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Ask Todd: Different options to protect your house · 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 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 the one and only
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  Speaker 2: Todd Lutsky from Cushing and Dolan, here to answer your
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  Speaker 2: estate planning questions live on the air. We got the
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  Speaker 2: phone lines open because again the segment's Asked Todd. It's
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  Speaker 2: your chance to ask your questions. We're got your estate
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  Speaker 2: plan to Todd Lotsky studio line. Is it eight eight
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  Speaker 2: eight two zero five two two sixty three? Get calling
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  Speaker 2: because we do see those those spots fill up quickly
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  Speaker 2: and we only have time to get through two or
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  Speaker 2: three questions in any particular show. That number is eight
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  Speaker 2: eight eight twos zero five two two six three. One
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  Speaker 2: more time it is eight eight eight to zero five
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  Speaker 2: two two sixty three. Mister Lutsky, how are you doing today?
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  Speaker 3: I am never better?
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  Speaker 2: It's good.
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  Speaker 3: How's that top that.
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  Speaker 2: I can't I'm actually in a little bit of uh
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  Speaker 2: a dour mood. Dour. Yeah. Yeah, well someone stole my
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  Speaker 2: my journal and then they died.
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  Speaker 3: They stole your journal.
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  Speaker 2: Yeah, Now my thoughts are with their family. That's that's true.
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  Speaker 2: So it's it's been tough, Todd. I want to talk
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  Speaker 2: a little bit about primary residences and can you just
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  Speaker 2: kind of rattle off what are some of the different
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  Speaker 2: estate planning tools that someone can use to potentially protect
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  Speaker 2: a primary residence from creditors? What are the different options
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  Speaker 2: that are available?
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  Speaker 3: So, and you know that that's important because I talk
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  Speaker 3: with clients a lot, and they always, you know, they
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  Speaker 3: come to me sometimes and they say, oh, in fact,
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  Speaker 3: har I had one the other day. They called up
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  Speaker 3: and they were wondering what to do, and they said,
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  Speaker 3: I've talked to three lawyers and nobody has said anything
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  Speaker 3: like you just said. So I'm like, okay, well, I
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  Speaker 3: don't know why they The problem I have with a
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  Speaker 3: comment like that is there oftentimes aren't that many options available.
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  Speaker 3: So when when clients come to me and say they've
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  Speaker 3: heard this, this and the other thing. I'm like, really,
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  Speaker 3: i'd like to know, because in order to protect assets
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  Speaker 3: from the nursing home, you know, there's it's not like
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  Speaker 3: picking paint where you got a gazillion options. I would
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  Speaker 3: say that two ways to do it. If you're talking
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  Speaker 3: just about real estate for now, a trust. Just take
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  Speaker 3: your house, put it into an irrevocable Medicaid income only trust. Remember,
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  Speaker 3: a revocable trust won't do it, so that's not an option,
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  Speaker 3: right and once it's in there, in that kind of
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  Speaker 3: a trust, it can ultimately be protected, So that's an option.
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  Speaker 3: The other option is sometimes people use these things called
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  Speaker 3: life estates, where you take the property and put them
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  Speaker 3: into the hands of a child or children plural, and
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  Speaker 3: retain the right to live there.
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  Speaker 2: That's a way of doing it.
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  Speaker 3: I think there's a lot of I think there's way
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  Speaker 3: more negatives with that approach than there are positives. But
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  Speaker 3: ultimately the one positive is it will protect it from
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  Speaker 3: the nursing home in five years. So I guess that's
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  Speaker 3: an option for doing it. Other people come to me,
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  Speaker 3: they say, well, I heard I can just put my
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  Speaker 3: kid's name on the house and then we'll own it jointly.
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  Speaker 3: Well that's not I guess it's an option, But to
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  Speaker 3: me it's not really an option because if I've given
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  Speaker 3: away half my house, that's not helpful for me as
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  Speaker 3: the mom and dads of the world. That the parents
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  Speaker 3: who probably are your client. So you always want to
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  Speaker 3: do things that protect your client first, each other husband wife,
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  Speaker 3: if they're married, and ultimately it'll help the kids, but
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  Speaker 3: their secondary So things that are that might be options
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  Speaker 3: that don't provide protection for the parents first, I don't
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  Speaker 3: think are really options, but yet they're thrown out as options. So,
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  Speaker 3: you know, give away your house, I've heard that. Well, yeah,
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  Speaker 3: I guess ultimately it'll protect it from the nursing home
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  Speaker 3: a boy. There's nothing good, nothing good that can come
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  Speaker 3: from that, But yet people think it's an option. So
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  Speaker 3: to me, I think long winded answer, chuck. But at
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  Speaker 3: the end of the day, there's really not a lot
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  Speaker 3: of options. I think there's really only one, and that's
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  Speaker 3: setting up the trust and putting the house in. However,
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  Speaker 3: you could do a life estate with the remainder being
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  Speaker 3: the trust, but somehow the trust needs to be involved
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  Speaker 3: in the planning process. Talking with Todd W. Lotski from
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  Speaker 3: the law firm of Cushing and Dolan. We still have
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  Speaker 3: room on the phone lines here at eight eight eight
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  Speaker 3: two zero five two two sixty three. That is the
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  Speaker 3: number to call to ask Todd your estate planning questions
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  Speaker 3: live right now again. That number is eight eight eight
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  Speaker 3: to zero five two two six three. We're gonna take
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  Speaker 3: a quick break here, but when we come back, we're
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  Speaker 3: gonna get right to your questions with Todd Lutsky. That
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  Speaker 3: number is eight eight eight to zero five two two
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  Speaker 3: six three. One more time.
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  Speaker 2: It's eight eight eight two 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: Still got a little bit of room on the phone line.
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  Speaker 2: So if you do have a question for Todd, eight
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  Speaker 2: eight eight two zero five two two sixty three is
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  Speaker 2: the number to call again. Eight eight eight two zero
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  Speaker 2: five two two six three. Let's go to Thomas in
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  Speaker 2: the car. Thomas, what is your question for Todd Latsky?
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  Speaker 4: Hey, Tlive, do you ever go in the house outright,
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  Speaker 4: can still be paying a mortgage to put into the trust.
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  Speaker 3: So so you're saying you've got a home. I'm just
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  Speaker 3: wanting to try to get to the facts. You have
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  Speaker 3: a home, and the home is currently encumbered.
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  Speaker 4: Jack is still being a mortgage.
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  Speaker 3: Is it your primary residence we're talking about or a
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  Speaker 3: two family or a rental primary residence.
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  Speaker 2: Not to two family, but for primary residence.
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  Speaker 3: Okay, So so two points there. So a two family
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  Speaker 3: primary residence, let's say renting one unit and living in
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  Speaker 3: the other, and we want to take that and put
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  Speaker 3: it into a trust. Right, So if you want to
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  Speaker 3: put that into an irrevocable trust, not so much. With
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  Speaker 3: a revocable trust, we don't have concerned. You can just
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  Speaker 3: transfer it right in. But if you wanted to put
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  Speaker 3: it into an irrevocable trust to get it protected ultimately
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  Speaker 3: from the cost of long term care, we would actually
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  Speaker 3: put the property in, but you would reserve a life estate.
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  Speaker 3: So that's interesting. That's exactly what we're talking about in
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  Speaker 3: the guide. Right, there's pros and cons to these life estates.
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  Speaker 3: I use them very rarely, but in your case, would
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  Speaker 3: be one of the three times I would use a
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  Speaker 3: life estate is when you have a mortgage, actually two
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  Speaker 3: of the three times when you have a mortgage, by
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  Speaker 3: reserving the life estate and putting the property in the trust,
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  Speaker 3: that nugget of ownership preserves the mortgage. So if you
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  Speaker 3: have a low interest rate mortgage and you're transferring the
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  Speaker 3: property to the trust in today's higher interest rates environment,
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  Speaker 3: the bank would look for any option possible to call
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  Speaker 3: the note. So this transfer could trigger the douw on
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  Speaker 3: sale call, but it will not once you reserve that
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  Speaker 3: life estate, so we don't have to tell the bank
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  Speaker 3: because we know it doesn't trigger the dew on sale class.
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  Speaker 3: So one that preserves your mortgage. Secondly, if it's a
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  Speaker 3: rental and that's the only property, meaning it's a two families,
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  Speaker 3: so you're renting it and that's the only property we're
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  Speaker 3: putting in the trust, well I might not want to
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  Speaker 3: have to file an income tax return for the trust.
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  Speaker 3: If the trust owned the whole property, it would have
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  Speaker 3: earned income rental income, and then you'd have to file
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  Speaker 3: a tax return for the trust. Although it would never
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  Speaker 3: pay any taxes, it would flow the income through to
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  Speaker 3: you and you'd pick it up on your personal income
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  Speaker 3: tax return. So it's income tax neutral. Some people just
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  Speaker 3: don't like the bother of filing that extra tax return,
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  Speaker 3: So instead of that, you could reserve this life estate,
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  Speaker 3: which you'd be doing anyway because it's of the mortgage.
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  Speaker 3: But by reserving that life estate, not only does it
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  Speaker 3: give you the right to live there and preserve the mortgage,
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  Speaker 3: also gives you the right to the income. So now
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  Speaker 3: the rental checks can continue to be written directly to
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  Speaker 3: you as they were in the past. You will collect
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  Speaker 3: the rent deposited in your personal bank account and move on,
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  Speaker 3: and you will not have to file any income tax
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  Speaker 3: returns for the trust. So long winded answer, but I
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  Speaker 3: think it's the right one, and it gives you all
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  Speaker 3: the options you need. So if I was you get
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  Speaker 3: your planning done, use that trust. It'll work. Folks, this
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  Speaker 3: is a great question because it ties into the guide
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  Speaker 3: right the life estates. We're trying to help you understand
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  Speaker 3: the consequences of a life estate. So if you've got one,
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  Speaker 3: learn what you've done.
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  Speaker 2: Get the guide.
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  Speaker 3: If you haven't done one and you're thinking about doing one,
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  Speaker 3: please get the guide so you can learn what you're
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  Speaker 3: getting into. What I mean by that is there's gift
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  Speaker 3: tax consequences, There's income tax consequences. There's control issues. What
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  Speaker 3: if I want to sell? What if I want to downsize?
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  Speaker 3: Where's the money go? If it's in a life of
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  Speaker 3: state arrangement? What are the income tax implications that arrangement?
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  Speaker 3: If I want to do any of these things, Folks,
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  Speaker 3: get the guide, understand how they work. And sometimes the
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  Speaker 3: short answer isn't always the better answer. The short version
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  Speaker 3: of doing planning that is 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 again eight six six eight four eight five six
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  Speaker 3: nine nine or Legal Exchange Show dot com.
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  Speaker 2: Todd, I got another one queued up for you here.
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  Speaker 2: Let's go to John Ian Weymouth. John, what's your question
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  Speaker 2: for Todd Lutsky?
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  Speaker 4: Yes, Hi, Tod, Tod. I recently sold my house and
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  Speaker 4: so I gave everything to my ex wife for a dollar.
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  Speaker 4: And now what I have left is roughly a million
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  Speaker 4: dollars in my IRA, and I want to protect it
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  Speaker 4: from a nursing home. Is there any way I can
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  Speaker 4: protect these moneies that? Am I going to get in
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  Speaker 4: trouble for selling the host of my ex wife for
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  Speaker 4: a dollar?
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  Speaker 3: So let's yeah, let's try to figure. First, for how
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  Speaker 3: old are you, John, So you're seventy seven. Do you
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  Speaker 3: have any children?
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  Speaker 4: Yes?
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  Speaker 3: Okay, So here's the concern. You have a million dollars
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  Speaker 3: in an IRA. When you say you sold the house
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  Speaker 3: to your wife for a your ex wife, excuse me,
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  Speaker 3: for a dollar. So the divorce is final, right when
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  Speaker 3: you say ex wife, it's actually a final divorce.
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  Speaker 4: Yes, okay.
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  Speaker 3: And and and the the selling it to your to
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  Speaker 3: your ex wife for a dollar was that part of
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  Speaker 3: the divorce settlement or is that something that happened after
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  Speaker 3: the fact.
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  Speaker 4: I we we we had an amical divorce, and I
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  Speaker 4: just said, you know, you keep the house and where
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  Speaker 4: my money's were all in IRA, I said, you know,
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  Speaker 4: we'll go We'll go that way. You go your way,
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  Speaker 4: and I'm going mine.
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  Speaker 3: I see. So you kind of gave her the house
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  Speaker 3: in exchange for your ability to keep your your IRA.
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  Speaker 4: Yeah, okay.
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  Speaker 3: So if it was so, basically it was a gift
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  Speaker 3: from you to your wife, because if you say you
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  Speaker 3: sold it for a dollar, that's not really a sale.
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  Speaker 3: I hear people say that all the time. The government
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  Speaker 3: would just treat that as a gift. Okay. Now, if
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  Speaker 3: in fact it was related to the divorce. So if
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  Speaker 3: it's if it's tied to the divorce, I'm guessing that
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  Speaker 3: you could make the argument that you made this gift
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  Speaker 3: incident to the divorce and that you were hopefully still
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  Speaker 3: technically married when you made the gift. Reason being that
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  Speaker 3: would qualify for the marital deduction, meaning you can make
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  Speaker 3: you can gift as much as you want to a
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  Speaker 3: spouse and there's no what gift tax involved. If in
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  Speaker 3: fact you were divorced, then you made a taxable gift
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  Speaker 3: to your to your spouse, So how much was the
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  Speaker 3: was the house worth? Okay, so you know you technically again,
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  Speaker 3: if you weren't married at the time and you were
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  Speaker 3: fishly divorced, you made a taxable gift of five hundred thousand,
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  Speaker 3: Is that going to come back and bite you. Maybe not.
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  Speaker 3: I mean, you have the ability to shelter thirteen point
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  Speaker 3: nine million for gift tax purposes, So clearly it's under
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  Speaker 3: that you need to file a gift tax return, but
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  Speaker 3: you wouldn't have any gift tax due, but it would
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  Speaker 3: eat into your Massachusetts exemption as well. So good news
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  Speaker 3: is if your total Massachusetts exemption is if your total
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  Speaker 3: Massachusetts estate is only a million, then you're under the
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  Speaker 3: two million dollar Massachusetts exemption. Even if you reduce the
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  Speaker 3: mass exemption by five hundred thousand, which you would have
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  Speaker 3: to do for the taxable gift that you made to
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  Speaker 3: your ex wife, you're still under a million. Five So
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  Speaker 3: wipe your brow, and we have no gift tax and
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  Speaker 3: no state tax. Problem is, I still haven't answered your
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  Speaker 3: question about the IRA, which is can I protect the
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  Speaker 3: IRA from the nursing home? And I don't really see
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  Speaker 3: a way to do that. And here's why I wanted
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  Speaker 3: to move the IRA money to one of these irrevocable trusts.
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  Speaker 3: You really can't because if you do, you got to
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  Speaker 3: take it out, pay income tax on it, and then
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  Speaker 3: put the balance in. So even if I took out
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  Speaker 3: five hundred thousand, thinking I'd leave five hundred in my IRA,
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  Speaker 3: you know you're gonna you're looking at close to two
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  Speaker 3: hundred thousand dollars in tax. You figure forty percent federal
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  Speaker 3: and state on five hundred thousand dollars. So so I
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  Speaker 3: don't think that's a great idea. So unfortunately, the type
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  Speaker 3: of asset that you retained great for you live on it,
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  Speaker 3: please enjoy it, but not real easy to protect from
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  Speaker 3: the nursing home. And then of course you just set
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  Speaker 3: up designated beneficiaries on that IRA to make sure it
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  Speaker 3: goes to whoever you want it to go to and
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  Speaker 3: how and when they get it, which could be a trust.
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  Speaker 2: Mister Lutsky, I appreciate you taking the time to join
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  Speaker 2: us today.
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  Speaker 3: It's always my pleasure. Thank you.
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  Speaker 1: This has been asked Todd on the Financial Exchange Radio
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  Speaker 1: network Aske Todd with Todd. Lutsky has been presented by
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  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 three nine
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  Speaker 1: three four thousand and one or visit Cushingdolan dot com.
• 15:19
  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 illegal or tax
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  Speaker 1: each other and are not affiliated