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Ask Todd: Selling a house in an irrevocable medicaid trust · 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: 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: It is Wednesday, which means we are on the cuspop
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  Speaker 2: of our weekly segment of Ask Tod with Todd Lusky
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  Speaker 2: from Cushion Dolan. If you have any estate planning questions
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  Speaker 2: three for anything that you have on the estate planning realm.
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  Speaker 2: Any questions you'd like to have eight eight eight two
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  Speaker 3: Todd.
• 1:00
  Speaker 2: How we doing today?
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  Speaker 3: I'm never better?
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  Speaker 2: And you staying cool? Are you running in these temperatures?
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  Speaker 2: Pausing for the week?
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  Speaker 3: No running even indoors.
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  Speaker 2: It's hard, That's true, depending how your center area is.
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  Speaker 3: Yeah, exactly can't keep up todd Uh.
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  Speaker 2: Oftentimes, when I'm speaking with clients about irrevocal trust many
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  Speaker 2: are aware of the five year lookback period that the
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  Speaker 2: assets need to be in there these irrevocal trusts for
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  Speaker 2: but I think there is a lot of confusing surrounding
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  Speaker 2: the type of access that they would have to those assets.
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  Speaker 2: So I was wondering if you could maybe speak to
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  Speaker 2: just some of the misconceptions that you hear often when
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  Speaker 2: you speak with clients about irrevocal trusts and some of
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  Speaker 2: the provisions associated with them in terms of access.
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  Speaker 4: Yeah, I think I think people still hear the word
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  Speaker 4: irrevocable and think they've lost control or think they've they've
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  Speaker 4: given up the ability to maybe change a trust later
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  Speaker 4: after it's been created.
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  Speaker 3: And and I think it's.
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  Speaker 4: It's unfortunate because because there are you know, many different
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  Speaker 4: kinds of trusts, right there are trusts that that are irrevocable,
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  Speaker 4: but you do lose a lot of control over and
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  Speaker 4: you do give.
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  Speaker 3: Up some access.
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  Speaker 4: But this particular kind, the one we're dealing with for
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  Speaker 4: this month, the irrevocable medicaid trust is not like that.
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  Speaker 4: So for example, you know, you could you could like
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  Speaker 4: put your your investment portfolio inside the trust. You can
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  Speaker 4: still manage your investment portfolio and talk to your advisor
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  Speaker 4: about it even if you're not trustee. You're still allowed
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  Speaker 4: to have, you know, discussions about managing and investing the assets.
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  Speaker 4: And then once it's which would by the way, is
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  Speaker 4: the same way it would be if it was not
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  Speaker 4: in the trust, So excuse me, no no difference there.
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  Speaker 4: And then you know, you can sit back and collect
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  Speaker 4: all the income that it generates, which is generally what
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  Speaker 4: you want to do anyway. So you're now going to
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  Speaker 4: collect the income from the trust, and so that's not
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  Speaker 4: a change. Then they say, well, what about income taxes?
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  Speaker 4: I always hear that when I put assets in these
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  Speaker 4: trusts that there's a huge income tax because trust pay
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  Speaker 4: taxes at a much higher rate, which is true unless
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  Speaker 4: it's a grand tor trust. Again different kind. These trusts
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  Speaker 4: are grand tor trusts, which in English means you're the owner.
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  Speaker 4: For income tax purposes, you don't own it, the trust
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  Speaker 4: owns it, but for income tax purposes, we're.
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  Speaker 3: Going to treat you as the owner.
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  Speaker 4: That means all of the interest and dividends on that
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  Speaker 4: investment portfolio, whether you pull them out of the trust
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  Speaker 4: or not, are still going to be reported on your
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  Speaker 4: personal income tax return. Same with the capital gain. Although
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  Speaker 4: capital gain is principal and generally you don't get principled directly.
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  Speaker 4: Even if the gain occurs inside the trust, it's still
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  Speaker 4: reported on your personal return. Yes, you need to file
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  Speaker 4: a separate tax return for the trust called a ten
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  Speaker 4: forty one, but since it's a grand tour trust, it
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  Speaker 4: doesn't pay tax. It just reports a letter to the
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  Speaker 4: donor telling them that here's what your trust earned, interest
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  Speaker 4: dividends right off to ten ninety nine like you normally
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  Speaker 4: get it. Put these items on your personal income tax
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  Speaker 4: return and pay tax. So folks, same income tax, same
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  Speaker 4: access to income, same ability to invest. And that's just
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  Speaker 4: one item we didn't talk about yet, which we can
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  Speaker 4: get to. What if I put my home in? What
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  Speaker 4: if I put a rental property in? How does that work?
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  Speaker 4: So I think we have lots of things to think about,
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  Speaker 4: and I can show you that those also will have
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  Speaker 4: way more control than you think. And whether or not
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  Speaker 4: there's even a completed gift, people say, oh my god,
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  Speaker 4: you make a big gift. No, not really, and we'll
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  Speaker 4: explain how all that works. So folks lots to understand
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  Speaker 4: about these irrevocable trusts.
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  Speaker 2: If you have any questions related to irrevocable trust, revocable trusts,
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  Speaker 2: state planning, gifting, give our studio line a call. We've
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  Speaker 2: Again that number for any of your questions for Todd
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  Speaker 2: Lusky from Cushion Dolan eight eight eight to zero five
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  Speaker 2: two to two sixty three. We're going to take a
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  Speaker 2: quick break here on the Financial Exchange. When we come back,
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  Speaker 2: your questions with Todd right after this break, Ask.
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  Speaker 1: Todd with Todd Lutsky Every Wednesday at ten thirty only
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  Speaker 1: here on the Financial Exchange Radio Network. Todd Lutsky answers
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  Speaker 1: your questions about a state and elder life planning every
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  Speaker 1: Wednesday at ten thirty right here on the Financial Exchange
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  Speaker 1: Radio Network.
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  Speaker 2: We are back here with Todd Lusky from Cushion Dolan,
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  Speaker 2: answering all of your estate planning questions. If you have
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  Speaker 2: any questions regarding irvocal trust for vocable trusts, gifting, taxation,
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  Speaker 2: anything of that nature. Give our studio line to call
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  Speaker 2: it eight eight eight two zero five two two six
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  Speaker 2: y three eight eight eight two zero five two two
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  Speaker 2: sixty three the number for any of your questions in
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  Speaker 2: the estate planning realm that you have for Todd Lusky Todd,
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  Speaker 2: we spoke prior to the break about putting investment assets
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  Speaker 2: into this irrevocable Medicaid trust. But I want to segue
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  Speaker 2: and talk a little bit about the impact of putting
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  Speaker 2: your properties into it. And we'll first tackle the idea
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  Speaker 2: of just trying to put in your primary residence, oftentimes
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  Speaker 2: the biggest asset that many people have around this area.
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  Speaker 2: Are there any give tax implications or what should people
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  Speaker 2: be aware of regarding putting your primary residence into this
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  Speaker 2: type of trust we're speaking of here.
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  Speaker 4: Yeah, I think that's a great question because it's it's
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  Speaker 4: generally the most you know, the largest asset most clients have,
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  Speaker 4: and they want to put their home in and I
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  Speaker 4: get it, and so it's your primary residence and everybody
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  Speaker 4: I get it from accountants all the time as well.
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  Speaker 4: They'll say, well, wow, that's a you know, maybe it's
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  Speaker 4: a million dollar property isn't that going to create a
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  Speaker 4: gift tax problem because you're giving it to an irrevocable trust. Again,
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  Speaker 4: different kinds of trust result in different taxable events. In
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  Speaker 4: this case, we design the irrevocable trust as an incomplete
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  Speaker 4: gift for gift tracks purposes.
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  Speaker 3: How do we do that?
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  Speaker 4: There's there's language in the trust that allows the don or,
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  Speaker 4: the creator of the trust to keep the ability.
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  Speaker 3: It's a power of appointment.
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  Speaker 4: Keep the ability to appoint where those assets go when
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  Speaker 4: before you die. So if you want to leave more,
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  Speaker 4: usually it's equally to kids of all generations. Let's say,
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  Speaker 4: so if you want to leave a little more to
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  Speaker 4: one child than another, you can change your mind later
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  Speaker 4: because when you gift to it trust designed like that,
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  Speaker 4: you've retained that power. Then you have not relinquished enough
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  Speaker 4: dominion in control over the asset to complete the gift
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  Speaker 4: because we don't know where it's going to go, because
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  Speaker 4: you can change your mind anytime.
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  Speaker 3: So big deal.
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  Speaker 4: No gift tax is are going to be incurred for
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  Speaker 4: putting things like homes and rental properties in the trust.
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  Speaker 4: And I do want to talk a little bit about
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  Speaker 4: the house, but I also want to remind people that
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  Speaker 4: the things we're talking about right now are all in
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  Speaker 4: the guide as we approach the end of the month.
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  Speaker 4: The Power to the Power of irrevocable Medicaid Trusts is
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  Speaker 4: the name of the guide, and it's really it's over
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  Speaker 4: thirty years, I've made the most frequently asked questions and
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  Speaker 4: answers come to me and I put them in this guide.
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  Speaker 4: So it's a very question and answer format guide telling
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  Speaker 4: you all the dos and don'ts. Putting real estate in,
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  Speaker 4: renting your house, selling your house, buying another house, moving,
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  Speaker 4: what are the income taxes? What can I do? What
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  Speaker 4: can I not do? If you've never understood these trusts
• 9:08
  Speaker 4: and you were always on the fence as to whether
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  Speaker 4: you wanted one or not, or they're right for you
• 9:12
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  Speaker 4: get it eight six six eight four eight five six
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• 9:31
  Speaker 2: We're gonna hit the full line full lines here. Fill
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  Speaker 2: up from the keep you're on with Todd Lutsky.
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  Speaker 5: Yes, Tod, I think it's been like seven years ago.
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  Speaker 5: You did an irrevocable trust for me. Okay, I have
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  Speaker 5: four four rental properties in it, and I also have
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  Speaker 5: personal properties in it. If I sell one of the
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  Speaker 5: rental properties, can I take that that that earned money portion,
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  Speaker 5: or is all of it for my personal use?
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  Speaker 4: So let's let's ask this question, and let's let's let's
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  Speaker 4: say you sell it for five hundred thousand dollars. Okay,
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  Speaker 4: first and foremost, do you want to protect that five
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  Speaker 4: hundred thousand dollars going forward from the cost of long
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  Speaker 4: term care and probate?
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  Speaker 5: Yes, but not, but not the total of five hundred thousand.
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  Speaker 5: Let's just say I want to protect three hundred thousand.
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  Speaker 4: So if you needed two hundred thousand for something right
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  Speaker 4: now that the answer is, first of all, yes, you
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  Speaker 4: can sell it. Yes, there no, there is no adverse
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  Speaker 4: capital gains tax consequence, because these are all things other
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  Speaker 4: listeners are gonna want to know as well as you,
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  Speaker 4: So you're gonna pay the same capital gains tax you
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  Speaker 4: would have paid had it not been in the trust. Yes,
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  Speaker 4: you can sell it with absolutely no additional paperwork or cost. Yes,
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  Speaker 4: the money does have to go back into the trust,
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  Speaker 4: so it's all in there. It's still protected from the
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  Speaker 4: cost of long term care avoiding probate, and there's no
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  Speaker 4: issue with what you can do with it in terms
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  Speaker 4: of investing it. You can sit back and collect all
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  Speaker 4: the income and live off that. Now, how much can
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  Speaker 4: you take the money directly? No, because it's protected from
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  Speaker 4: the cost of long term care. So can you get
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  Speaker 4: money out of the trust? Yes, you can, You just
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  Speaker 4: have to go through your kids, Okay, so you have
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  Speaker 4: to make there's a two step approach in order to
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  Speaker 4: take money out of this trust. My advice though, and
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  Speaker 4: again we're always planning for whole life, so can you
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  Speaker 4: get it? Yes, But my advice if I'm planning for
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  Speaker 4: you still would be do you have money outside the trust,
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  Speaker 4: like IRA money or just other money that you kept
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  Speaker 4: outside the trust? If you did, I'd want you to
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  Speaker 4: go there first. Right, It makes sense depending on how
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  Speaker 4: much you need. So I mean, how much do you
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  Speaker 4: need right now? Is a direct amount? Like is it
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  Speaker 4: a big chunk or do you just need it over time?
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  Speaker 5: Just over time?
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  Speaker 3: Okay?
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  Speaker 4: So you're not like I need to take two hundred
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  Speaker 4: thousand dollars out today after I sell.
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  Speaker 3: Correct, Right, that's correct?
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  Speaker 4: So then what I would do is I would just
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  Speaker 4: let it sit in there, I would let it grow.
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  Speaker 4: I would take my income from it if I need it.
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  Speaker 4: You know it's yours. But if you do need an
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  Speaker 4: extra chunk, I don't know how much. Say I need
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  Speaker 4: twenty grand, thirty grand whatever for something, I'd look to
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  Speaker 4: your other assets. Do you have any outside the trust
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  Speaker 4: anything in an IRA?
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  Speaker 5: Yes, but you know I'm retired now, so the income
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  Speaker 5: doesn't come in flourishing like it did, you know when
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  Speaker 5: I was working.
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  Speaker 3: Very true, So how much is in your IRA.
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  Speaker 5: To fifty two hundred fifty thousand.
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  Speaker 4: Right, So my point is you're allowed to take out
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  Speaker 4: of your IRA if you need that extra thirty grand
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  Speaker 4: take it. Why do I suggest taking it from an IRA? Well,
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  Speaker 4: couple of reasons. One, it's not protected from the nursing home. Two,
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  Speaker 4: you have to take it eventually anyway. And if I
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  Speaker 4: leave it for my kids, they ultimately have to take
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  Speaker 4: it out over ten years under the Secure Act, which
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  Speaker 4: may make it taxable at a higher rate for them
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  Speaker 4: if they're working and already earning money. So there's a
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  Speaker 4: lot of reasons to take it from there first before
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  Speaker 4: I take it from my trust. But if you need
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  Speaker 4: it from the trust. You absolutely can get it, you
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  Speaker 4: just have to go through that two step approach through
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  Speaker 4: family members.
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  Speaker 3: So I hope that helps a little.
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  Speaker 4: But again, planning is a whole it's a whole option, right,
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  Speaker 4: it's a whole way of thinking. It's not just set
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  Speaker 4: it and forget it. To a large degree it is.
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  Speaker 4: But when you do want to take money out, and
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  Speaker 4: by the way, great question, Philip, I think that's exactly
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  Speaker 4: what you should be doing, calling your attorney. Anybody who's
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  Speaker 4: done this planning should be calling their lawyer whenever they
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  Speaker 4: think they're going to do something that might change or
• 13:51
  Speaker 4: mess up their estate plan before they do it. Don't
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  Speaker 4: call after, call before, because after it's sometimes too late.
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  Speaker 4: But if you call before, we can guide you through this.
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  Speaker 4: So like with Philip, what's the smartest thing to do?
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  Speaker 3: Sell the house?
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  Speaker 4: If that's what you want to do, no problem, no
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  Speaker 4: adverse tax. Let the money go in there. Okay, how
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  Speaker 4: much do I need and why do I need it?
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  Speaker 5: All?
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  Speaker 4: Right, Well, we'll tell you where to take it from.
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  Speaker 4: Do we want to take it from the trust first,
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  Speaker 4: or do we want to take it from money outside
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  Speaker 4: the trust first? What's the best overall planning play? When
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  Speaker 4: it comes to that idea. So I think we've answered
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  Speaker 4: his question and I hope, if nothing else, this really
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  Speaker 4: serves to help people understand the flexibility that is involved here.
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  Speaker 4: Meaning think about Philip. He's had these trusts for years,
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  Speaker 4: seven years. He said, it's really not causing him any problem.
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  Speaker 4: He's been living, he's been renting property, he's been collecting
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  Speaker 4: his rent, he's been filing his tax returns. So he
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  Speaker 4: didn't call saying this has been a problem. It's working fine,
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  Speaker 4: and now when he wants to do something, he absolutely
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  Speaker 4: can do it.
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  Speaker 3: So there you go.
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  Speaker 2: Thanks so much for your time this week and for
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  Speaker 2: answering those questions. Really appreciate it, and I hope you
• 15:04
  Speaker 2: have a great day.
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  Speaker 3: Always a pleasure. Thank you.
• 15:08
  Speaker 1: This has been Ask Todd on the Financial Exchange Radio network.
• 15:11
  Speaker 1: Ask Todd with Todd Lutsky has been presented by Cushing
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  Speaker 1: and Dolan, serving Massachusetts and New England for more than
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  Speaker 1: thirty years, helping families with the state and tax planning,
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  Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
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  Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
• 15:26
  Speaker 1: The views expressed in this segment are solely those of
• 15:28
  Speaker 1: Cushing and Dolan Armstrong advisor. He does not provide any
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  Speaker 1: legal or tax advice. Please consult with your legal or
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  Speaker 1: tax advisor on such matters. Cushing and Armstrong do not
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  Speaker 1: endorse each other and are not affiliated