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Ask Todd: How many different kinds of irrevocable trusts are there? · The Financial Exchange Show

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Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
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If you have an existing estate plan or in the
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market for one, Todd Lutsky is here to answer your
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questions and help you plan for a later life. Ask
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Todd is presented by Cushing and Dolan, serving Massachusetts and
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New England for more than thirty five years, helping families
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with a state and tax planning, medicaid planning, and probate law.
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Visit Cushingdolan dot com. Now here's Todd Lutsky and.
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Speaker 2: We are now joined by the one and only Todd
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Lutsky from the law firm of Cushing and Dolan. The
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segment is Asked Todd, and it's called up because you
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get to ask Todd your questions. We've got the phone
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lines open for you at eight eight eight to zero
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five two two six three. Last week, I believe we
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had one, maybe two people that we didn't get to.
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So if you happen to be one of those people,
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call eight eight eight two zero five two two sixty three,
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get in line right at the beginning to make sure
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that we get to you. If you don't happen to
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be one of those people and you're saying, gee, I've
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got a question for Todd. Well again eight eight eight
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two zero five two two sixty three. That is the
1:05
number to call it ask Todd your state planning questions
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live on air one more time. That number is eight
1:12
eight eight two zero five two two six three. And
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we can usually only have time for two or three
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of these, so get calling early if you want to
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make sure that we get to you. Mister Lutsky. How
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are you today?
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Speaker 3: I am never better?
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Speaker 1: How are you?
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Speaker 4: Uh?
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Speaker 2: I'm okay. I had a bit of a science experiment
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that I was trying yesterday.
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Speaker 3: Yeah, you're into science.
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Speaker 2: I was trying to so I was taking snails out
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of their shell to see if it would make them
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go faster because they you know, they lose that extra weight. Yeah,
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and it turns out it just makes them more sluggish.
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Speaker 3: Well, I get that.
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Speaker 2: So a kind of a downer there, Todd. I want
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to talk about irrevocable trust today.
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Speaker 3: Yeah.
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Speaker 2: How many different kinds of irrevocable trusts are there? Because
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I hear people talk about them, and I know there
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are more than one. I know there's more than two, even,
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But like, how many different kinds of irrevocable trusts exist
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out in the wild there.
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Speaker 3: So obviously I don't have a definitive number for you,
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but but we can certainly talk about a few of
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them that are at least commonly used. We talk a
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lot about the Medicaid irrevocable trust, so maybe I won't
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spend a ton of time on that one. But there's
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also trusts that are designed to hold life insurance, like
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an irrevocable life insurance trust, and those actually come in
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two flavors, the first to die variety and the second
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to die variety. And what I mean by that is
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that the life insurance that you're putting in these irrevocable
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trusts are either on the life of an individual or
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on the lives of two individuals, which would be second
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to die.
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Speaker 2: What would be the use cases for each of those?
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Speaker 3: So in those cases, you're thinking, if I have a
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life insurance policy and it's causing my estate to be taxable,
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So this isn't for everybody, right, think about the side
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of your estate and whether or not it's causing a
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significant estate tax impact by having it. Example, I'm worth
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four million dollars. Oh, but I forgot about my two
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million dollar term life insurance policy that I have. Now
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I'm suddenly worth six million dollars. Well, from a Massachusetts standpoint,
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now I have two million dollars subject to estate tax
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because I can only shelter four million with basic estate
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planning for a married couple. All right, well that might
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be a reason to do it. Or more importantly, look federally, right,
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if your life insurance is causing you a federal estate tax,
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now you're looking at forty percent hit on the life insurance.
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On the face value of life insurance, that's a big number.
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So I oftentimes say, look, why don't we set up
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a trust that can become the owner and the beneficiary
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of my policy. If I do that, now i've it's
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already income tax free, but you're convert it to become
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estate tax free by making it owned by this aravocable trust.
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And that brings me to the differences between one of
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the differences between the medicaid trust and this irrevocable life
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insurance trust. Clearly, control is a big difference. You have
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a lot less control over a life insurance trust than
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you do over a medicaid trust. But once you put
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it in there, if it now when you die, that
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face value that money flows in there state tax free.
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That can be very very helpful in your estate. So
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and you can also add other stuff to it if
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you ever needed to.
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Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
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and Dolan. If you have a question for Todd, this
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is your chance to ask. Studio lines are open at
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eight eight eight two zero five two two six three.
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We do still have a little bit of room, so
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if you've got a question for Todd, make sure you
4:54
calls so that you can ask him again. That number
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is eight eight eight two zero five two two six three.
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We're gonna take a quick break here, but when we
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come back, it's gonna be right to your questions with Todd.
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That number again is eight eight eight to zero five
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two two six three. Your questions when we return.
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Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
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only here on the Financial Exchange Radio Network. You're listening
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to Ask Todd with Todd Lutsky on the Financial Exchange
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Radio Network.
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Speaker 2: Talk with Todd Lutsky from the law firm of Kushiing
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and Dolan. Still have one more spot available if you've
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got a question for him at eight eight eight to
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zero five two two six three. That number again is
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eight eight eight to zero five two two six three.
5:53
But let's go to our first caller, Norman in Portland. Norman,
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what is your question for Todd Lutsky?
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Speaker 4: I was wondering about the irrevocable trust and I often
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gets mentioned that it's a medicaid kind of a thing. Yeah,
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but my income is such that here and Maine it's important.
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Main I'm more I have more income than i'll ever
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I'll never qualify for Medicaid, I don't think. And I
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was wondering, is there another reason besides the medicaid to.
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Speaker 3: Have an irrevocable Well, first of all, there's many kinds
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of irrevocable trust, So you're right. It sounds like you
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know you've run the numbers, and perhaps a medicaid irrevocable
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trust isn't right for you. But depending on the size
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of your estate, you could get into these other irrevocable trusts,
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whether it be like a life insurance trust that we
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talked about during the beginning of the segment, and and
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how that can be designed to shelter assets from estate
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tax purposes. If you need to set up gifting type
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irrevocable trust. You can do that as well. Again designed
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to get assets out of your estate for state tax purposes,
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but not knowing how much you're worth, those kinds of
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trust might not be needed either. But you make a
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really good point for everybody else listening. And I've done
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this for clients too. They'll come in and they'll say,
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you know, geez, I really want to protect my assets
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from you know, the cost of nursing home care. And
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then I look and I see, you know, either a
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combination of their investment income plus social Security plus pension.
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And then they tell me they got a rental property
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generating rental income. And then, you know, I look at
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all this income and I say, wow, you're really self insured.
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And if you're self insured, then maybe you don't need
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to medicaid. Irrevocable trust and again they're not for everybody,
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And so sounds Norman like in your case, you're saying, look,
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I've got so much income coming in that even if
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I was to shelter are all of my assets from
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the nursing home, I would be denied because I have
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way too much income. I totally agree. Not knowing your numbers,
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it can happen folks, and that's part of the analysis
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that needs to be done. Then you say, you know what,
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I don't need the EARV Maybe I'll just set up
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a revocable trust estate plan take care of the probate,
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the estate taxes, the bloodline planning. Or if I need
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more than that, because my value of my estate is
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very large, well then I can do the revocable trust
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coupled with some kind of a gifting trust. So great question, Norman.
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I hope that helps for you. Please apply it to
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your your situation. Excuse me, but folks, on that line,
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we just talked about potentially two different kinds of trust,
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revocable irrevocable gifting and irrevocable medicaid trusts. Folks, there's many
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kinds of irrevocable trusts, many kinds of trusts in general.
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9:47
Speaker 2: Todd, I've got another caller for you here. Let's go
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to Eric in South Hadley. Eric, what is your question
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for Todd Lunsky?
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Speaker 5: Hi thought, my father's in his mid eighties and his
9:59
wife forehouse, and he has some extra cash on hand,
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between five and ten thousand dollars that he wanted me
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to put into a safe about of the box they
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say at the bank that you're not supposed to put
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cash in there, And I'm just wondering what advice I
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could give him to keep that from say the pushing
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home look back if he ends up in one.
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Speaker 4: Uh.
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Speaker 5: He does have a will, but his wife has a
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previous marriage and the things are going to be split
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divided between her children and my children, and I mean
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and his children. So he's looking for a wants to
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give me cash as a gift. He also wants me
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to divide it up among my siblings. And I think
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he's afraid somehow that they're going to take a look
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at that and saying he has he had cashes unreported.
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Speaker 3: So let me let me You said an awful lot
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really fast, So can I just slow you down a
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little bit. It's basically, you've got your dad who's now
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You said he's got a second wife or is he
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not married at the moment.
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Speaker 5: No, he is married. It is a second marriage yet, and.
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Speaker 3: His health is such that you think he's going to
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actually head into a nursing home.
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Speaker 5: Actually, he's in good health. Oh Okay, he's fearful of that.
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He has a plan for nursing home care already, he
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already has insurance for that. Okay, he's all set on
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his end of that. But he's afraid that there's kind
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of look bad.
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Speaker 4: Period.
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Speaker 5: He doesn't want the cash to be anything that's on
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the book.
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Speaker 3: Yeah, well, you're absolutely right. So he should then make
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sure his his state, if he's got good health, make
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sure the state plan is in order if it's the
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kind that needs protection from the nursing home set it up.
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He's got a second marriage, right, so you might want
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to make sure that these assets are protected not only
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for his current spouse, but also in a way that
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they'll be left for his kids on his side of
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the family, if that's what he and they want. So
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maybe protecting it is important, even if it's not an
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ear rev even a revocable trust, if he's got enough
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long term care insurance, or he's got a nursing home
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plan in place. As you said, even a revocable trust
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be in order to just make sure you've got good
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estate planning in place. But to your question specifically, if
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he starts giving you money, which he's allowed to do,
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it will create a five year waiting period for Medicaid
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eligibility purposes, no way to hide it. It's going to
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come out of the account. It's going to be deposited
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in your account. They're going to see it coming out
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of his account because they're going to look back five
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years when and if he ever applies for Medicaid. Although
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you said that doesn't seem to be the issue, but
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I hope that at least addresses your concern.
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Speaker 2: Todd, I've got one more caller for you here. Let's
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go to David and Sandwich. David, we only have a
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couple of minutes here, But what's your question for Todd Lutsky?
12:39
Speaker 6: I thought my mother has a Medicaid ir vocable grant
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toward trust. I'm the trustee. Three of my siblings are beneficiaries.
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My mother's asking to give them money on occasion or
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are any tax implications they have to file anything with
12:51
the irs?
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Speaker 3: Are you given the money from the trust or is
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your mom given the money from her personal account from
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the trust? So it it's a grand tour trust, so
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it's like your mom is giving the gift. So one
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the recipient. And this is so confusing for a lot
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of people, and it almost is counterintuitive. The individuals who
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receive the money have no issue. It is not income
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taxable to them ever, and it's not gift taxable to
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them because they're the recipients. It's the giver. I know,
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no good deed goes unpunished, right, it's the giver that
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has to pay the tax. So if the amount comes
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out of the trust from from that trust is larger
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than eighteen thousand dollars per year per person, then they
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need to file a gift tax return. Doesn't mean they're
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going to pay anything, but it means that they are
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going to have to file a gift tax return and
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eat into their a thirteen point six million dollars once
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in a lifetime exemption, so they won't pay any but
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they got a file so really interesting that the giver
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is the one that has to pay it. And last comment,
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money coming out of the trust probably the way to
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go because if it comes out of the Medicaid trust,
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it will not create a new five year waiting period
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for mom, but if she gave it away out of
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her personal account, it would create that five year waiting period.
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Speaker 2: Todd Wtski, thank you so much for joining us today.
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Speaker 3: Always a pleasure. Thank you.
14:19
Speaker 1: This has been asked Todd on the Financial Exchange Radio network.
14:23
Ask Todd with Todd. Lutsky has been presented by Cushing
14:26
and Dolan, serving Massachusetts and New England for more than
14:28
thirty years, helping families with the state and tax planning,
14:31
Medicaid planning and probate law. Call eight hundred three nine
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three four thousand and one or visit Cushingdolan dot com.
14:38
The views expressed in this segment are solely those of
14:40
Cushing and Dolan. Armstrong Advisory does not provide any legal
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or tax advice. Please consult with your legal or tax
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advisor on such matters. Cushing and Armstrong do not endorse
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each other and are not affiliated. Cushing and Dolan are
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experts in elder life planning and taxation. They know that
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every family is unique and that every estate plan must
14:55
be different. Early planning is crucial if you want to
14:58
stress free. Retirement and trust are oftentimes the document of
15:01
choice to help protect your assets, but with so many
15:04
kinds of trusts, you need to learn about which one
15:06
is right for your plan. Revocable and irrevocable trusts are
15:09
most common, but there are several differences as well as
15:12
numerous tax implications with each. If you are ready to
15:15
start your planning or need a refresh and existing plan,
15:17
call Cushing and Dolan and ask for their new guide
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called Dmistifying the Top seven Estate Planning Trusts. Learn how
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to protect your assets and potentially eliminate your estate taxes.
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Call eight sixty six eight four eight five six ninety
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nine right now and ask for your guide today. That's
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or request it online at Legal exchange show dot com.
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The proceeding was pay four and the views expressed are
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or Armstrong Advisory may contact you offering legal or investment services.
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Cushing and Dolan and Armstrong Advisory do not endorse each
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