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Ask Todd: How do irrevocable life insurance trusts work? · 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: As promise, we're joined now by the one and only
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  Speaker 2: Todd Watski from the law firm of Cushing and Dolan.
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  Speaker 2: planning questions for Todd. Eight eight eight two zero five
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  Speaker 2: eight eight eight two zero five two two six'. Three Mister,
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  Speaker 2: lutsky how are you doing. Today i'm doing pretty, well pretty,
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  Speaker 2: well can't complain, You, uh not.
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  Speaker 3: BAD I SO i have a pet. Snail that's an interesting.
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  Speaker 3: Pet YESTERDAY i.
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  Speaker 2: Took the shell off the snail to see if he'd
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  Speaker 2: get faster and made it more. Sluggish, Yeah i'm. Sure,
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  Speaker 2: yeah real problem it, Is. TODD i want to talk
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  Speaker 2: to you about irrevocable. Trusts when you look at the
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  Speaker 2: menu of choices that an individual, has how many different
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  Speaker 2: kinds of irrevocable trusts are there realistically for an individual
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  Speaker 2: to choose, from depending on what they're trying to.
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  Speaker 3: Do, YEAH i think that's a that's an interesting question
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  Speaker 3: BECAUSE i always tell, people, yeah there's many kinds of irrevocable,
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  Speaker 3: trust AND i never know what the kinds there. Are,
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  Speaker 3: yeah we never really get into all these different. Kinds
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  Speaker 3: You're you're absolutely, Right so you, know it really depends
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  Speaker 3: on what you're trying to. Accomplish so let's start with
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  Speaker 3: something like a qualified personal residence. Trust, well that's an irrevocable.
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  Speaker 3: Trust it's a way of getting your home or your vacation,
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  Speaker 3: home very specific to only those two kinds of, assets
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  Speaker 3: where you transfer the home to the trust and you. Reaserve,
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  Speaker 3: well you have this reversionary period where then you have
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  Speaker 3: to live x number of years and you can pick
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  Speaker 3: the term of. Years of, course the longer the term of,
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  Speaker 3: years meaning if you die within that term of, years
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  Speaker 3: then that property never is out of your, state it's back.
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  Speaker 3: In that's called a risk of. Reversion, well that risk
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  Speaker 3: of reversion allows me to discount the value of the
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  Speaker 3: Property i'm putting in there for gift tax, Purposes so
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  Speaker 3: it allows me to lower the, value getting more assets
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  Speaker 3: out of my, estate leveraging my exemption by doing. So
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  Speaker 3: but the longer the time, period the larger the. DISCOUNT
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  Speaker 3: i then get that asset out of your state and
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  Speaker 3: all the future growth out of your. State so that's for.
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  Speaker 3: That then there's people who want to just make regular.
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  Speaker 3: Gifts they might just set up gifting trust just for
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  Speaker 3: children or grandchildren and have it designed only for. Them
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  Speaker 3: that's okay. Too then there's people who set up spousal
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  Speaker 3: lifetime access, trusts also, irrevocable but these are, yes like
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  Speaker 3: a gifting, trust but more designed for you husband and.
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  Speaker 3: Wife that's why there's spousal lifetime access trusts to give
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  Speaker 3: something away but retain the right to enjoy what you
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  Speaker 3: gave away kind of, indirectly so very different than an
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  Speaker 3: outright gifting trust to kids or a grandchildren's. Trust and
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  Speaker 3: Then i'd say another one might be irrevocable life insurance
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  Speaker 3: trust to hold life insurance and keep it a state
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  Speaker 3: and income tax. Free and, finally how about a medicaid irrevocable.
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  Speaker 3: Trust will we talk a lot about, that which is
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  Speaker 3: WHY i left it for, last because we know about,
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  Speaker 3: it we know it's designed Where unlike a lot of
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  Speaker 3: these other TRUSTS i just, mentioned this one is very
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  Speaker 3: much in control by, you so we get to control,
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  Speaker 3: it use, it benefit from, it but yet avoid, probate reduce,
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  Speaker 3: taxes and protect it from the cost of long term.
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  Speaker 3: Care so very different, trusts very different control aspects to the,
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  Speaker 3: trust and very different reasons to do each trust driven
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  Speaker 3: by your family.
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  Speaker 2: Needs talk With TODD. A lotski from the law firm
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  Speaker 5: Three.
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  Speaker 2: Todd during the last segment you mentioned irrevocable life insurance.
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  Speaker 2: Trust describe to me what that does in who that
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  Speaker 2: would be a potential tool For, yeah you know.
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  Speaker 3: Interesting not only is it a type of irrevocable, trust
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  Speaker 3: it actually has its own. Subcategory so there's two types
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  Speaker 3: of irrevocable life insurance. Trust so within the life insurance trust,
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  Speaker 3: world we actually have two. Kinds one is called the
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  Speaker 3: first to die and the second one is, called ironically,
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  Speaker 3: enough second to die irrevocable life insurance. Trust what DO
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  Speaker 3: i mean by? That that's driven by the type of
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  Speaker 3: life insurance that you. Own so let's play out the.
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  Speaker 3: String If i've got a first to, die let's Say
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  Speaker 3: i'm the. Insured it's a POLICY i own on my.
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  Speaker 3: LIFE i would put that into an irrevocable life insurance
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  Speaker 3: first to die. Trust likely If i'm, married make my
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  Speaker 3: wife the, trustee which is, OKAY i can't, be and
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  Speaker 3: THEN i can be the donor AND i can keep
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  Speaker 3: the power to remove and replace the, trustee SO i
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  Speaker 3: keep some control, sure and THEN i just pay the
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  Speaker 3: PREMIUMS i make a gift to the, trust the trust
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  Speaker 3: pays the, premium and life goes. On WHEN i, die
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  Speaker 3: the money flows into that trust income and estate tax
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  Speaker 3: free for the benefit of my spouse and my. Kids
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  Speaker 3: and there'll be language in there with the spouse as
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  Speaker 3: trustee SAYING i get the income for, life and the
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  Speaker 3: spouse can also take out the principle as needed to
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  Speaker 3: maintain her standard of living as. Needed so great she
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  Speaker 3: gets to enjoy. It so estate tax free WHEN i,
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  Speaker 3: die available for the use and enjoyment for my, spouse
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  Speaker 3: and to the extent my spouse has not spent it,
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  Speaker 3: all not taken it. All when she, dies whatever's left
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  Speaker 3: in there also not included in her estate and, passes
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  Speaker 3: yet again estate tax free to either the kids or
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  Speaker 3: or to a share for the benefit of the, kids
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  Speaker 3: depending on how long we want this to go. On generationally,
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  Speaker 3: speaking state tax. Free so wonderful approach as to how
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  Speaker 3: that works with life. Insurance, remember you got two million
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  Speaker 3: dollar policy and you die In. Massachusetts that's one asset
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  Speaker 3: you got in a state where two million, already so
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  Speaker 3: it can. Matter it can. Matter second to, die on
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  Speaker 3: the other, hand is one where my wife AND i
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  Speaker 3: are the owners of the, policy the insured on the.
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  Speaker 3: Policy we both then contribute it to the irrevocable trust
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  Speaker 3: and are both the, donors and neither of us are the.
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  Speaker 3: Trustees usually put the kids, on but keep the power
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  Speaker 3: to remove and replace the, trustee so he keeps some. Control,
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  Speaker 3: now the benefits of the trust are for the kids
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  Speaker 3: and the, Grandkids but again we pay the premiums to
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  Speaker 3: the trust to the trust then uses the money to
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  Speaker 3: pay the actual premium to the insurance. Company life goes
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  Speaker 3: on till we both, die then the money flows in the.
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  Speaker 3: Trust and why is that Important because that's really when
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  Speaker 3: the estate tax would be, due if. Any and so
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  Speaker 3: now we use the money in the life insurance trust
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  Speaker 3: to satisfy the estate tax, liability to prevent any liquidation,
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  Speaker 3: event to get money to pay any estate. Taxes number
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  Speaker 3: one and number two it was we leveraged our, dollars,
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  Speaker 3: Right so if if we owed let's say a million
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  Speaker 3: dollars in, tax but we only paid you, know one
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  Speaker 3: hundred thousand dollars in. Premiums, wow, yeah the government gets
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  Speaker 3: there a million dollars in, tax but really out of our,
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  Speaker 3: pocket they only got one hundred thousand. Bucks SO i
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  Speaker 3: mean that's a pretty significant. Leverage but life insurance can do.
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  Speaker 3: THAT i don't know if it's to that, degree but
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  Speaker 3: it certainly can provide. Leverage i'm just trying to make a.
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  Speaker 3: Point so good idea if you're in that. Situation so
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  Speaker 3: folks that need estate planning that have life insurance in,
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  Speaker 3: play please consider. Those and if you need more information
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  Speaker 3: on these kinds of, trusts islets revocable other irrevocable, trusts revocable,
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  Speaker 3: trusts special needs, trusts pooled. Trusts you know you might
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  Speaker 3: have a disabled, child of, course nominy realty Trust, chuck
• 10:25
  Speaker 3: you know we hate. Those no one knows what they,
• 10:26
  Speaker 3: are so we certainly got to learn. That this is
• 10:29
  Speaker 3: a great. Guide the top seven estate planning trust will
• 10:31
  Speaker 3: help you if you've never done your, planning get started
• 10:35
  Speaker 3: doing your planning and pick which trust is right for.
• 10:38
  Speaker 3: You and if you've done your planning, already then this
• 10:42
  Speaker 3: trust will help you figure, out, well MAYBE i need to, upgrade,
• 10:46
  Speaker 3: change maybe my dynamics have, Changed Maybe i'm older AND
• 10:49
  Speaker 3: i want to switch. Trusts something for everyone in these
• 10:52
  Speaker 3: in this. Guide top seven Estate Planning trusts eight six
• 10:55
  Speaker 3: six eight four eight five six nine nine Or Legal
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  Speaker 3: Exchange show dot com again eight six six eight four
• 11:04
  Speaker 3: eight five six nine nine Or Legal Exchange show dot.
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  Speaker 2: Com todd got any question for you From sarah In. Westborough,
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  Speaker 2: sarah you're on With Todd lupsky and what's your.
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  Speaker 5: Question, Well i'm kind of curious because it's more on
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  Speaker 5: behalf my mother in. LAW i listened to you guys
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  Speaker 5: all the, time AND i feel like she's gotten bad
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  Speaker 5: advice about the idea of doing a. Trust she's, eighty
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  Speaker 5: she only has my husband as a, child she has two,
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  Speaker 5: grandkids so she figures she's written a will and she's
• 11:37
  Speaker 5: good to. Go and WHEN i mentioned trust stuff to,
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  Speaker 5: her she gets real. Prickly So i'm not sure how
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  Speaker 5: to approach. It but she owns a, house she has,
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  Speaker 5: askedts she has you, know pension and, whatever AND i
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  Speaker 5: think she's been given poor advice that she doesn't have
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  Speaker 5: enough assets to make it, matter just write a.
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  Speaker 3: Will so so if if her goal is and again at,
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  Speaker 3: EIGHTY i have to talk about or think about at,
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  Speaker 3: least you, know nursing home type planning as. Well so
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  Speaker 3: we really just have to ask her some, questions help
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  Speaker 3: educate her as to what her wishes. Are you, know
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  Speaker 3: when WHEN i meet these, CLIENTS i would say to, them,
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  Speaker 3: well you, Know i'm not just going to throw a
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  Speaker 3: trust at. You i'm going to, say you, know do
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  Speaker 3: you want to make sure that you avoid? Probate and
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  Speaker 3: they would, say, oh, YES i hate, probate you, know
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  Speaker 3: do You it doesn't sound like she's over two, millions
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  Speaker 3: so let's assume she doesn't have any estate tax. Issues
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  Speaker 3: but that's always an. Issue THEN i, say, well do
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  Speaker 3: you want to provide for your? Family do you want
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  Speaker 3: to figure out how to leave your assets in an efficient?
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  Speaker 3: Manner because a will won't do, that it'll won't even avoid.
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  Speaker 3: Probate and if they say, yes you see you sort
• 12:42
  Speaker 3: of got To you gotta Get we only want to
• 12:44
  Speaker 3: do what they want to, do and we can't make
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  Speaker 3: them do, anything nor do we. Try my goal is
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  Speaker 3: simply to educate and as it should be, yours to
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  Speaker 3: just ask her these. Questions you, know avoid. Probate, yes
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  Speaker 3: provide for my, family, kid grand what have?
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  Speaker 1: You?
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  Speaker 3: Yes do you want to make sure the nursing home
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  Speaker 3: doesn't take it so your kids and grandkids can get?
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  Speaker 1: It?
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  Speaker 3: Yes so you're getting her to say these are the
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  Speaker 3: things she wants to. Do then you can, say, well,
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  Speaker 3: okay a will will not accomplish that does not avoid.
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  Speaker 3: Probate you file the will with the, court does not
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  Speaker 3: protect assets from the nursing home, Period so there's you,
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  Speaker 3: know a will's a. Won't i've said that more than one.
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  Speaker 3: Time then once you get them on, board then it's
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  Speaker 3: up to the lawyer to explain to them how the
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  Speaker 3: irrevocable trust will keep them in, control because that's their
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  Speaker 3: next big, concern you, Know oh my, gosh AM i
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  Speaker 3: going to lose all this? Control And i'm sure she
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  Speaker 3: might have those same. Concerns and we have to educate
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  Speaker 3: them as to how they won't lose. CONTROL i. Know
• 13:46
  Speaker 3: and even WHEN i do a seminar AND i teach
• 13:49
  Speaker 3: other lawyers or accountants these, issues they'll come up to
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  Speaker 3: me and they'll, Say, todd it sounds great when you
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  Speaker 3: say all, this but WHEN i talk to my client
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  Speaker 3: and try to teach them these irrevocable, trusts they just
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  Speaker 3: say that there's too restrictive and they can't do. It
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  Speaker 3: AND i have to politely sort of answer them by, saying,
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  Speaker 3: well is it the irrevocable trust that's the problem or
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  Speaker 3: is it the person who's explaining. It perhaps not the
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  Speaker 3: right way is the, problem you. Know so it's just
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  Speaker 3: a matter of educating them so they understand that it
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  Speaker 3: does work for. Them but even at the end of the,
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  Speaker 3: day if they still, say you, KNOW i just can't
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  Speaker 3: get past the word irrevocable and it's not right for,
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  Speaker 3: me well then we don't do. It SO i JUST
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  Speaker 3: i just want people to make sure they're making decisions
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  Speaker 3: based on ass based on answers and information that's. Accurate
• 14:40
  Speaker 3: you hate to make them answer questions that on inaccurate.
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  Speaker 3: Information so that, SAID i hope that helps you with
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  Speaker 3: with your. Situation Mister. Lutski thank you so much for
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  Speaker 3: the time.
• 14:52
  Speaker 2: Today always a.
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  Speaker 1: Pleasure this has been asked on on The Financial Exchange Radio.
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