
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  Speaker 2: and Dolan. We got the phone lines open at eight
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  Speaker 2: eight eight to zero five two two sixty three. That
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  Speaker 2: is the number to called Ask Todd your questions live
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  Speaker 2: on air today Again. Eight eight eight to zero five
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  Speaker 2: two two sixty three is the number Tod. I'll answer
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  Speaker 2: your questions live on air about your state plan, your
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  Speaker 2: lack of estate plan, friends of state plan, family, members
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  Speaker 2: of state plan, you name it again eight eight eight
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  Speaker 2: to zero five two two six three. We usually get
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  Speaker 2: through a couple of calls, so get calling early and
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  Speaker 2: often if you want to make sure we get to you.
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  Speaker 2: And that number one more time is eight eight eight
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  Speaker 2: two zero five two two six three. Mister Lonsky, how
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  Speaker 2: are you?
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  Speaker 3: I am doing great, You doing pretty well.
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  Speaker 2: I was thinking the other night about the state of Oklahoma.
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  Speaker 3: Oklahoma.
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  Speaker 2: I was thinking about its abbreviation and whether I like
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  Speaker 2: it or not, and I just decided, it's okay, that's good.
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  Speaker 2: It is okay, Yeah, yeah, it's just okay, it's fine.
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  Speaker 2: Let's talk a little bit about irrevocable trust, specifically irrevocable
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  Speaker 2: trust that protect assets against long term care costs. Okay,
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  Speaker 2: when you look at establishing one of those trusts, who
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  Speaker 2: can be the trustee of that trust? Can it be yourself?
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  Speaker 2: Does it have to be someone else? How is that structured?
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  Speaker 3: So that has evolved over time? Right, So, irrevocable trusts. Uh,
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  Speaker 3: you know, can you serve trustee of your own irrevocable trust? Well,
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  Speaker 3: the answer is you can. And we've won the battles
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  Speaker 3: when it comes to that challenge as to whether you
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  Speaker 3: can or can't be. But it's something over time that
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  Speaker 3: I've just decided, you know, we don't do. I don't
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  Speaker 3: really see any benefit in, you know, serving as trustee
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  Speaker 3: when you can just put a child on as trustee
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  Speaker 3: avoid any of these potential issues, and most importantly, keep
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  Speaker 3: the power to remove and replace the trustee by the
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  Speaker 3: don or any time. If you have that power, then
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  Speaker 3: really you're the one directing the show anyway. So, and
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  Speaker 3: you have avoided any potential issues.
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  Speaker 2: What are the responsibilities of that trustee, then what do
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  Speaker 2: they have to do on a day in, day out basis?
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  Speaker 2: Is it a lot of work for them, is it
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  Speaker 2: a small What do they actually have to do?
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  Speaker 3: Yeah, And a lot of times parents will say, well, jeez,
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  Speaker 3: I don't want to burden my child with all these headaches. Well,
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  Speaker 3: it really depends on what you're putting in the trust.
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  Speaker 3: I mean, if you stop and think about it for
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  Speaker 3: a minute and the only thing you're putting in the
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  Speaker 3: trust is your home or let's say your home and
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  Speaker 3: your vacation home, none of which are being rented and
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  Speaker 3: therefore generating zero income, I'm going to tell you that
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  Speaker 3: there is absolutely nothing for the trustee to do. Nothing,
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  Speaker 3: no tax returns, no headaches, no nothing. It's only if
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  Speaker 3: you were to get into having investment type money portfolios
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  Speaker 3: and things inside the trust that maybe once a year
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  Speaker 3: you got to file an income tax return and sign
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  Speaker 3: your name. But even then there's not a lot to
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  Speaker 3: do day to day because the don or, the moms
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  Speaker 3: and dads of the world are really doing almost everything.
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  Speaker 2: Talking with Todd Lutsky from the law firm of Kushigan Dolan.
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  Speaker 2: Still room on the phone lines at eight eight eight
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  Speaker 2: two zero five to two. That's the number to call
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  Speaker 2: to ask Todd your estate planning questions. Again, we do
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  Speaker 2: still have a little bit of room on those phone
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  Speaker 2: lines at eight eight eight to zero five two two
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  Speaker 2: six three. We're gonna take a quick break here, but
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  Speaker 2: when we come back it is going to be right
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  Speaker 2: to your phone calls again. That number is eight eight
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  Speaker 2: eight to zero five two two sixty three.
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  Speaker 1: Ask Todd with Todd Lutsky 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 Lutsky on the Financial Exchange
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  Speaker 1: Radio Network.
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  Speaker 2: Alrighty, let's get right to your questions for Todd Letsky.
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  Speaker 2: First up, we got John in Arlington. John, what's your
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  Speaker 2: question for Todd?
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  Speaker 4: Yes, thank you for taking my call. The reason why
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  Speaker 4: I'm calling is my wife and I are in the
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  Speaker 4: beginning stages of getting the state planning documents drafted, And
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  Speaker 4: we've talked to some friends about what they have done,
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  Speaker 4: and we've seen instances where one spouse had a trust drafted,
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  Speaker 4: the other spouse had a trust drafted, and they were
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  Speaker 4: both co trustees of both trust. But then there were
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  Speaker 4: some other situations where the attorney just drafted one trust
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  Speaker 4: for the household where both spouses were trustees. And I
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  Speaker 4: was just curious what would be the benefits or disadvantages
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  Speaker 4: of one versus the other.
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  Speaker 3: So I guess how old are.
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  Speaker 4: You, guys of fifties? Fifties?
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  Speaker 3: And so the other issue is the size of the
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  Speaker 3: estate might matter. Are you under let's call it fourteen million? Yes, okay,
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  Speaker 3: well wow, it just makes it difference. So are you
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  Speaker 3: are you over four million combined?
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  Speaker 4: Yes?
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  Speaker 2: Okay.
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  Speaker 3: So you're in that area where a state planning makes
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  Speaker 3: a lot of sense for Massachusetts because right there's a
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  Speaker 3: two million dollar exemption, and we want to make sure
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  Speaker 3: we shelter as much as we possibly can on the
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  Speaker 3: first death. So people that are that are doing and
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  Speaker 3: I assume you're you're looking into a revocable trust, correct, correct, yes, yeah,
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  Speaker 3: and so and that makes a lot of sense. But
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  Speaker 3: I can tell you for people that are under that,
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  Speaker 3: and let's just call it fourteen million. I don't really
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  Speaker 3: have a hard and fast rule for this. I just
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  Speaker 3: try to think about the estate tax exemptions that are
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  Speaker 3: in effect federally when defining what I call a moderate estate.
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  Speaker 3: So for smaller estates, that way under fourteen million, give
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  Speaker 3: or take one trust is absolutely the best way to go.
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  Speaker 3: There is no reason to be dividing assets between two trusts.
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  Speaker 3: It's more complicated, requires more effort, and shelters less assets
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  Speaker 3: for estate tax purposes. Right. Example, Let's say we were
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  Speaker 3: worth you know, four million, but you know two million
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  Speaker 3: of it is in an IRA. Well, I can't put
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  Speaker 3: the IRA in the trust, but I can put everything
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  Speaker 3: else in the trust. Okay. So I take my two
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  Speaker 3: million dollars of non IRA assets and I divide them
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  Speaker 3: between a husband trust and a wife trust. And then
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  Speaker 3: husband dies, Well, how much is in the trust? A million? Okay? Well,
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  Speaker 3: then I'm able to shelter a million dollars from a
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  Speaker 3: state taxes. Unfortunately, in Massachusetts we have a two million
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  Speaker 3: dollar exemption. Well, I wasted a million dollars of my
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  Speaker 3: exemption when I died because I only had a million
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  Speaker 3: dollars in my trust. However, if you draft a joint
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  Speaker 3: trust correctly on the first death, with use of a
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  Speaker 3: general power of appointment, you will be able to include
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  Speaker 3: the full two million dollars in the estate of the
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  Speaker 3: first to die. And therefore now I'm sheltering two million
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  Speaker 3: dollars on the first death, wasting none of my exemption.
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  Speaker 3: So when the surviving spouse dies, they might only be
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  Speaker 3: worth the two million, which would be the IRA asset,
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  Speaker 3: and thereby eliminating, not just reducing, at least the Massachusetts
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  Speaker 3: estate tax. Remember federally it's way higher than that. Anyway,
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  Speaker 3: problem you run into is you might not find lawyers
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  Speaker 3: that understand how to do the joint trust. So joint
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  Speaker 3: trust is my answer. That's the way to go, folks.
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  Speaker 3: That's just one kind of trust that's out there. There
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  Speaker 3: are many, and the one we're talking about in the
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  Speaker 3: guide today, not that one is right or wrong, but
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  Speaker 3: the one we're talking about in the guide today is
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  Speaker 3: the irrevocable Medicaid trust. It is quite frankly one of
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  Speaker 3: my favorite because it just lists all answer it's a
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  Speaker 3: question answer format. Over the last thirty years, I've put
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  Speaker 3: together the most frequently asked questions I get on these trusts,
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  Speaker 3: all the dues, all the don'ts. What can I put in?
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  Speaker 3: How do the taxes work? How much control do I have?
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  Speaker 3: Can I collect rent? I mean one after another, folks.
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  Speaker 3: So if you've never done an irrevocable trust, but you're
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  Speaker 3: thinking it might be for you, or if you've ever
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  Speaker 3: been afraid of them, call and get the guide and
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  Speaker 3: learn how they really work. Eight six six eight four
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  Speaker 3: eight five six nine nine or Legal Exchange Show dot
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  Speaker 3: com One more time eight six six eight four eight
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  Speaker 3: five six nine nine or Legal Exchange Show dot com talk.
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  Speaker 2: I got one more for you here. Let's go to
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  Speaker 2: Kathy in Kingsboro. Kathy, you are on with Todd Lutsky.
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  Speaker 5: He is, good morning, and thank you Todd for taking
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  Speaker 5: my call. I've been listening to your show for a while.
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  Speaker 5: I do have questions. Okay, my husband they currently they
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  Speaker 5: have family trust with property that hasn't been sold yet.
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  Speaker 3: This is you and your husband.
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  Speaker 2: It's his family, Oh, his family.
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  Speaker 5: My husband's family. Okay, but then my question is I
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  Speaker 5: inherited money from my dad and I have my own
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  Speaker 5: retirement money and beneficiaries have been set up for all
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  Speaker 5: of this. Do you advise a trust.
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  Speaker 3: Well, I think there's a lot more I need to know.
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  Speaker 3: So you and your husband, so you're married, correct?
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  Speaker 5: Correct?
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  Speaker 3: And you have kids?
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  Speaker 4: Yeah?
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  Speaker 3: And is this a first marriage or a second marriage?
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  Speaker 5: First marriage?
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  Speaker 2: Okay?
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  Speaker 3: So I would suspect that the fact that you inherited
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  Speaker 3: money is probably not an issue. I would tell you
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  Speaker 3: to add up all of your assets, including the inherited assets,
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  Speaker 3: add up all of the assets that your husband have,
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  Speaker 3: put them together, and give me a number. Is it
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  Speaker 3: bigger than four million? Or less than four million?
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  Speaker 5: Real estate money rite less than four million.
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  Speaker 3: Less than two?
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  Speaker 5: Maybe two or three?
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  Speaker 1: Good?
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  Speaker 3: So perfect? So we're say we're in that three million
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  Speaker 3: dollar range, it would seem to me. And one last question,
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  Speaker 3: how old are you?
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  Speaker 1: Sixty six?
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  Speaker 3: So it would seem to me that in that range
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  Speaker 3: and that age, I would be suggesting the following to
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  Speaker 3: you and your spouse. I would say, you know, do
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  Speaker 3: you guys want to avoid probate? Probably? Do you want
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  Speaker 3: to not pay Massachusetts death tax since you're north of
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  Speaker 3: two million but south of four million? Probably?
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  Speaker 1: Yes?
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  Speaker 3: You know, do you want to provide a bloodline plan
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  Speaker 3: to your family? And again, that's how do these assets
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  Speaker 3: get where? I want them to go and when and
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  Speaker 3: why and all of that. And then lastly, I would
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  Speaker 3: ask you, if you want to protect assets from the
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  Speaker 3: nursing home, would that be on your list as well?
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  Speaker 3: It would yes, So all four of those things is
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  Speaker 3: going to require a lot more than just naming designated
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  Speaker 3: beneficiaries on iras. I would suggest, excuse me, exactly the
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  Speaker 3: kind of trust I'm giving away this week this month
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  Speaker 3: in the guide, the irrevocable Medicaid trust, and in your case,
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  Speaker 3: there probably needs to be two, one for wife, one
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  Speaker 3: for husband. This is very different than the prior caller
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  Speaker 3: who is doing a revocable trust, which is why I
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  Speaker 3: indicated one trust was better for them. But revocable trust
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  Speaker 3: provide no protection from the nursing home. They do a
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  Speaker 3: lot of other things, but not that. So for you,
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  Speaker 3: I would recommend the two irrevocable trusts, sit with the lawyer,
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  Speaker 3: learn how they work, get the guide, learn how they work,
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  Speaker 3: and then if it's right for you, get it implemented.
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  Speaker 3: Hope that helps a little.
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  Speaker 2: Todd, when we're talking about I want to go back
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  Speaker 2: to talking a little bit about irrevocable trusts here, and
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  Speaker 2: you know specifically how they function. We talked about what
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  Speaker 2: a trustee has to do. What does the grand tour
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  Speaker 2: of that trust have to do? Is there any responsibility
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  Speaker 2: for them related to the trust specifically? How does it
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  Speaker 2: work on their taxes and stuff like that? Is there
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  Speaker 2: anything that goes on either annually or monthly that they
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  Speaker 2: need to do.
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  Speaker 3: So what I'll do is I'll take Kathy's call and
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  Speaker 3: pretend that they are the donors, just to make them
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  Speaker 3: feel like the husband and wife. And the good news
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  Speaker 3: is that there is going to be very little to
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  Speaker 3: do and you're going to have a lot of control. So,
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  Speaker 3: you know, Kathy, if you're listening still, and this is
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  Speaker 3: a concern of yours, how do these trusts work? You know,
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  Speaker 3: you would probably put your house in and you know,
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  Speaker 3: maybe some of your investment non IRA money in there,
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  Speaker 3: and then you know, at that point we would we
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  Speaker 3: would be able to say, uh, you could live in
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  Speaker 3: your house, you could collect the income. You know, maybe
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  Speaker 3: there's a tax return that has to be filed once
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  Speaker 3: a year. You're going to pay your normal bills like
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  Speaker 3: you always pay. So I don't really see that being
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  Speaker 3: a lot of effort, right And and I think what
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  Speaker 3: I'd like to have clients take away from this is,
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  Speaker 3: you know, what's the you know, what's the worst case scenario.
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  Speaker 3: What is it that I'm really doing day to day.
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  Speaker 3: It's really going to be very little. It's not going
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  Speaker 3: to disrupt your life much at all. So I think
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  Speaker 3: I think people need to take that sort of away
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  Speaker 3: from this.
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  Speaker 2: What if you want to sell a property that's in
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  Speaker 2: that irrevocable trust, what do you do versus what does
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  Speaker 2: the trustee do in that situation?
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  Speaker 3: So if you want to sell, and you're right, that
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  Speaker 3: would be again something that's not infrequent. I mean, I
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  Speaker 3: mean it is infrequent rather so, so you're not running
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  Speaker 3: around doing this.
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  Speaker 2: This is not a problem. You're not selling a house
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  Speaker 2: every day every day.
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  Speaker 3: So when you are doing it, you simply direct. Remember
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  Speaker 3: you direct, so the husband, wife, the donors of the
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  Speaker 3: world direct, the trustee put the house on the market.
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  Speaker 3: Trustee doesn't listen. You remove and replace the trustee, so
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  Speaker 3: you're really in charge of the sale and you get
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  Speaker 3: it sold just same paperwork, no additional paperwork. And as
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  Speaker 3: long as it's a grant or trust for income tax purposes,
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  Speaker 3: it is income tax neutral in terms of the taxation
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  Speaker 3: they will pay the exact same tax they would have
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  Speaker 3: paid had they not sold the trust, had they not
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  Speaker 3: sold the house via a trust. So, folks, a couple
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  Speaker 3: of questions, but hopefully the answers show you the flexibility
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  Speaker 3: you have with these trusts.
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  Speaker 2: Todd, thanks for joining us.
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  Speaker 3: Always a pleasure.
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  Speaker 1: This has been asked Odd on the Financial Exchange Radio Network.
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  Speaker 1: Asked Todd with Todd. Lutsky has been presented by Cushing
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  Speaker 1: and Dolan, serving Massachusetts and New England for more than
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  Speaker 1: 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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  Speaker 1: ninety three four thousand and one or visit Cushingdolan dot com.
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  Speaker 1: The views expressed in this segment are solely those of
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  Speaker 1: Cushing and Dolan Armstrong advisor. He does not provide any
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  Speaker 1: legal or tax advice. Please consult with your legal or
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  Speaker 1: tax advisor on such matters. Cushing and Armstrong do not
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  Speaker 1: endorse each other and are not affiliated