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Ask Todd: Common problems in basic estate planning · 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: 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.
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  Speaker 2: Lutsky as problems were now joined by Todd Lutsky from
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  Speaker 2: Cushing and Dolan. We've got the phone lines open and
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  Speaker 2: room for your calls about your estate plans. Why we
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  Speaker 2: Todd your questions live on air right now. Phone number
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  Speaker 2: eight eight eight two zero five two two six three.
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  Speaker 2: Again it's eight eight eight two zero five two two
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  Speaker 2: six three. Mister Lutsky, how are you doing today?
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  Speaker 3: I am never better? How about you?
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  Speaker 2: I'm good. I saw over the weekend actually that the
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  Speaker 2: Navy Navy the training dolphins to carry first aid kits
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  Speaker 2: really medicinal porposes only.
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  Speaker 3: That's good.
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  Speaker 2: Yeah, So it's it's exciting news. Todd want to talk
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  Speaker 2: to you a little bit about trusts and beneficiaries. Can
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  Speaker 2: you talk a little bit about are there any benefits
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  Speaker 2: to using a trust to name beneficiaries for assets as
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  Speaker 2: opposed to simply naming them directly on an account.
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  Speaker 3: So there's obviously different kinds of trust that we have
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  Speaker 3: to deal with, uh when we talk about this, but
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  Speaker 3: and certain things that will go into trust in certain
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  Speaker 3: things that want So first of all, on IRA would
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  Speaker 3: would generally not go into truy period, So I wouldn't
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  Speaker 3: wouldn't even wouldn't even do it because you have a
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  Speaker 3: big tax problem.
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  Speaker 2: What about naming a trust as a beneficiary of an IRA?
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  Speaker 3: And that's that's where I was headed. So you can't
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  Speaker 3: change the owner, and I think this is important owner
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  Speaker 3: versus beneficiaries, which what you're asking me for an IRA,
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  Speaker 3: I would say, you know, based on the kind of
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  Speaker 3: planning you're doing, So if you're trying to put you know,
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  Speaker 3: do it you know, married couple, or trying to ultimately
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  Speaker 3: get your IRA to your to your kids the next
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  Speaker 3: generation and maybe protect it from nursing home, not from
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  Speaker 3: nursing homes, but protecting it from your kids future creditors,
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  Speaker 3: future divorces, UH passing it down to a generation even
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  Speaker 3: below the children tax free. So if you're looking to
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  Speaker 3: do all of those things, then the designated beneficiary always
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  Speaker 3: primary is spouse, So always start with that. The primary
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  Speaker 3: should be the spouse from an income tax perspective, and
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  Speaker 3: the contingent could be the trust. So while you cannot
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  Speaker 3: put an IRA in the trust while you're alive, you
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  Speaker 3: can get it there when you die, so the beneficiary
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  Speaker 3: could be named that.
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  Speaker 2: Now for non IRA question sure pros and cons of
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  Speaker 2: that approach? What are the good things you get from
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  Speaker 2: doing that? What are the bad things that happen from
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  Speaker 2: doing that?
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  Speaker 3: If if the goal is to protect the IRA, let's
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  Speaker 3: take two to three million dollar IRA, sure big money, right,
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  Speaker 3: So we want to make sure that it's protected from
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  Speaker 3: the kid's future divorces, creditors, and generation skipping. Then there,
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  Speaker 3: I see there is no negative why because one I
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  Speaker 3: want it not going outright to the kids, because then
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  Speaker 3: all bets are off as to what happens to it.
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  Speaker 3: I want it getting into the trust is there, And
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  Speaker 3: I think what you're driving at, Chuck, is is there
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  Speaker 3: a tax problem doing that?
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  Speaker 1: Uh?
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  Speaker 3: And as long as the trust is designed to hold
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  Speaker 3: the IRA asset, which it should be, the required minimum
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  Speaker 3: distributions is what we talk about and what we care
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  Speaker 3: about from an income tax perspective, these required minimum distributions.
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  Speaker 3: If I name the children outright, it's ten years. Generally speaking,
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  Speaker 3: there's some exceptions. If I name the trust the beneficiary
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  Speaker 3: and the kids are beneficiaries inside the trust, it still
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  Speaker 3: comes out over ten years, but it doesn't come out
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  Speaker 3: to the kid. That's the difference. Sure, the required minimum
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  Speaker 3: distribution is still reaching into the IRA, pulling it out,
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  Speaker 3: subjecting that withdrawal to income taxes, but it goes to
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  Speaker 3: the trust. Now, I guess there could be a tax
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  Speaker 3: difference if the amount that goes to the trust remains
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  Speaker 3: in the trust and doesn't come out to the kids.
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  Speaker 3: It could be taxed at the trust level, which would
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  Speaker 3: be a higher rate than kids or human levels. Let's
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  Speaker 3: put it that way. So, but again, if I'm trying
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  Speaker 3: to protect it. I still want to make that distribution
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  Speaker 3: because every year I can decide whether I make a
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  Speaker 3: distribution or not. If someone's going through a divorce, we're
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  Speaker 3: going to build up inside the trust. But if if
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  Speaker 3: I don't have a problem, allow the distribution to come
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  Speaker 3: out and let the kid pay the tax.
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  Speaker 2: Talking with Todd Lutsky. If you've got estate planning questions,
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  Speaker 2: lines eight eight eight two zero five two two six three.
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  Speaker 2: That number again is eight eight eight two zero five
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  Speaker 2: two two six three Todd. When we talk about beneficiaries
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  Speaker 2: and how you know families might might think about them
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  Speaker 2: when it comes to revocable versus irrevocable trusts, any difference
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  Speaker 2: there in terms of how beneficiaries may or may not
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  Speaker 2: be treated, or is it pretty much the exact same?
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  Speaker 3: So I think it's probably the same. Let's let's run
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  Speaker 3: through it, though it's always better to sort of understand
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  Speaker 3: how that works. So if I've got a revocable trust
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  Speaker 3: and I want to put stuff in it, my first
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  Speaker 3: comment is I'm going to probably put everything in except iras.
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  Speaker 3: Of course, always we already talked about iras. They don't
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  Speaker 3: go in. So I would check change on an investment account,
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  Speaker 3: a brokerage account, a bank account, a CD. I don't
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  Speaker 3: care what it is. I don't see why I wouldn't
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  Speaker 3: just put it all in there. When I say put
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  Speaker 3: it in there, I mean change the owner. I don't
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  Speaker 3: need to change the beneficiary anymore. And the reason I
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  Speaker 3: don't is because once it's in the trust. The trust
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  Speaker 3: will dictate where everything goes when you die, and that's great.
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  Speaker 3: That's what I want to have happen, and I don't
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  Speaker 3: have to worry. And this is why sometimes people say, well,
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  Speaker 3: I'll just put one kid on one account, one kid
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  Speaker 3: on another account, and you know, but you don't know
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  Speaker 3: which account's going to grow faster than another, and you
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  Speaker 3: don't know if that's going to end up an unequal treatment.
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  Speaker 3: I don't want that. Plus I want to control it.
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  Speaker 3: I can't really control it by naming beneficiaries, so I
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  Speaker 3: would retitle it, changing the owner on those accounts to
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  Speaker 3: the name of the revocable trust. Now, similarly, with an
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  Speaker 3: irrevocable trust, if I wanted to fund it, I would
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  Speaker 3: do the same thing. I would change the owner on
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  Speaker 3: the these items to the irrevocable trust. The difference is
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  Speaker 3: what I put in before. With they're revocable, I'm likely
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  Speaker 3: to put everything in. With an irrevocable I'm probably not
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  Speaker 3: gonna do that. I always want to leave some stuff out,
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  Speaker 3: some access, you know, direct access to assets outside of
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  Speaker 3: these irrevocable medicaid trusts, or leave some stuff out. And
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  Speaker 3: the other reason I leave some stuff out is especially
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  Speaker 3: especially my bank account that receives my direct deposits social
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  Speaker 3: security or pension, because remember, when I'm talking about Medicaid trusts,
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  Speaker 3: I'm talking about people that are probably retired.
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  Speaker 2: Now, sure you're not talking about thirty year olds generally
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  Speaker 2: going that route, right, there's no need to be thinking
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  Speaker 2: about it, right.
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  Speaker 3: So these are generally folks that are either retiring, close
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  Speaker 3: to retirement, et cetera, and more on a fixed income.
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  Speaker 3: So you never want to put in that main operating
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  Speaker 3: bank account into a Medicaid irrevocable trust like you would
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  Speaker 3: where a revocable because you get these checks every month,
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  Speaker 3: whether it's pension, soci security, if it was owned by
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  Speaker 3: the irrevocable Medicaid trust, every single time it goes in there,
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  Speaker 3: it's a new five year waiting period for Medicaid because
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  Speaker 3: you added new money. People don't think about that. But
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  Speaker 3: I actually had someone who came to me. We didn't
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  Speaker 3: we didn't do the planning, but they were going on
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  Speaker 3: trying to apply for Medicaid and they came in and
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  Speaker 3: I saw this when we were going through the application process.
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  Speaker 3: I'm like, what are all these deposits? And they said, oh,
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  Speaker 3: it's our it's our soci security and pension. I'm like, oh,
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  Speaker 3: you're gonna have a big problem here. So for years
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  Speaker 3: we had to go back and count everything that went
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  Speaker 3: in there to figure out what the amount of the
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  Speaker 3: deposits were to get them out so basically cure the problem.
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  Speaker 3: I said, you're never going to be eligible for medicaid
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  Speaker 3: because this ongoing five year waiting period is every single.
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  Speaker 2: Month, it just keeps going.
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  Speaker 3: Yeah, it keeps extending it out right, And so we
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  Speaker 3: had to go back and undo all that and fix
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  Speaker 3: it to cure all that money back into their personal name,
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  Speaker 3: to eliminate the waiting period, and then deal with the
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  Speaker 3: money that's outside the trust to get them eligible for Medicaid.
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  Speaker 3: So so I think that's the biggest difference between the two.
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  Speaker 2: Just dig it in on that. It seems like that
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  Speaker 2: seems like obviously kind of a big problem in an
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  Speaker 2: estate plan. What other kinds of things do you see
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  Speaker 2: as being really common If someone comes to you and says, oh, hey,
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  Speaker 2: like I've done my estate plan, like I think I'm
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  Speaker 2: all ready to go, do you see an issue with this?
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  Speaker 2: What other common ones do you typically see that cause
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  Speaker 2: problems for people?
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  Speaker 3: Oh, common questions like an example would be.
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  Speaker 2: Not even not even common questions like things where someone
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  Speaker 2: thinks they're doing things right, right, okay, and then you
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  Speaker 2: look at it you like, no, do you realize what
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  Speaker 2: you've done here?
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  Speaker 3: Yeah? I see, so an example like that would be
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  Speaker 3: And again, partly this is where the guide comes in, right,
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  Speaker 3: we want to figure out what trust is right for you.
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  Speaker 3: I've had people come in and say say to me, uh, oh, okay,
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  Speaker 3: you know so and so is going into the nursing home,
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  Speaker 3: and you know, we know all about the five year
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  Speaker 3: waiting period. So we're all set because my mom, you know,
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  Speaker 3: she did the planning years ago. And again to your point, Chuck,
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  Speaker 3: we think we did it right. And then I sit
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  Speaker 3: down and I say, great, give me a copy of
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  Speaker 3: the trust. That's going to be a real helpful to us,
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  Speaker 3: and let's start figuring out how we can apply for medicaid.
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  Speaker 3: And then I look at the top of the trust
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  Speaker 3: and I see it's the you know, the you know,
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  Speaker 3: Tom Smith revocable trust. Okay, you didn't do it right.
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  Speaker 3: You did revocable trust planning right, sure, but you didn't
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  Speaker 3: do nursing home planning right because the five year waiting
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  Speaker 3: period never begins to run on assets in a revocable trust.
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  Speaker 3: So that would be an example of somebody who thinks
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  Speaker 3: they did it right and they didn't. But folks, that's
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  Speaker 3: what this guide is about this month rights. As we
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  Speaker 3: approach the end of the month, this is the top
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  Speaker 3: seven estate planning trusts, the ones I think are used
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  Speaker 3: most frequently and some of them most frequently misunderstood. Like
• 12:06
  Speaker 3: it starts with the nominee realty trust. What is that
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  Speaker 3: It's not even really a trust. You'll learn when you
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  Speaker 3: get the guide. Revocable trusts and irrevocable trust We just
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  Speaker 3: talked about two with you, Chuck, about the Medicaid and
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  Speaker 3: revocable trust. Well, there's other kinds of irrevocable trusts, life
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  Speaker 3: insurance trusts, first to die, second to die variety. People
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  Speaker 3: who have special needs children have you know, needs to
• 12:29
  Speaker 3: figure out a special needs trust. They're in here. What
• 12:32
  Speaker 3: about a pool trust? There's so many different trusts. These
• 12:36
  Speaker 3: are the top seven. They explain how they work, the
• 12:39
  Speaker 3: tax savings, the operation. If you've never done your planning,
• 12:43
  Speaker 3: this is going to help you get started. Pick which
• 12:45
  Speaker 3: one's right for you. Eight six six eight four eight
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  Speaker 3: five six nine to nine or Legal Exchange Show dot com.
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  Speaker 3: You can download it right there again eight six six
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  Speaker 3: eight four eight five six nine nine or Legal Exchange
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  Speaker 3: Show dot com.
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  Speaker 1: Todd.
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  Speaker 2: Do you see instances where I guess people will use
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  Speaker 2: a combination of different vehicles for their estate planning because
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  Speaker 2: of different needs? You know, maybe, hey, they've got a
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  Speaker 2: revocable trust that eventually spits out a special needs trust
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  Speaker 2: for a child of theirs, Or sometimes do people ever
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  Speaker 2: use revocable trusts and irrevocable trusts in the same estate plan?
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  Speaker 2: Are those things possible or useful in situations?
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  Speaker 3: Yeah, I think it's very important that when you're doing
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  Speaker 3: your planning, we you know, we use we first gather
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  Speaker 3: like all of your assets, and it's the amount of
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  Speaker 3: assets you have and the type of assets that you
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  Speaker 3: have that will dictate what kind of trust we do.
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  Speaker 3: So let's say we start with your foundation and it's
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  Speaker 3: a revocable trust, and you're worth about four million dollars,
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  Speaker 3: but you have a two million dollar life insurance policy. Well,
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  Speaker 3: now all of a sudden, I'm worth six million dollars,
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  Speaker 3: And that changes the estate tax game here in mass
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  Speaker 3: at least, even though it might not affect you federally,
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  Speaker 3: so it changes the game here. So now what, Well,
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  Speaker 3: maybe it makes sense to take that two million dollar
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  Speaker 3: life insurance policy and put it in an irrevocable medical
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  Speaker 3: an irrevocable life insurance trust. Right, so I would put
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  Speaker 3: all the other assets in my revocable trust. And by
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  Speaker 3: the way, many kinds of revocable trusts. With an estate
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  Speaker 3: worth well under fifteen million dollars, I'm probably putting together
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  Speaker 3: a joint revocable trust for this married couple hypothetical example.
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  Speaker 3: But that's great. It does avoid probate and reduce my taxes,
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  Speaker 3: but it's not going to quite eliminate them.
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  Speaker 1: Why.
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  Speaker 3: Because I got this two million dollar policy, I move
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  Speaker 3: that into an irrevocable life insurance trust, and as long
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  Speaker 3: as I live three years, the death benefit will now
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  Speaker 3: be estate and income tax free when I die, thereby
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  Speaker 3: reducing and helping to eliminate my state taxes. So a
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  Speaker 3: combination of the two trusts work good in that arrangement.
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  Speaker 3: And yes, sometimes special needs trusts are built in to
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  Speaker 3: please revocable trusts as well.
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  Speaker 2: Mister Lutsky, thank you so much for joining us today.
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  Speaker 3: We appreciate it always pleasure. Thank you.
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  Speaker 1: This has been Asked Odd on the Financial Exchange Radio network,
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