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Ask Todd: How to protect assets if you are running out of time · The Financial Exchange Show

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  Speaker 1: This is Ask Todd on the Financial Exchange Radio network.
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  Speaker 1: If you have an existing estate plan or in the
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  Speaker 1: market for one, Todd Lutsky is here to answer your
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  Speaker 1: questions and help you plan for a later life. Ask
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  Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
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  Speaker 1: New England for more than thirty five years, helping families
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  Speaker 1: with a state and tax planning, medicaid planning, and probate law.
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  Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
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  Speaker 2: As promised, We're now joined by Toddlutsky from the law
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  Speaker 2: firm of Cushing and Dolan. Call the segment asked talk
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  Speaker 2: is It's your chance to ask Todd your estate planning question.
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  Speaker 2: So we got the phone lines open eight eight eight
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  Speaker 2: to zero five two two sixty three. That number again
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  Speaker 2: is eight eight eight to zero five two two six three.
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  Speaker 2: Remember we only get to maybe two to three calls
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  Speaker 2: each week, so get calling early if you want to
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  Speaker 2: make sure that we get to your call. That number
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  Speaker 2: again is eight eight eight to zero five. I've two
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  Speaker 2: two six three. Mister Lutsky, how are you today?
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  Speaker 3: I am never better? How are you doing?
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  Speaker 4: Uh?
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  Speaker 3: I'm good.
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  Speaker 2: I competed in a neck decorating contest over the weekend
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  Speaker 2: neck decorating.
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  Speaker 3: Yeah, yeah, it was a tie.
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  Speaker 1: That's good.
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  Speaker 3: I was gonna ask you who won. Yeah, tie tie.
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  Speaker 2: So I want to talk to you a little bit
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  Speaker 2: about a hypothetical situation. Let's say that someone comes to
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  Speaker 2: you and says, Todd, I haven't done any kind of
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  Speaker 2: a state planning to this point. Uh huh, but my
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  Speaker 2: spouse is starting to show, you know, some signs of struggling,
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  Speaker 2: and we might be approaching a long term care situation.
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  Speaker 2: Nothing imminent, but maybe it's six to twelve months away.
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  Speaker 2: Oh wow, how would you approach that type of situation
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  Speaker 2: in terms of the type of plan that you drop,
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  Speaker 2: given that it's within the five year look back window,
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  Speaker 2: but not imminent happening tomorrow.
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  Speaker 3: So it's funny you use the word imminent, and imminent
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  Speaker 3: means so many different things to so many different people. Right, So,
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  Speaker 3: you know, six to twelve months doesn't seem like it's imminent,
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  Speaker 3: But when you compare it to the costs of long
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  Speaker 3: term care, when you compare it to the rules associated
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  Speaker 3: with long term care, it takes, as you said, Chuck,
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  Speaker 3: five years to protect the assets from the cost of
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  Speaker 3: long term care. So to me, that's almost imminent. So
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  Speaker 3: to me when I hear six to twelve months, to me,
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  Speaker 3: that's imminent versus five years. Right, So would I tell
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  Speaker 3: them to absolutely set up a plan knowing we're not
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  Speaker 3: going to make it the five years, Well, it would
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  Speaker 3: really depend on what kind of assets they have and
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  Speaker 3: what we're trying to do. So if we're a married couple,
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  Speaker 3: we have kids, and you know, let's say we're worth
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  Speaker 3: a couple million, maybe two three million, and we're trying
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  Speaker 3: to do an estate plan, well you might as well
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  Speaker 3: set up the plan, right because with one spouse, you know,
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  Speaker 3: being sick, it doesn't mean they're going to go into
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  Speaker 3: a nursing home. Their illness could take their life, right,
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  Speaker 3: So you would set up the estate plan and probably
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  Speaker 3: if the goal is to protect the assets from the
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  Speaker 3: nursing home for both husband and wife, that we might
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  Speaker 3: as well go ahead and do the earrevocable trust. And
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  Speaker 3: you might be thinking, well, well, they're never going to
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  Speaker 3: make the five years, Well, one we don't know for sure,
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  Speaker 3: and two having that clock running is never going to hurt.
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  Speaker 3: It'll give options later. So if this person makes it
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  Speaker 3: four years and they were wrong. Well, well, great, now
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  Speaker 3: we might only have to private pay one year to
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  Speaker 3: protect everything we put in the trust, and we might
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  Speaker 3: want to do that. That might make sense if it
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  Speaker 3: happens sooner, if they've just passed away. The estate plan
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  Speaker 3: works fine. It still avoids probate, it reduces taxes, it
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  Speaker 3: provides the bloodline plan. It worked perfectly right, and it
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  Speaker 3: didn't have to reset the clock for the other spouse
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  Speaker 3: that's surviving. So there's still lots of things and lots
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  Speaker 3: of reasons to do the planning, even though you might
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  Speaker 3: be in light of this potential sickness or illness that
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  Speaker 3: this client has. So that said, I probably still go
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  Speaker 3: ahead with the ear vocal. And finally, if they don't
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  Speaker 3: make it and they went to the nursing home, there
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  Speaker 3: are last minute things you can do to protect the
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  Speaker 3: assets for the healthy spouse. And then meanwhile, after the
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  Speaker 3: eligibility for medicaid occurs, you can still use the trust
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  Speaker 3: that you created, just refund it by the healthy spouse,
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  Speaker 3: so it would never be a waste of money. So yeah,
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  Speaker 3: I would probably still do some planning.
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  Speaker 2: Talking with Todd Lutski from the law firm of Cushing,
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  Speaker 2: and Dolan. Again, this is a segment for you to
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  Speaker 2: ask your questions. Phone lines are open it eight eight
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  Speaker 2: eight to zero five two two sixty three. So you
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  Speaker 2: got in a state planning question, this is your chance
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  Speaker 2: to ask Todd your question. Eight eight eight to zero
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  Speaker 2: five two two sixty three. We're gonna take a quick
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  Speaker 2: break here, but when we come back, it's gonna be
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  Speaker 2: right to your questions with Todd. Still have some room
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  Speaker 2: on the phone lines, so again that number is eight
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  Speaker 2: eight eight two zero five two two six y 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: Talking with Todd Letsky from the law firm of kushingan Dolan.
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  Speaker 2: Still have opening for another person. If you have a
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  Speaker 2: question for Todd about your estate plan. Studio line is
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  Speaker 2: eight eight eight to zero five two two sixty three. Again,
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  Speaker 2: if you've got in a state planning question, this is
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  Speaker 2: your chance to ask Todd. Eight eight eight to zero
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  Speaker 2: five two two six three. Let's go to John in Waterbury. John,
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  Speaker 2: what is your question for Todd?
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  Speaker 4: Hiight, the uh, the the you know, the gift where
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  Speaker 4: where anyone can give another person a gift. Yeah, I
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  Speaker 4: think I think it's like, I don't know what the
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  Speaker 4: limit is now, it's.
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  Speaker 3: Like today, what is it now today? I think in
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  Speaker 3: twenty twenty five it's up to nineteen thousand. I believe
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  Speaker 3: nineteen thousand per person per year?
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  Speaker 4: Would would that escape the five year countdown? Now a
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  Speaker 4: specific case in point octagenarian woman lives in an apartment
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  Speaker 4: but obviously is about to enter a convalescent home. Could
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  Speaker 4: she give like that nineteen thousand to her daughter?
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  Speaker 1: Yeah?
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  Speaker 3: So great question and the answer emphatically is no. But
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  Speaker 3: it's an often asked question and it's confusing for many folks.
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  Speaker 3: So how it works is in the gift tax world,
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  Speaker 3: the IRS world. So we have IRS rules and we
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  Speaker 3: have Medicaid rules. As you indicated, the Medicaid rule say,
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  Speaker 3: there's a five year waiting period when you make a gift,
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  Speaker 3: when you make a gift of and they don't really
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  Speaker 3: call it a gift, they call it a disqualifying transfer.
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  Speaker 3: So whenever you take an asset, put it somewhere where
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  Speaker 3: the nursing home can't get it anymore. And don't take
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  Speaker 3: back fair market value for what you gave away. That's
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  Speaker 3: a disqualifying transfer. So in your case, if you make
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  Speaker 3: if this octagenarian makes a gift to a daughter and
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  Speaker 3: takes nothing back, then that is going to create a
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  Speaker 3: five year waiting period for Medicaid eligibility. So no, can't
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  Speaker 3: give it away right away, even though the amount of
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  Speaker 3: that gift is nineteen thousand dollars or less. Right it
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  Speaker 3: it the IRS rules and the Medicaid rules are mutually exclusive.
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  Speaker 3: So what I mean by that is, yes, you made
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  Speaker 3: a nineteen thousand dollars gift, and because it's under this
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  Speaker 3: present interesting exclusion amount, you, the giver, the octagenarian in
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  Speaker 3: this case, does not have to file a seven h
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  Speaker 3: nine gift tax return. In fact, does not have to
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  Speaker 3: report a darn thing to the IRS, and it is
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  Speaker 3: not taxable. It still creates a five year waiting period
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  Speaker 3: for Medicaid eligibility. So no, you can't do that. But
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  Speaker 3: what I will leave you with and everybody else, you
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  Speaker 3: can still do something last minute, very likely for this
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  Speaker 3: person who's entering a nursing home to either protect what
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  Speaker 3: she still has last minute or actually slow the bleeding
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  Speaker 3: of the financial assets to the nursing home and still
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  Speaker 3: get on Medicaid. So that's my answer. And folks, that's
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  Speaker 3: exactly what this long term, long term Care Planning for
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  Speaker 3: Procrastinator's guide is all about. Right, This is exactly the case.
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  Speaker 3: You've got a situation where somebody's going into a nursing
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  Speaker 3: home and we're not sure what to do, and this
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  Speaker 3: guide says, don't write the check, call and learn how
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  Speaker 3: you can take certain assets and convert them from countable
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  Speaker 3: to noncountable. How's a house treated, how's rental property treated?
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  Speaker 3: What about life insurance? What about you know, investment assets?
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  Speaker 3: How are they treated?
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  Speaker 1: There?
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  Speaker 3: Their different assets have different treatment and different treatment for
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  Speaker 3: married versus single people. Both are explained in the guide.
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  Speaker 3: Please get it. Don't write the check to the nursing
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  Speaker 3: home eight six six eight four eight five six nine
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  Speaker 3: nine or Legal Exchange Show dot com. Long Term Care
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  Speaker 3: Planning for Procrastinators eight six six eight four eight five
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  Speaker 3: six nine nine or Legal Exchange Show dot com.
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  Speaker 2: Todd, we've got another caller for you here. Let's go
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  Speaker 2: to Rick in Chatham. Rick, what's your question for Todd Lutsky, Yes.
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  Speaker 5: Afternoon, thank you. If you have an irrevocable trust with
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  Speaker 5: your primary residence. And let's say you're able to sell
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  Speaker 5: it and move into let's say, downsize essentially, and let's
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  Speaker 5: see the new well well long story show. You have
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  Speaker 5: an excess of cash. Does that stay in the revocable trust?
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  Speaker 5: How does that work? Irrevocable?
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  Speaker 3: So couple of things I don't know, but I'll answer
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  Speaker 3: the question as if I drafted the trust as is
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  Speaker 3: Cushing and Dolan drafted the trust. Okay, I'm going to
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  Speaker 3: assume that the trust we have then is a grand
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  Speaker 3: or trust for income tax purposes, which is very important
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  Speaker 3: in answering your question. So what that means is that
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  Speaker 3: the donor of the trust, the creator of the trust,
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  Speaker 3: will be treated as the owner for income tax purposes.
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  Speaker 3: Right now, why is that important? First of all, can
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  Speaker 3: you sell it? Yes? So out would go the house
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  Speaker 3: from the irrevocable trust, let's say for eight hundred thousand dollars.
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  Speaker 3: In comes the eight hundred thousand dollars. To your point,
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  Speaker 3: we're going to downsize, which is very common. Most people
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  Speaker 3: call me during after we've done the planning and want.
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  Speaker 1: To do this.
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  Speaker 3: Okay, out goes five hundred thousand dollars. Incomes a new
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  Speaker 3: house and there's three hundred thousand dollars left in the trust.
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  Speaker 3: Of course I've ignored income taxes for the moment. There's
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  Speaker 3: three hundred thousand dollars left in the trust. Perfectly, okay.
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  Speaker 3: That transaction is done every day, and it does not
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  Speaker 3: restart the five year waiting period, which is very important.
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  Speaker 3: Especially you know, let's say you're you're eighty and you're downsizing. Well,
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  Speaker 3: you don't want to have to reset that five year
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  Speaker 3: waiting period. And the reason it doesn't reset the waiting
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  Speaker 3: period is because nothing new went in right. All we did,
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  Speaker 3: in essence, is convert one asset to another, reinvest what's
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  Speaker 3: already in the trust. So good news on that front. Yes,
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  Speaker 3: you can do it. No, it doesn't reset the clock.
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  Speaker 3: Now to the tax question. When you sell your primary residence,
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  Speaker 3: since it's a grand tour trust and you're treated as
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  Speaker 3: the owner for income tax purposes, they still get there
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  Speaker 3: if they're single a two hundred and fifty thousand dollars
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  Speaker 3: capital gains exclusion associated with the sale, or five hundred
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  Speaker 3: thousand if you're married. So that means the first two
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  Speaker 3: point fifty or the first five hundred thousand dollars of
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  Speaker 3: gain not proceeds. Gain is exempt from tax, So that
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  Speaker 3: means in English that there is no adverse income tax
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  Speaker 3: consequence associated with selling the house from a trust versus
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  Speaker 3: selling the house if they left it in their own name,
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  Speaker 3: So income tax neutral. So that that's good. And I
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  Speaker 3: think lastly your question is, well, that's great Todd, but
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  Speaker 3: there's now three hundred thousand dollars sitting in the trust. Yes,
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  Speaker 3: it does stay in the trust. Yes, it is used,
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  Speaker 3: uh by the trust. What what can you you know,
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  Speaker 3: what what can you do with it? I suppose would
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  Speaker 3: be the next question. Well, it gets invested, right, It's
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  Speaker 3: going to get invested any any way. You might want
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  Speaker 3: to invest the assets souh like if it was sitting
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  Speaker 3: in their own name, the donor's name. The donor might say,
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  Speaker 3: you know, I want to I want to buy stocks,
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  Speaker 3: I want to buy bonds, I want to put it
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  Speaker 3: in a CD perfectly, okay, right, you're allowed allowed to
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  Speaker 3: do that, and then once it's invested, it's going to
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  Speaker 3: hopefully generate you know, interest and dividends. Okay, what's because again,
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  Speaker 3: if you're the donors, it's is it my money? Is
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  Speaker 3: it still my money well, yeah, you're doing all these things. Well,
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  Speaker 3: the trust generally would say all the income that is
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  Speaker 3: generated by the trust belongs to the donor. So now
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  Speaker 3: the donor, the person who created the trust, is entitled
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  Speaker 3: to that money. It simply can come right out every month.
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  Speaker 3: In other words, you don't even need to bother the trustee.
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  Speaker 3: You could just simply set the account up as an
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  Speaker 3: automatic transfer, so that every month the interest and dividends
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  Speaker 3: flow out into this person's personal bank account, and they
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  Speaker 3: go spend it anyway they want, just like they would
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  Speaker 3: if they owned it.
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  Speaker 2: I know.
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  Speaker 3: Now there's an income tax question. While at the end
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  Speaker 3: of the year, this thing is going to generate income, right,
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  Speaker 3: who's paying the income tax on all that income? Well
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  Speaker 3: not the trust. Again very important that the trust is
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  Speaker 3: a grant or trust for income tax purposes, so that
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  Speaker 3: the income that it generates every year is picked up
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  Speaker 3: on the personal income tax return of the donor, whether
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  Speaker 3: they take the money or not. So again, income tax
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  Speaker 3: neutral to the end of So now we have every
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  Speaker 3: year that this thing is generating income, does not have
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  Speaker 3: to file a separate income tax return. I mean, it files,
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  Speaker 3: but it doesn't it doesn't have to pay files a
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  Speaker 3: ten forty one but doesn't pay Hopefully, folks, that answers
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  Speaker 3: a lot of questions that you might have had about
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  Speaker 3: irrevocable trust and their flexibility.
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  Speaker 2: Mister Lutski, thanks for joining us today.
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  Speaker 3: Always a pleasure.
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  Speaker 1: This has been Asked Odd on the Financial Exchange Radio network.
• 15:29
  Speaker 1: Askedd with Todd. Lutsky has been presented by Cushing and Dolan,
• 15:32
  Speaker 1: serving Massachusetts and New England for more than thirty years,
• 15:35
  Speaker 1: helping families with the state and tax planning, Medicaid planning,
• 15:38
  Speaker 1: and probate law. Call eight hundred three nine three four
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  Speaker 1: thousand and one or visit Cushingdolan dot com. The views
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  Speaker 1: expressed in this segment are solely those of Cushing and Dolan.
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  Speaker 1: Armstrong Advisory does not provide any legal or tax advice.
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  Speaker 1: Please consult with your illegal or tax advisor on such matters.
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  Speaker 1: Cushing and Armstrong do not endorse each other and are
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  Speaker 1: not affiliated.