Latest / The Financial Exchange Show / Ask Todd: Life Estates vs. Trusts; What You Don’t Know Can Cost You

Transcript

Ask Todd: Life Estates vs. Trusts; What You Don’t Know Can Cost You · 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.
• 0:27
  Speaker 2: Todd Lutsky from Cushing and Cushing and Dolan.
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  Speaker 3: Slow down, Buddy.
• 0:33
  Speaker 2: One speed only. Todd Todd joins us now on the
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  Speaker 2: Financial Exchange for Ask Todd. As always, it's your opportunity
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  Speaker 2: to ask Todd your estate planning questions live on air.
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  Speaker 3: Right now.
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  Speaker 2: We got the phone lines open at eight eight eight
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  Speaker 2: two zero five two two sixty three. That's the number
• 0:52
  Speaker 2: to call to ask Todd your questions. It is eight
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  Speaker 2: eight eight to zero five two two six three. And
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  Speaker 2: remember we can usually get through two three questions, So
• 1:00
  Speaker 2: if you don't call early, well you might not get
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  Speaker 2: a chance to ask Todd your question. So get Colin
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  Speaker 2: at eight eight eight to zero five two two six three.
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  Speaker 2: Again that is eight eight eight to zero five two
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  Speaker 2: two sixty three. Mister Lutsky, how are you doing today?
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  Speaker 3: I am never better.
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  Speaker 2: You not good?
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  Speaker 3: No, You're never good. There's always something wrong.
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  Speaker 2: I bought the world's worse, the sourus, worse, the sourus.
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  Speaker 2: It's not just awful, it's awful. It's it's just it's
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  Speaker 2: it's awful.
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  Speaker 3: It's awful.
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  Speaker 2: Todd, I want to talk to you a little bit
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  Speaker 2: about uh, kind of continuing conversation from last week.
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  Speaker 3: Uh.
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  Speaker 2: We were talking last week about the use of life
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  Speaker 2: estates as part of an estate plan. And I don't
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  Speaker 2: want to put words in your mouth, but you were
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  Speaker 2: pretty critical of them as a tool.
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  Speaker 3: Yeah, life estates are problematic.
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  Speaker 2: Give me a comparison and a pros and cons of
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  Speaker 2: life estates versus revocable trusts for estate planning.
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  Speaker 3: Okay, so this will be the abridged version, but let's
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  Speaker 3: let's see if we can can make it the crib notes.
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  Speaker 3: Remember crib notes, I do. Yeah, this is the crib
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  Speaker 3: notes version. So you know, if you want to protect
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  Speaker 3: your home, that's the goal of a life estate. So
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  Speaker 3: it's also the goal of a near revocable trust. How
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  Speaker 3: do we protect our primary residence if that's what we're
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  Speaker 3: talking about. So if I set up a life estate
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  Speaker 3: and I put the house in the hands of the children,
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  Speaker 3: and I reserve the right to live there, what have
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  Speaker 3: I done. I have the right to live there, I
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  Speaker 3: have the right to collect rent, and I have the
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  Speaker 3: right to pay bills. That's about it. But but the
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  Speaker 3: good news from that is not only do I at
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  Speaker 3: least have the right to live there, but if I die,
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  Speaker 3: the kids will get a step up in basis for
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  Speaker 3: capital gains tax purposes, and in five years the house
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  Speaker 3: would be protected from the cost of nursing home care.
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  Speaker 3: So it's not altogether horrible. It's going to at least
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  Speaker 3: accomplish those things which are good from a capital gains
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  Speaker 3: tax standpoint and a protection standpoint. So sure, I'm good
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  Speaker 3: and I avoid probate, So that's good. But remember, folks,
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  Speaker 3: when we do this, we often do this and live
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  Speaker 3: a long time.
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  Speaker 1: Right.
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  Speaker 3: We might be sixty five when we set these things
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  Speaker 3: up and life changes. Right, we want to you know, move,
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  Speaker 3: we want to downsize, we want to move to a
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  Speaker 3: nice warm climate. Perhaps what about selling? What have I
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  Speaker 3: given up? Well, couple of things. One, I've put the
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  Speaker 3: house in the hands of the children. If I do
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  Speaker 3: it that way, that's the version I'm talking about. I've
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  Speaker 3: now exposed a house to the kids creditors. Granted they
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  Speaker 3: might not be able to take it against me while
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  Speaker 3: I'm alive, but they're going to have to deal with it.
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  Speaker 3: What if they get divorced. What if there's a car
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  Speaker 3: ax and a financial problem. These kids now own that
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  Speaker 3: piece of the property, that future interest that you that
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  Speaker 3: you gave them. Okay, Well that's not good good for them,
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  Speaker 3: it's not good for you, it's not good for anybody. Okay. Well,
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  Speaker 3: then what if I do want to sell it? What
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  Speaker 3: if I want to move? Well, now you need permission.
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  Speaker 3: You need to ask the kids, can I sell the house? Well,
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  Speaker 3: hopefully they both agree, because you're gonna need both people
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  Speaker 3: to sign, or if you have three kids, you need
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  Speaker 3: all three kids to sign. Okay, Well, Todd, my kids
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  Speaker 3: are great, They're gonna go ahead and sign for me.
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  Speaker 3: So okay, so we got past that hurdle. Well, now
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  Speaker 3: when you sell it, remember you have to calculate how
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  Speaker 3: the gain is allocated and how the proceeds are allocated.
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  Speaker 3: And then depending on your age, a larger portion, a
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  Speaker 3: much larger portion is likely to go to the children,
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  Speaker 3: and a smaller portion to you. Okay, so that's not
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  Speaker 3: great because now I got less money, and if I
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  Speaker 3: have less money, I probably don't have the money I
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  Speaker 3: need to buy another house. Oh and even if I
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  Speaker 3: did have the money I needed to buy another house,
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  Speaker 3: that new house would be at risk of the nursing
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  Speaker 3: home all over again. Okay, but now the kids have
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  Speaker 3: a portion of the gain. If they don't live there,
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  Speaker 3: they have to pay capital gains tax on all that money,
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  Speaker 3: so they don't get the exclusion that I get for
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  Speaker 3: living in my primary residence. So there's an adverse capital
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  Speaker 3: gains tax consequence. And then if they're nice enough to
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  Speaker 3: give me the money back, then they can pay a
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  Speaker 3: gift tax on top of the capital gains tax to
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  Speaker 3: give me the money back. Now I can take all
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  Speaker 3: my money and go buy a house, and then I
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  Speaker 3: have to start the five year clock all over again.
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  Speaker 3: I don't think I need to go on.
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  Speaker 2: I'd prefer that you don't.
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  Speaker 3: That's really bad.
• 5:28
  Speaker 2: Talking with Todd Lutsky from the law firm of Kushing
• 5:31
  Speaker 2: and Dolan, if you've got questions for Todd. This is
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  Speaker 2: your chance to ask them live on air right now.
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  Speaker 2: Eight eight eight to zero five two two sixty three
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  Speaker 2: is the number still room on the phone lines at
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  Speaker 2: eight eight eight to zero five two two six three.
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  Speaker 2: And again Todd can help to answer some of your
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  Speaker 2: big questions about estate planning. Let's take a quick break here.
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  Speaker 2: When we return, we're gonna get to your questions with Todd.
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  Speaker 2: That phone number is eight eight eight to zero five
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  Speaker 2: two two six three. One more time, it's eight eight
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  Speaker 2: eight two zero five two two sixty three.
• 6:10
  Speaker 1: Ask Todd with Todd Lutskey every Wednesday at ten thirty
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  Speaker 1: only here on the Financial Exchange Radio Network. You're listening
• 6:20
  Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
• 6:23
  Speaker 1: Radio Network.
• 6:40
  Speaker 2: Still got a bit of room on the phone lines
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  Speaker 2: for your estate planning questions at eight eight eight to
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  Speaker 2: zero five two two six three. That number again is
• 6:50
  Speaker 2: eight eight eight two zero five two two six three.
• 6:54
  Speaker 2: For your estate planning questions again eight eight eight to
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  Speaker 2: zero five two two six three. Let's go to in Springfield, Marie,
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  Speaker 2: what is your question for Todd?
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  Speaker 3: Yes, I have a.
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  Speaker 4: Trust that was written in twenty.
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  Speaker 3: Thirteen twenty thirteen.
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  Speaker 4: Yeah, okay, and it's very hard to read. I get
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  Speaker 4: out to page ten and you've lost me. I would
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  Speaker 4: like to do a new trust.
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  Speaker 3: I'm wondering what is involved. So let me ask you
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  Speaker 3: a couple of questions about the trust you have. Because
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  Speaker 3: when I meet clients that have estate planning documents, in
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  Speaker 3: all fairness, I tell them up front, Look, if I
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  Speaker 3: don't need to recreate the wheel, and you don't need
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  Speaker 3: to spend any money, don't do it right. There's no
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  Speaker 3: reason to do it if there's just for me to
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  Speaker 3: recreate the wheel. So just because they're hard to read,
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  Speaker 3: I get it. They're they're complicated, they're hard to read.
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  Speaker 3: And when I meet a client, I read it to
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  Speaker 3: them in English after I give it to them to read.
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  Speaker 3: So you might just need this reread to you in
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  Speaker 3: English by your estate planning attorney. But first of all,
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  Speaker 3: is it revocable?
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  Speaker 5: No, yeah, it is. It's a revocable trust.
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  Speaker 3: Revocable. And how old are you?
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  Speaker 4: I'm in my nineties.
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  Speaker 3: Wow, God, I love you. That's awesome. So roughly, how
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  Speaker 3: much are you worth? Round numbers like more than the
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  Speaker 3: Massachusetts two million dollar exemption or less, just as less,
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  Speaker 3: less little. The only concern I would say then for
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  Speaker 3: what you do have is it's revocable and is one
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  Speaker 3: of your concerns trying to protect any of these assets
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  Speaker 3: if in the event, in the future you needed long
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  Speaker 3: term care. No, all right, so that's not a concern.
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  Speaker 3: If protecting assets is not a concern, the revocable trust
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  Speaker 3: for someone your age, your net worth, you know, worth
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  Speaker 3: less than the two million dollar exemption, likely doesn't need
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  Speaker 3: to be redone. It's just my initial reaction. It puts
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  Speaker 3: your assets in there. You're probably the donor, you're probably
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  Speaker 3: the trustee, you're probably in control of the assets. All good,
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  Speaker 3: it'll avoid probate. I think the most important part for
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  Speaker 3: you to read it rather than get into all the weeds.
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  Speaker 3: Back in page you know, twenty five or thirty, look
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  Speaker 3: for the paragraph that says upon the death of the donor, Okay,
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  Speaker 3: and just read that paragraph, because again, if it's revocable,
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  Speaker 3: retitle your assets to the trust, you lose no control.
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  Speaker 3: You do everything you do during life today, no tax return.
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  Speaker 3: And if it says upon the death of the donor,
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  Speaker 3: I don't know, equally to my kids or whoever you're
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  Speaker 3: leaving it to as long as that paragraph is still
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  Speaker 3: doing what you want it to do, leave it to
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  Speaker 3: who you want to leave it to, there might be
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  Speaker 3: no reason to update your document, So I hope that
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  Speaker 3: helps at least check that out first. If that's not
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  Speaker 3: what you want and you want to change it, then
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  Speaker 3: you need to either amend the trust or we can
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  Speaker 3: certainly do a new one at that juncture. Folks. That's
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  Speaker 3: just one thing. I'm glad she did the plan, and
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  Speaker 3: kudos to her. But a lot of people just put
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  Speaker 3: together a life estate and they throw their house in
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  Speaker 3: a life estate deed, give it to the kids, or
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  Speaker 3: give it to a trust, and then keep a life estate. Folks,
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  Speaker 3: you don't always know what you get. This Calculating the
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  Speaker 3: Consequences of a life estate guide tells you the three
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  Speaker 3: ways in which I would ever do a life estate.
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  Speaker 3: It tells you the two ways in which in which
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  Speaker 3: they're created. I always like to say the right way
• 10:32
  Speaker 3: and the wrong way, but please learn about the ways
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  Speaker 3: they're created. If you also tells you all about the
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  Speaker 3: gift tax, the income tax consequences, the ability to sell,
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  Speaker 3: the creditor risks. It really tells you what you have
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  Speaker 3: and maybe what you don't have. So if you've got
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  Speaker 3: a life estate, this GUIDs for you because you can
• 10:52
  Speaker 3: find out what it is and maybe how to get
• 10:54
  Speaker 3: out of it. If you don't have one in your
• 10:56
  Speaker 3: thinking about getting one, then you can get they and
• 11:01
  Speaker 3: learn whether you should actually have one. Folks eight six
• 11:04
  Speaker 3: six eight four eight five six nine nine or Legal
• 11:08
  Speaker 3: Exchange show dot com. You can download it there again
• 11:11
  Speaker 3: eight six six eight four eight five six nine nine
• 11:15
  Speaker 3: or Legal Exchange Show dot com. And you can also
• 11:19
  Speaker 3: go to our Instagram page Cushing Dolan PC for lots
• 11:22
  Speaker 3: more information.
• 11:24
  Speaker 2: Todd, we got another one for you here. Let's go
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  Speaker 2: to Brad in Winchester. Brad, you're on with Todd Lutsky.
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  Speaker 4: Hi, i own an investment property and it has equity
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  Speaker 4: and right now I've owned it for a long time
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  Speaker 4: and I'm thinking of putting it into a trust so
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  Speaker 4: that i can avoid the five year look back. My
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  Speaker 4: question is, though, does that lock it up permanently? If I, like,
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  Speaker 4: buy an investment properly, if if I buy a second
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  Speaker 4: home or something and retire, can I get the money
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  Speaker 4: out of it or is it permanently stuck in it?
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  Speaker 3: Then?
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  Speaker 5: Oh?
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  Speaker 3: No? No? So I assume you are you married, single?
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  Speaker 1: No?
• 11:57
  Speaker 4: Single?
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  Speaker 3: Single? No kids?
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  Speaker 1: No?
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  Speaker 3: Okay, so you might you know. So when you talk about,
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  Speaker 3: you know, avoiding the five year look back period, to me,
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  Speaker 3: you're saying, I want to protect it from the nursing home.
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  Speaker 3: My initial question would be, who are you protecting it for?
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  Speaker 4: Relative?
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  Speaker 3: Okay, so there is someone you need to Okay, great,
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  Speaker 3: So as long as there's a family member that you
• 12:18
  Speaker 3: need to protect us for, then yes, I think the
• 12:21
  Speaker 3: irrevocable Medicaid trust is probably right for you. One last question,
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  Speaker 3: how old are you?
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  Speaker 4: Fifty four?
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  Speaker 3: Fifty four maybe a little early sixty and over. I
• 12:30
  Speaker 3: like to think about these irrevocable trusts, but there's no
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  Speaker 3: magic number. And so to answer your question, you can
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  Speaker 3: put a rental property in there. For sure. You can continue, Well,
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  Speaker 3: you need someone else to be trustee, so maybe your
• 12:45
  Speaker 3: sister or someone other than you. You can continue to
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  Speaker 3: collect a rent like you do now. You continue to
• 12:52
  Speaker 3: pay the bills like you do now. Use your money.
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  Speaker 3: You're allowed to sell the house anytime you want to say,
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  Speaker 3: you could use the money to buy another house if
• 13:03
  Speaker 3: you wanted to do that. Inside the trust, whether it's
• 13:06
  Speaker 3: rental or house, you want to live in all that
• 13:09
  Speaker 3: flexibility remains available to you. You can also then if
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  Speaker 3: it's if it's turned into money and you want it
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  Speaker 3: all back again, You're going to have to sit down
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  Speaker 3: with the family and figure out who you're making beneficiaries
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  Speaker 3: of this trust. But there is a way to take
• 13:26
  Speaker 3: assets out to the beneficiaries who may or may not
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  Speaker 3: give it back to you. But be careful so it's
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  Speaker 3: not locked up per se. But I think you have
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  Speaker 3: a lot of control over it. I think it's worth
• 13:36
  Speaker 3: looking into and getting a little more in depth discussion
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  Speaker 3: about a lot of flexibility for you. Tod.
• 13:42
  Speaker 2: I've got another one for you here. Let's go to
• 13:45
  Speaker 2: Philip on the Cape. Philip, we only have a couple
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  Speaker 2: of minutes, so you got to be quick. But what's
• 13:48
  Speaker 2: your question, Todd?
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  Speaker 5: You did an irrevocable trust for me eight years ago,
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  Speaker 5: and now I'm concerned. You talked about the Massachusetts two
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  Speaker 5: million dollar exclusion. Yes, well everything has increased, so it's
• 14:05
  Speaker 5: over that now. Is there anything I need to do
• 14:09
  Speaker 5: going forward?
• 14:11
  Speaker 3: Great question? So are you how old are you now?
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  Speaker 5: Seventy eight?
• 14:16
  Speaker 3: Are you married?
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  Speaker 5: Yes?
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  Speaker 3: Did we do one trust or two trusts?
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  Speaker 5: Two trusts?
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  Speaker 3: So you're in good shape, because my trusts are flexible
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  Speaker 3: enough that I assume we like, put this house half
• 14:29
  Speaker 3: in your trust and half in your wife's trust. Correct,
• 14:33
  Speaker 3: they can go correct good. And how much is a
• 14:35
  Speaker 3: house worth?
• 14:37
  Speaker 5: Well, it's not just the house, there's several of them,
• 14:39
  Speaker 5: and they're all rental. And and so.
• 14:42
  Speaker 3: How much is in each trust? A round number? Five
• 14:47
  Speaker 3: million in each trust?
• 14:49
  Speaker 5: No? Oh no, no, well say two in one and
• 14:54
  Speaker 5: one and a half and another.
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  Speaker 3: So let's just call it even if it's two and two.
• 14:58
  Speaker 3: Don't worry about it. Right. The bottom line is that
• 15:00
  Speaker 3: these trusts are designed to shelter two million each. So
• 15:05
  Speaker 3: now you can actually shelter four million from Massachusetts estate
• 15:10
  Speaker 3: tax with these trusts. So they are doing everything you
• 15:13
  Speaker 3: want them to do. They are providing you income, avoiding probate,
• 15:17
  Speaker 3: protecting from the nursing home, and still sheltering the maximum
• 15:22
  Speaker 3: amount that we can shelter from a state taxes. Kudos
• 15:25
  Speaker 3: to you if you get over the two million, over
• 15:28
  Speaker 3: the four million dollar limit, well yeah, there's some tax
• 15:30
  Speaker 3: for that. We can sit down and think if there's
• 15:32
  Speaker 3: anything more you need to do for that. But right now,
• 15:35
  Speaker 3: I think your trusts are doing wonderful and you're sheltering
• 15:38
  Speaker 3: the whole four million from the state taxes.
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  Speaker 2: So there you go, mister Lutsky, Thanks so much for
• 15:43
  Speaker 2: joining us today.
• 15:44
  Speaker 3: Always pleasure, Thank you.
• 15:46
  Speaker 1: This has been asked on on the Financial Exchange Radio network.
• 15:49
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