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Ask Todd: Why are IRAs so complicated? · The Financial Exchange Show

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  Speaker 1: This is Ask Todd on the Financial Exchange Radio network.
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  If you have an existing estate plan or in the
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  market for one, Todd Lutsky is here to answer your
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  questions and help you plan for a later life. Ask
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  Todd is presented by Cushing and Dolan, serving Massachusetts and
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  New England for more than thirty five years, helping families
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  with a state and tax planning, medicaid planning, and probate law.
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  Visit Cushingdolan dot com. Now here's Todd Lutsky and.
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  Speaker 2: We're now joined by Todd Lutsky from the law firm
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  of Cushing and Dolan. The segment is called Ask Todd
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  because you get to ask Todd your questions state planning
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  ones only, but if you got anything of state planning related.
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  We got the phone lines open at eight eight eight
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  two zero five two two six three last week. Once
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  again we did not get through everyone, so please get
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  in line early if you want to make sure that
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  your question gets answered. That number again is eight eight
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  eight to zero five two two six three. We do
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  have the phone line is open for you to ask
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  your estate planning questions to Todd. That phone number again
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  is eight eight eight two zero five two two six three.
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  Mister Lutsky, how are you doing today?
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  Speaker 3: I'm doing just good, just good. How are you doing?
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  I'm good.
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  Speaker 2: We got a little bit of bad news yesterday, though
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  you did, personally, not me personally.
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  Speaker 3: Old McDonald. Old McDonald on the farm had to sell
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  his farm.
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  Speaker 2: He did, yet he had to cover whatever he ei AIOS.
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  That's right, so the real real problem for him, Todd.
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  I want to talk to you a little bit about
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  beneficiary designations today, and specifically, you know, when we're talking
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  about how beneficiaries are designated on IRA's, how does that
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  what are the general recommendations for how to coordinate that
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  with an a state plan in general?
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  Speaker 3: So I think iras are your most complicated you know,
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  asset in your estate plan, so you know houses, rent properties,
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  your investment portfolio, all of those assets are pretty easy
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  to deal with. When I say easy to deal with,
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  I mean if I have a trust, whether it's revocable
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  or irrevocable, I'm likely going to suggest some or all
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  of those assets into the trusts. If it's revocable, we're
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  retitling all of those assets of the trust. I want
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  to do that. If it's irrevocable, we'll retitle all that
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  you feel comfortable putting into the trust very easy across
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  the board. Enter IRA. IRA is a problem because I
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  can't just retitle it now, and so if I try
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  to retitle it to a trust, I'm going to have
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  a big income tax hit because it has to come
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  out of the IRA and be taxed.
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  Speaker 2: Let me stop you on that. Is there any situation
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  in which you would ever say, hey, it does make
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  sense to do that, pull that money out of the
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  IRA and put it into a trust. Is there a
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  scenario where it might not be the norm, but you
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  still say, yeah, I would consider doing that.
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  Speaker 3: I think it would depend entirely on how much the
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  IRA is worth. I mean, if you got like a
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  million dollar IRA and you want to put it into
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  an irrevocable trust, first of all, you would never do
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  it with a revocable trust. You don't need to the
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  only time this becomes an issue is when you want
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  to do nursing home planning. And that's really again kind
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  of what the guide's dealing with too, is how can
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  we add nursing home planning protection to an IRA that
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  needs also estate tax planning and income tax issues. So
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  with a revocable trust, you'd never do it, but with
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  an irrevocable trust, could you do it? If they come
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  in and they say, you know, I really want to
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  protect this IRA from the nursing home, I just have
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  to do it, well, I would say, you know, how
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  big is it? If it's not going to cause a
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  huge income tax hit, I'm night. What about a wroth.
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  Now that's an idea. If I've had a wroth kicking
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  around for let's say ten years, and I've earned ten
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  years worth of income tax free growth, and there's five
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  hundred thousand dollars sitting in there, and I say, you know,
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  I really want to protect this from the nursing home. Well,
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  there's an interesting thought. Now I can take it out
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  tax free. Yes, I will lose further income tax free
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  growth by putting it in the year of vocable trust,
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  But you know what, I'm cutting my losses. I'm saying,
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  you know what, if I don't do it, it might
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  not be there because all those losses will be taken,
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  or all that money will be taken if I get sick.
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  If I put it there, at least I'm cutting my losses,
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  letting it grow inside the trust and protect it from
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  my family Hey, that's not a bad idea. So you
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  just got to look at the tax numbers. I think
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  Chuck is a way to go on that.
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  Speaker 2: Talking with Tod Lutski from the law firm of Cushing
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  and Dolan. If you've got a question for Todd, still
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  a little bit of room on the phone lines at
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  eight eight eight two zero five two two six three.
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  We're going to take a quick break now, but when
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  come back, it's right to your questions with Todd. That
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  number again is eight eight eight two zero five two
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  two six three. Quick break in your questions Ask Todd.
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  Speaker 1: With Todd Lutsky every Wednesday at ten thirty only here
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  on the Financial Exchange Radio Network. You're listening to Ask
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  Todd with Todd Lutsky on the Financial Exchange Radio Network.
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  Speaker 2: All right, let's get right to your questions with Todd
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  Lutsky here. First up, we've got Bob in situate. Bob,
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  what's your question for Todd Lutsky?
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  Speaker 4: Good morning, gentlemen. My parents moved into an independent living
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  facility uh sub and paid a nine paid a deposit
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  which is ninety percent refundable upon death or move out. Subsequently,
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  my father or my mother qualified for mass Health in
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  the nursing home there. My father passed away in January.
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  We notified mass Health, but that money moved over to
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  the nursing home, but it was still an escro. My
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  mother passed away in June, and that money was never
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  in her name, and the beneficiary or on the refund
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  form was their trust. There was no lean by mass Health,
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  nor was that money in my mother's name, and it
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  won't have to go through proby. Do we have any
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  risk of the state we're trying to recover that money?
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  Speaker 3: I'm going to say based on that fact pattern, No,
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  there's there's Massachusetts. Just so we understand how it works
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  with a medicaid situation. Apparently mom got on medicaid. Mom
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  was on medicaid before she died, right, correct, Okay, so
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  somehow Dad ended up passing away whatever, and then Mom
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  gets on Medicaid. She gets on Medicaid because the money
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  sitting in that account somehow wasn't wasn't hers. I don't
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  know how that. I don't know how Mom got on
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  Medicaid with the money sitting in an account that was
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  really available to her. In other words, all you guys
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  had to do was simply ask for it. Right, and
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  that money what it came came out. So that's the
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  part that's making me scratch my head because when you
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  apply for mass health, if you're in a nursing home,
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  you know, they want to know all your accounts. Now,
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  I get it. This was not an account in her name,
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  but yet she clearly was someone who could get the money.
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  So somehow we get on Medicaid. Now, the fact that
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  we're on Medicaid and this asset is going to avoid probate.
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  Mass Health can only recover against probate a state. Now,
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  when you file her will and you file her you
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  know if you have to go to probate it all
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  there is a document you got file showing are they're
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  going to ask you was she on mass Health? You
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  have to check a box and the answer is you've
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  got to send notice to the state and as part
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  of the probate, they then will come looking to say
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  are there any probate assets. If there are no probate assets,
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  then they cannot recover. So that's the rule, and mass
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  they can only recover from the estate probated state, not
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  the grossest state having the beneficiary listed as the trust.
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  It should go right to that trust. And I think
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  it will avoid probate, but that's the process. Is there
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  ever a chance, you know, you never can say never,
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  But I'm feeling pretty good about it, so folks, I
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  hope that helps a little. But you know, when we're
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  talking about, you know, protecting assets from the cost of
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  nursing home care, an IRA is generally a big asset
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  and generally a complicated asset. So learn how you can
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  now do both estate plan state tax planning, protect it
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  from a nursing home which was something we couldn't do
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  before without causing an adverse income tax on the required
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  minimum distribution, so a lot of heavy lifting, can't learn
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  it on the radio. Call and get the guide. Understand
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  how to fit your IRA into your estate plan the
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  right way eight sixty six eight four eight five six
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  nine nine or Legal Exchange Show dot com again eight
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  six six eight four eight five six nine nine or
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  Legal Exchange Show dot Com.
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  Speaker 2: Todd, I've got another call or for you here. Let's
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  go to Joey in Wooster. Joey, what is your question
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  for Todd?
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  Speaker 5: Hi, Good morning, Todd. I'm attempting to put a rental
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  property into a revocable trust, but the lender says that
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  I need to refinance the property in order to do this,
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  and uh, yeah, I don't know if that's accurate. And
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  if so, what recourse.
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  Speaker 3: Well, I can tell you that it's if it's a
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  revocable trust, right, not irrevocable? Correct?
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  Speaker 1: Yes, correct?
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  Speaker 3: So I think you need to go to someone higher
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  up in that bank and say, look, I don't have
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  to refinance anything because it's a revocable trust and transferring
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  my property encumbered property to a revocable trust does not
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  trigger a due on sale clause. Remember, mortgages have du
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  on sale clauses and or a du on transfer clause,
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  So transferring the property to a revocable trust does not
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  trigger the due on sale clause. So they can't call
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  the note. So I'm not even sure why we're telling
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  the bank just do it right, because I know it
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  can't call the note. In fact, there's a banking law
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  called the garn Saint Germain Act that actually explains this,
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  that they cannot call a note when it goes into
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  a revocable trust because you're still really considered the owner.
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  Now Medicaid your revocable trusts. Yeah, we got to be
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  a little more careful, right, and that's why we usually
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  reserve a life estate when we do that, to prevent
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  a calling of the note. But here, I'm not sure
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  why you're even having this discussion with them. I feel
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  like you can just go transfer it rental property or not. Now,
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  if it was going into an LLC, that's different. If
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  you're going to transfer this property into a limited liability
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  company because it's a rental property, then I'm going to
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  tell you, yeah, you're gonna have to get bank permission
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  before you transfer it. Otherwise they could call the note
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  if they find out. So that's my comment. I hope
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  that helps a little and we can take it from there.
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  Speaker 2: Todd, Earlier, we were talking a little bit about I
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  rays and beneficiaries and trying to figure out what to
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  do with them in order to coororate with in a
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  state plan. What other options are there out there for
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  someone who might have a sizable IRA, might be worried
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  about long term care costs and things like that, Like,
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  how does one approach that If you can't simply say, hey,
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  I'm going to pull this out, pay all this tax,
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  and you know, move into the irrevocable trust, what does
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  one do?
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  Speaker 1: Right?
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  Speaker 3: I think the best approach you're going to have. There
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  is you know this, What this guide is saying is
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  to you know, if you're married and you want to
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  set up a testamentary trust, which is a trust built
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  into your will. That's the best way to say it.
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  It's a fancy tax term. But you set up a
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  testamentary trust, which is a trust built into your will,
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  and then you name the estate as the beneficiary. Now,
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  remember you're normally hearing this. You're saying, my IRA should
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  be my spouse as the primary, my kids as the
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  alternate or the contingent beneficiaries. Very common, very normal. Not
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  so normal is naming the estate. Now if I name
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  the estate as the beneficiary, and again it's the estate
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  of the participant of the IRA. So if I name
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  the estate the beneficiary, now what have I done with
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  the testamentary trust? I still haven't protected either husband or
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  wife's IRA from the nursing home by doing that. Please
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  understand that, well, they're both living. We haven't actually protected
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  anything in advance from a nursing home. But Todd, you
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  were saying there's a way to do this in advance.
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  There is. By setting it up this way, you are
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  now giving yourself a fifty percent shot of protecting the
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  asset in advance from a nursing home, and before there
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  was never a shot. So now, how does it work
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  if you've named the estate the beneficiary and that participant
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  dies and the surviving spouse is not the beneficiary, so
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  the money flows through probate? Yeah, I know one negative,
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  not enough to not do it. Now it's sitting in
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  this testamentary trust for the benefit of the surviving spouse.
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  Surviving spouse now has access to both income and principle
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  of this money. Good, we're taking care of the spouse.
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  We want to do that. But now the surviving spouse
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  if gets sick, which could happen, could happen within six months,
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  it could happen the next day, doesn't matter when it happens,
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  it's immediately protected from the nursing home. So did I
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  do any advanced protection of an IRA from a nursing home. Yes,
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  But in order to get there, I need one of
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  the spouses to pass away without going to a nursing home,
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  which what is everybody's hope anyway, So to me, there's
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  no downside really to trying this. Why I say there's
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  no downside, but you really got to read the guide
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  and understand how that works, because there's a lot of
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  boxes to check when you make this decision.
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  Speaker 2: Mister Lutsky, thank you so much for joining us today.
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  Always a pleasure.
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  Speaker 1: This has been Asked Odd on the Financial Exchange Radio network.
• 15:19
  Ask Todd with Todd. Lutsky has been presented by Cushing
• 15:21
  and Dolan, serving Massachusetts and New England for more than
• 15:24
  thirty years, helping families with the state and tax planning,
• 15:27
  Medicaid planning, and probate law. Call eight hundred three nine
• 15:30
  three four thousand and one or visit Cushingdolan dot com.
• 15:34
  The views expressed in this segment are solely those of
• 15:35
  Cushing and Dolan Armstrong Advisory. He does not provide any
• 15:38
  legal or tax advice. Please consult with your legal or
• 15:40
  tax advisor on such matters. Cushing and Armstrong do not
• 15:42
  endorse each other and are not affiliated.