Latest / The Financial Exchange Show / Ask Todd: Naming beneficiaries in an IRA

Transcript

Ask Todd: Naming beneficiaries in an IRA · The Financial Exchange Show

• 0:01
  Speaker 1: This is Ask Todd on the Financial Exchange Radio network.
• 0:05
  If you have an existing estate plan or in the
• 0:07
  market for one, Todd Lutsky is here to answer your
• 0:09
  questions and help you plan for a later life. Ask
• 0:12
  Todd is presented by Cushing and Dolan, serving Massachusetts and
• 0:15
  New England for more than thirty five years, helping families
• 0:18
  with a state and tax planning, medicaid planning, and probate law.
• 0:22
  Visit Cushingdolan dot com. Now here's Todd Lutsky.
• 0:28
  Speaker 2: As promised, we are now joined by Todd Lutsky for
• 0:32
  Ask Todd. This is the segment where you get to
• 0:34
  ask your estate planning questions live on air. We got
• 0:38
  the phone lines open at eight eight eight to zero
• 0:41
  five two two six three. Again that is eight eight
• 0:45
  eight two zero five two two six three. Uh usually
• 0:51
  have a chance to get through two or three calls,
• 0:52
  so make sure that you get in line early if
• 0:54
  you do want to have your question answered by Todd.
• 0:58
  That phone number again is eight eight eight two zero
• 1:00
  five two two six three. And we got the lines
• 1:03
  open right now so you can get in line to
• 1:05
  ask Todd your question one more time. That is eight
• 1:08
  eight eight to zero five two two six three. Mister Lutsky,
• 1:13
  how are you doing today?
• 1:15
  Speaker 3: I'm never better?
• 1:16
  Speaker 2: How you doing pretty good? I uh went out to
• 1:19
  dinner last night. Yeah, I met the best valet ever
• 1:24
  when I dropped off the car.
• 1:25
  Speaker 3: Best valet. His name is Parker. That's great, fantastic, he
• 1:30
  is the best. That is the best, Todd.
• 1:32
  Speaker 2: I want to talk to you a little bit about
• 1:34
  beneficiaries on accounts, specifically on retirement accounts. What's the general
• 1:40
  thinking these days in terms of how to name IRA
• 1:44
  beneficiaries in order to coordinate them within the state plan.
• 1:49
  Speaker 3: So this this is I'm glad we have a month
• 1:53
  to talk about this, folks, because this is very very
• 1:56
  new in the estate planning world. Have been around since
• 2:00
  the Secure Act came out, you know, say call it
• 2:03
  twenty twenty two ish, So that is new in the
• 2:06
  estate planning world, and there's a lot of rules that
• 2:09
  go with it. So it's going to take time to
• 2:13
  explain all this. All right, this is not a one
• 2:15
  minute answer, but generally speaking, when you're dealing with an IRA, right,
• 2:21
  you probably have to understand two parts within an estate plan. One,
• 2:29
  I've got income tax problems with an IRA because none
• 2:32
  of it's been taxed. There's a whole other problem that
• 2:37
  many people forget about, the estate tax side. When you die,
• 2:42
  it's also subject to a state tax, so it's included
• 2:45
  in the estate for a state tax, and as it
• 2:47
  comes out, it's subject to income tax. So how it
• 2:50
  comes out and how quickly it comes out is very
• 2:54
  important from an income tax perspective. And if that's not
• 2:58
  complicated enough, that's not enough. With two balls in the
• 3:01
  air that we have to think about. Add in those
• 3:04
  folks who say I also want to protect this from
• 3:09
  the nursing home, knowing full well that during life I
• 3:13
  cannot change the owner of the IRA to the trust
• 3:19
  because of that second ball in the air income tax problems.
• 3:24
  If I took it all out and moved it to
• 3:26
  the trust to protect it from the nursing home, now
• 3:29
  I got to pay income tax on it, So that's
• 3:31
  a problem. So I just I didn't even really answer
• 3:33
  your question. I just started laid the groundwork for what
• 3:36
  we have to start thinking about when we name the
• 3:39
  beneficiary of an IRA your a state, Like when can
• 3:43
  you do it, who can do it? How old should
• 3:45
  you be? Lots of stuff to think about, but the
• 3:49
  quick answer is now that I've gone this far, is
• 3:53
  that you can do it. It can work to shelter
• 3:58
  assets from a state taxes. It can be done where
• 4:01
  it doesn't create any adverse income taxes, no better, no worse,
• 4:06
  but not adverse, and at the same time serve to
• 4:11
  protect an asset from the nursing home in a way
• 4:14
  that we could not do it before.
• 4:16
  Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
• 4:19
  and Dolan. If you've got a question that you want
• 4:21
  to ask Todd right now live on air, studio line
• 4:24
  here is eight eight eight to zero five two two
• 4:28
  six three. We're going to take a quick break, but
• 4:31
  when we come back it is going to be right
• 4:33
  to your questions with Todd. That number is eight eight
• 4:36
  eight to zero five two two sixty three. Again quick
• 4:41
  break here, than write to your questions one more time.
• 4:43
  That number is eight eight eight to zero five two
• 4:47
  two sixty three.
• 4:49
  Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
• 4:53
  only here on the Financial Exchange Radio Network. The following
• 4:58
  is an important message from SAB Solutions Incorporated. You're trusted
• 5:02
  advisor for companies needing inventory management. You're listening to ask
• 5:06
  Todd with Todd Lutsky on the Financial Exchange Radio network.
• 5:18
  Speaker 3: Still a little bit of room on the phone.
• 5:20
  Speaker 2: So if you have a question for Todd Lutsky called
• 5:22
  eight eight eight to zero five two two sixty three.
• 5:25
  Again that is eight eight eight to zero five two
• 5:28
  two sixty three. It's going to fill on the cave Phil.
• 5:31
  What is your question for Todd?
• 5:34
  Speaker 4: Yes, Todd, you did a trust for me more than
• 5:39
  five years back, and now in the trust I had
• 5:43
  a rental property. I want to sell the property. Can
• 5:46
  I take some money out of that sale?
• 5:49
  Speaker 3: So what are you going to sell the property for?
• 5:54
  Speaker 4: Oh?
• 5:54
  Speaker 3: About how much?
• 5:57
  Speaker 1: Oh?
• 5:57
  Speaker 4: Stay around six hundred thousand.
• 6:00
  Speaker 3: Okay. So first, just to explain to everybody so we
• 6:04
  understand the whole transaction. One, the first question is can
• 6:08
  I sell it? Because it's in an irrevocable trust. It's irrevocable, right,
• 6:12
  that is correct? All right? So can I sell it?
• 6:14
  The answers yes, the trustee can sell it. Next, you're
• 6:17
  going to have capital gains taxes that you have to pay, right,
• 6:20
  so you know whatever you paid for it, plus capital
• 6:23
  improvements less depreciation if you've been renting it is your basis.
• 6:29
  And so the difference between the fair market value and
• 6:33
  the basis will be your capital gain, which folks, by
• 6:36
  the way, is the same as it would be if
• 6:39
  it wasn't in the trust. So we don't have any
• 6:41
  adverse taxes. So you'll have to file that return pay
• 6:44
  the taxes. But the money will flow into the trust
• 6:48
  and the house will flow out of the trust to
• 6:51
  the buyer. And now you'll file a ten forty one
• 6:54
  income tax return to pay that tax. Now or we're
• 6:57
  getting there, I promise to your question, sow, wow, everybody
• 7:01
  can understand what's happened internally in the trust because of
• 7:05
  this sale. Now there's money sitting in the trust. I
• 7:09
  don't know after taxes. Let's say there's five hundred thousand
• 7:12
  dollars in there. I'm just guessing what can we do
• 7:15
  with it? First of all, I want to ask you,
• 7:18
  you know, do you really need five hundred thousand dollars
• 7:21
  before I tell you whether you can take it out
• 7:23
  or not. Is it something you really need to put
• 7:24
  five hundred thousand dollars in your pocket?
• 7:27
  Speaker 4: I do not, but I you know, I spent a
• 7:30
  lot on the house myself, Okay, I got a pocket expense,
• 7:33
  so I don't need five hundred, but I.
• 7:36
  Speaker 3: Could use half of that, Okay. And again I'm going
• 7:39
  to ask you again, why do I need a quarter
• 7:42
  million dollars in my pocket right now? Because the where
• 7:45
  it sits. And here's why I'm asking. It's important for
• 7:47
  everybody that money is just as protected from the nursing home.
• 7:54
  Remember you've been in there more than five years, folks,
• 7:56
  So that money is just as protected from the nursing home,
• 8:00
  avoiding probate, sheltered from estate taxes, providing for your family
• 8:04
  when you pass. As it was when it was a house.
• 8:08
  We didn't reset a clock, we didn't do any of that.
• 8:11
  So my advice would be, you know, can we get
• 8:14
  it out? Yes, I'm going to just tell you that,
• 8:16
  I'm sure we can get you the money. Secondly, maybe
• 8:21
  I just take it when I need it. I know
• 8:23
  it's mine. Do I need it in my pocket right now?
• 8:26
  Or do I need just some right now to take
• 8:28
  care of something that I want to do? So let
• 8:30
  me ask you that where are you at with that?
• 8:33
  Speaker 4: Yeah? Just something like take a trip or something.
• 8:36
  Speaker 3: Like that, exactly exactly. So that's what I want you
• 8:40
  to remember. I want you to remember that it's your money,
• 8:42
  it's just sitting there. If you don't need it all today,
• 8:47
  then don't take it. If you do need it for
• 8:49
  a car, a trip or something like that, then I
• 8:51
  can explain to you the two step approach to get
• 8:54
  it out by you know, gifting it out to the
• 8:56
  to the kids, and we can certainly talk off air.
• 8:58
  Can it comes out off to the kids and they
• 9:01
  give it back, so at the end of the day,
• 9:05
  that's a way to do it. Even though you can
• 9:07
  get it. My advice would be spend money outside the
• 9:11
  trust first, simply because that money outside the trust is
• 9:15
  completely at risk for the cost of long term care,
• 9:19
  and so why wouldn't I spend that first, especially if
• 9:22
  it's from an IRA, because saving it for the kids
• 9:25
  isn't always the best way to go because then it
• 9:26
  comes out over ten years to the kids if it's
• 9:29
  an IRA, which isn't helpful from an income tax perspective.
• 9:32
  So that's my thought on that, and I hope that
• 9:36
  answered your question and a whole lot more and give
• 9:38
  you something to think about as well. But we can
• 9:41
  certainly discuss it off air. Give me a call, folks.
• 9:45
  This was a great question because it explains that the
• 9:48
  way the trust works and how flexible it is. And
• 9:51
  it also even got us to the IRA question, which
• 9:53
  is what our guide is about. Right, there might be
• 9:56
  money outside the trust that everybody has because we you
• 10:00
  can't put an IRA into trust. How do we deal
• 10:03
  with our iras as part of our estate plan? Right?
• 10:07
  Naming the estate, although seemingly isn't the way you would
• 10:11
  initially think, now because the Secure Act passed, it gives
• 10:15
  us an opportunity to name the estate as an IRA
• 10:19
  without causing adverse estate tax consequences or income tax consequences,
• 10:24
  and can ultimately protect it from the nursing home faster
• 10:27
  than we could other ways before or otherwise before. So
• 10:31
  folks learn how to do this. If you have an IRA,
• 10:34
  get the guide eight six six eight four eight five
• 10:38
  six nine nine or Legal Exchange Show dot com again
• 10:43
  eight six six eight four eight five six nine nine
• 10:47
  or Legal Exchange Show dot Com.
• 10:49
  Speaker 2: Todd, I've got another one here for you. Let's go
• 10:51
  to Jim in Maine. Jim, what is your question for?
• 10:53
  Todd Lutsky?
• 10:56
  Speaker 5: Hey, Todd, I got a question on a step up
• 10:59
  in basis on a on a on a primary resident
• 11:04
  owned by a husband and wife the wife passed away
• 11:07
  years ago in nineteen ninety something.
• 11:10
  Speaker 3: Well, oh, can you give me the year because that
• 11:12
  year is going to be really important. Was it nineteen
• 11:16
  ninety seven or was it? Was it before nineteen ninety
• 11:19
  seven or after nineteen ninety seven, It's going to make
• 11:21
  a huge difference in my answer.
• 11:24
  Speaker 5: Yeah, let's say four.
• 11:28
  Speaker 3: Before nineteen ninety seven. Yeah, okay, because that's going to
• 11:33
  make a huge difference. Okay, go ahead.
• 11:37
  Speaker 5: So well, that so her her interest in the house
• 11:40
  landed in a family trust. The language of that trust
• 11:44
  provides husband with a life estate. That her interest in
• 11:49
  that property in that trust was reported on her estate
• 11:54
  return and no cue dip election taken.
• 11:58
  Speaker 3: Okay, husband died.
• 12:00
  Speaker 5: Husband dies in twenty twenty one, and we're thinking that,
• 12:05
  and he was a trustee of her trust by the way,
• 12:07
  that family trust. Yep, we're thinking with that life of state,
• 12:10
  he gets a step up in basis on his death
• 12:16
  in twenty twenty one.
• 12:18
  Speaker 3: Okay, So I think we're gonna we're gonna have to
• 12:21
  say no on that, and let me explain. So one,
• 12:26
  he he had a one half interest in the property
• 12:29
  right because he owned half, she owned half. When he
• 12:33
  died when she died, her half, as I understand it,
• 12:36
  got included in her estate, stuck in a trust. In
• 12:40
  the trust, it says he has the right to live there. Okay,
• 12:44
  And and there was a step up in basis by
• 12:47
  the way, when she died on her piece that went
• 12:51
  into her trust. I'm gonna I'm gonna give you that.
• 12:53
  So there should have been a step up in But
• 12:55
  that's nineteen ninety six, so you know the number is low,
• 12:59
  so you got to step up for that half then, Okay,
• 13:04
  that life estate is not the kind of life estate
• 13:08
  that causes a step up in basis when husband dies. Okay,
• 13:12
  So when husband dies, the only way you get a
• 13:15
  step up in basis is if you die owning something.
• 13:18
  In this case, husband did, husband owned half, So you're
• 13:22
  gonna get a half step up in basis in twenty
• 13:24
  twenty one when husband dies on his piece. There was
• 13:29
  a half step up in basis when wife died back
• 13:33
  in nineteen ninety six. Let's say I get it right,
• 13:37
  but no step up in basis on that life estate
• 13:40
  for husband. Why because in order to get a step
• 13:43
  up in basis when you have a life estate, the
• 13:45
  way the rule works is you have to give something
• 13:48
  away and retain the right to live there. In this case,
• 13:54
  husband didn't give anything away, right. Wife died owning a
• 13:59
  half inn interest in the property, and wife granted husband
• 14:03
  a life estate. Wife did so because husband didn't give
• 14:08
  away the property and retain the enjoyment of what he
• 14:13
  gave away. And that's what twenty thirty six of the
• 14:15
  Code says, you have to give it away and retain
• 14:19
  an interest in order to get a step up in basis.
• 14:23
  In this case, that didn't happen. Okay, So, and let
• 14:27
  me further explain how life estates work for folks that
• 14:30
  have done that, because they're looking at it and they're saying, wha,
• 14:33
  wait a minute, I have a life state and I
• 14:35
  gave it to my kids, and I retain the right
• 14:36
  to live there. When you do that, when you talk
• 14:39
  about what's included, the full value of the properties included
• 14:44
  in the estate of the decedent, not just the life interest,
• 14:48
  which is amazing, right, but that's how it works. So
• 14:51
  if you're all listening and you've given away your property
• 14:55
  and you've retained the right to live there when you dine,
• 14:58
  not just a life estate is included, but the full
• 15:00
  value is included. And to your point, Jim, if that
• 15:04
  were the case, then you'd get a full step up
• 15:07
  in basis on those situations when one dies. So but
• 15:12
  in your case, I hope I explained that clearly you're
• 15:15
  not going to get another step up on the life
• 15:17
  estate piece in the wife's trust.
• 15:20
  Speaker 2: Mister Lutsky, thank you so much for joining us today.
• 15:22
  Speaker 3: Always a pleasure. Thank you.
• 15:25
  Speaker 1: This has been asked Odd on the Financial Exchange Radio network.
• 15:29
  Askedd with Todd. Lutsky has been presented by Cushing and Dolan,
• 15:32
  serving Massachusetts and New England for more than thirty years,
• 15:35
  helping families with the state and tax planning, Medicaid planning,
• 15:38
  and probate law. Call eight hundred three nine three four
• 15:40
  thousand and one or visit Cushingdolan dot com. The views
• 15:44
  expressed in this segment are solely those of Cushing and Dolan.
• 15:46
  Armstrong Advisory does not provide any legal or tax advice.
• 15:49
  Please consult with your legal or tax advisor on such matters.
• 15:51
  Cushing and Armstrong do not endorse each other and are
• 15:53
  not affiliated