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Ask Todd: Can I name a trust as a beneficiary? · The Financial Exchange Show

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  Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
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  Speaker 1: If you have an existing estate plan or in the
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  Speaker 1: market for one, Todd Letsky is here to answer your
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  Speaker 1: questions and help you plan for a later life. Ask
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  Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
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  Speaker 1: New England for more than thirty five years, helping families
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  Speaker 1: with a state and tax planning, medicaid planning, and probate law.
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  Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
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  Speaker 2: And we are now joined by the one and only
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  Speaker 2: Todd Letsky from the law firm of Cushing and Dolan.
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  Speaker 2: Here to answer your estate planning questions. If you got
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  Speaker 2: questions about your estate plan, maybe the one you have
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  Speaker 2: the one that you should do. Here's your chance. Eight
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  Speaker 2: eight eight two zero five two two sixty three is
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  Speaker 2: the studio number. Last week we had five calls. We
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  Speaker 2: got through three of them, so you do need to
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  Speaker 2: call early and often in order to make sure you
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  Speaker 2: get in line to ask Todd your question. Eight eight
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  Speaker 2: eight to zero five two two sixty three is the number.
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  Speaker 3: One more time.
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  Speaker 2: That number to ask Todd your questions is eight eight
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  Speaker 2: eight two zero five two two six three. Mister Lutsky,
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  Speaker 2: how are you doing today? I am doing great and
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  Speaker 2: you I'm good.
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  Speaker 3: Yeah.
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  Speaker 2: What do you call a Frenchman getting attacked by a cat?
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  Speaker 3: I have no idea Claude, that's good that that would
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  Speaker 3: be his name.
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  Speaker 2: I want to talk a little bit about beneficiaries on
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  Speaker 2: retirement accounts.
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  Speaker 3: Okay, how has the.
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  Speaker 2: Thinking evolved over the last five seven years as it
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  Speaker 2: relates to naming a trust as a beneficiary for a
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  Speaker 2: retirement accounts?
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  Speaker 3: Yeah, so it has evolved, and that's that's the good
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  Speaker 3: news if there is any So one, let's start with
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  Speaker 3: the primary beneficiary and a contingent beneficiary, so first and foremost.
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  Speaker 3: Even though you can name a trust as a beneficiary
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  Speaker 3: on a retirement account, if if you're married, from an
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  Speaker 3: income tax perspective, it's still probably best to name the spouse. Okay,
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  Speaker 3: that's still a special beneficiary who could roll it over,
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  Speaker 3: take it out over their life expectancy. They don't have
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  Speaker 3: to take it till they reach the required beginning date oftentimes,
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  Speaker 3: so there's some benefits to that. However, if you don't
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  Speaker 3: have a lot of other assets to shelter on the
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  Speaker 3: first death because you're heavy into an Ira, Well, it's
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  Speaker 3: possible when you set up your trust to name your
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  Speaker 3: trust as the primary beneficiary even though you have a spouse,
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  Speaker 3: so that it can flow into the trust into what
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  Speaker 3: we would call the probably the marital share, could be
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  Speaker 3: the remainder share, but it's just going to be a
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  Speaker 3: function of how many assets you have, and then those
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  Speaker 3: assets can be held for the benefit of the spouse
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  Speaker 3: and still get it to come out over the spouse's
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  Speaker 3: life expectancy. But the benefit of that so there's no
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  Speaker 3: income tax problem, right, But the real benefit is it's
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  Speaker 3: also now sheltered for future estate tax savings, whereas if
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  Speaker 3: you just name the spouse, then those dollars just flow
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  Speaker 3: over to the spouse and then they're subject to a
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  Speaker 3: state tax when the spouse dies. So if you need
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  Speaker 3: a state tax planning, that would be one reason to
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  Speaker 3: name it first. But generally primary is the spouse. However,
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  Speaker 3: the contingent beneficiary more often than not, but depending on
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  Speaker 3: what your trust says, Meaning if your trust simply says,
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  Speaker 3: divide everything and distribute it out equally to my kids,
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  Speaker 3: well then you don't really need to name the trust
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  Speaker 3: as the beneficiary, because why run it through the trust?
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  Speaker 3: Out to the kids when you could just name the
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  Speaker 3: kids as the beneficiary. Sure, but if your trust is
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  Speaker 3: designed to provide creditor protection, future divorce protection for the kids,
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  Speaker 3: maybe even generation skipping tax benefits to the grandkids, and
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  Speaker 3: there's a reason to hold things in trust, well then yeah,
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  Speaker 3: if you've got a large IRA, you don't want that
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  Speaker 3: going directly to the kids when it can be sheltered
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  Speaker 3: for them through the trust, So you would want to
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  Speaker 3: name the trust as the designated beneficiary in that point.
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  Speaker 2: Talking with Todd, A Lotski from the law firm of Cushing
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  Speaker 2: and Dolan still got room at the on the phone
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  Speaker 2: lines at eight eight eight to zero five two two
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  Speaker 2: sixty three. That is the number to call to ask
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  Speaker 2: Todd your estate planning questions live on air right now.
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  Speaker 2: That number again is eight eight eight two zero five
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  Speaker 2: two two sixty three. Again, we've got limited room there,
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  Speaker 2: so make sure that you're calling early in order to
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  Speaker 2: get your question asked. We are going to take a
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  Speaker 2: quick break now, but when we come back, it's going
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  Speaker 2: to be right to your questions with Todd. That phone
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  Speaker 2: number is eight eight eight to zero five two two
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  Speaker 2: six three. One more time eight eight eight to zero
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  Speaker 2: five two two sixty three.
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  Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
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  Speaker 1: only here on the Financial Exchange Radio Network. You're listening
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  Speaker 2: Still better room on the phone lines if you've got
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  Speaker 2: a question for Todd Lutsky. Eight eight eight to zero
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  Speaker 2: five two two six three. Is the number again? Eight
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  Speaker 2: eight eight to zero five two two six three. Let's
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  Speaker 2: go to Tara on the Cape. Tara, what's your question
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  Speaker 2: for Todd Lutsky?
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  Speaker 4: Good morning, Thank you. I have a question regarding three
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  Speaker 4: adult children and leaving a home, and one of them
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  Speaker 4: is on Social Security disability and would not have the
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  Speaker 4: judgment to manage a third of the household. Is there
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  Speaker 4: a way without putting the pressure from the other two
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  Speaker 4: siblings to manage this through either an executor or how
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  Speaker 4: do you set up a trust when one really doesn't
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  Speaker 4: have the capacity.
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  Speaker 3: So real estate in general is a tough thing to
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  Speaker 3: leave to three kids. So let's talk about it first
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  Speaker 3: as if you have three children and none of them
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  Speaker 3: are disabled or have any special needs issues, and then
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  Speaker 3: I'll mention how to do it with the special needs child.
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  Speaker 3: So if you have all three kids and none of
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  Speaker 3: them have any special needs issues at all, and you say,
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  Speaker 3: you know what, I want this to be held to
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  Speaker 3: my in trust for my three kids, Well, they might
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  Speaker 3: not love it the way you love it. And you
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  Speaker 3: never know where they're gonna be, where their head's gonna
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  Speaker 3: be at, or where they're going to be geographically when
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  Speaker 3: you die, which could affect their interest in the property.
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  Speaker 3: So that's first and foremost. So what we do is
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  Speaker 3: we try to put language in our trust to prevent
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  Speaker 3: fighting over the property. So we want them to be
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  Speaker 3: treated equally. That's easy. And then you say the property
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  Speaker 3: itself will be sold unless all three of you want it. Now,
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  Speaker 3: the special needs child to put that into play might
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  Speaker 3: not have the ability to decide, so it would only
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  Speaker 3: be if the other two want it. I don't know
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  Speaker 3: that you know that child would have the ability, don't
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  Speaker 3: know the cognitive impairment if any of that child, But
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  Speaker 3: if that child can participate in the vote, then then
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  Speaker 3: please please do that. So so in that case, if
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  Speaker 3: they all don't, if they all want it, yeah, we're
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  Speaker 3: gonna put it into three buckets and we're gonna hold
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  Speaker 3: it in trust for these for these children. If anyone
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  Speaker 3: does want it, then the ones who want it have
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  Speaker 3: the first right to buy out the interest of the
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  Speaker 3: ones who don't at fair market value. Again, so the
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  Speaker 3: buckets will be filled equally. No one will suffer and
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  Speaker 3: no kids will be fighting because they all ended up
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  Speaker 3: getting what they wanted, either a portion of a house
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  Speaker 3: or money, So at least there's no fighting. So we
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  Speaker 3: first get past the no fighting part by determining who
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  Speaker 3: really even wants the property. Now that said, let's say
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  Speaker 3: we get it into the three buckets. You do not
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  Speaker 3: have to disinherit your special needs or disabled child, because
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  Speaker 3: if it's held in these three buckets for the kids,
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  Speaker 3: then they don't own it. And so if they don't
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  Speaker 3: own it, then the child getting governmental benefits will not
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  Speaker 3: lose those governmental benefits because this won't kick them off
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  Speaker 3: the benefits. They don't own the asset. It doesn't disrupt
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  Speaker 3: any kind of an asset based benefit that they might get.
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  Speaker 3: So we've gotten past that problem. Now, the last problem again,
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  Speaker 3: whether we have a spec a special needs child or not,
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  Speaker 3: is we're gonna hold it in trust. Well, if we're
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  Speaker 3: gonna hold it in trust, who's gonna pay for all
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  Speaker 3: these bills. Who's gonna pay the real estate taxes, the upkeep,
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  Speaker 3: the maintenance. You got to make sure those are paid.
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  Speaker 3: So you either have to a leave money in the
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  Speaker 3: trust to do that, or have the kids rely on
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  Speaker 3: themselves to say, look, there's no money in the trust,
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  Speaker 3: we have to pay to maintain this property. And of
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  Speaker 3: course if they don't, the state will take it right.
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  Speaker 3: So you just got to make sure they're aware of
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  Speaker 3: that if there's no money gonna be left in the trust.
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  Speaker 3: So to answer your question, it can be done, but
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  Speaker 3: I think drafting the document to accommodate these concerns is
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  Speaker 3: gonna be a paramount. But I love the call. I
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  Speaker 3: love the question because that is exactly the guide we're
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  Speaker 3: giving away this month, folks, how to leave your assets
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  Speaker 3: to your beneficiaries. If you've done your planning in the past,
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  Speaker 3: get it. It's got several examples, one about special needs children,
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  Speaker 3: generation skipping, divorce proofing, staggered distribution. So if you've done
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  Speaker 3: your planning, get it. Maybe your life events have changed
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  Speaker 3: and you can figure out a way to leave it
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  Speaker 3: to your kids differently than you've already done. Or if
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  Speaker 3: you've never done your planning, call and get the guide
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  Speaker 3: and learn get some education before you walk into that
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  Speaker 3: lawyer's office to learn about what you might want to
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  Speaker 3: do to leave your assets a certain way eight six
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  Speaker 3: six eight four eight five six nine nine or Legal
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  Speaker 3: Exchange Show dot com again eight six six eight four
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  Speaker 3: eight five six nine nine or Legal Exchange Show dot Com.
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  Speaker 3: Todd got another one for you here.
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  Speaker 2: Let's go to Jim in Maine. Jim, what is your
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  Speaker 2: question for Todd Lutsky?
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  Speaker 5: I have a home that I've lived in for forty years,
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  Speaker 5: so it has a considerable anno barpreciate. I am current
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  Speaker 5: assisted living. Okay, if I sell the home, is my
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  Speaker 5: understanding you have something like five years or something to
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  Speaker 5: reinvest it or something in a higher priced home, which
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  Speaker 5: I don't expect to do. And if not, if you
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  Speaker 5: don't sell it, you pay a real high estate tax
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  Speaker 5: or something like that. Is all that correct?
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  Speaker 3: Well, you're onto it, but I don't think you're onto
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  Speaker 3: it correctly. So a couple of questions. One, how much
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  Speaker 3: is the house worth?
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  Speaker 5: All about four point fifty?
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  Speaker 3: And what do you think you paid for it long ago?
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  Speaker 5: Fifty two?
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  Speaker 3: Call it fifty for easy numbers, because I'm not good
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  Speaker 3: with math. So and let's say you've put zero dollars
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  Speaker 3: into it, and I'm not saying you didn't. I'm sure
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  Speaker 3: you put some money into it, or did you? Did
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  Speaker 3: you put money into it over the years, new roof,
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  Speaker 3: new kitchen, new bathroom.
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  Speaker 5: New roof, But that's about it, all right.
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  Speaker 3: So let's say, worst case scenario, you got fifty grand
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  Speaker 3: into it. So let's say everything included your basis is
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  Speaker 3: one hundred thousand, that's your cost basis, and you were
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  Speaker 3: to sell it today for four fifty your gain would
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  Speaker 3: be three p fifty. Okay, Now, how long have you
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  Speaker 3: been in the assisted living Two years? So here's the
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  Speaker 3: rule that you were kind of bumping up against that
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  Speaker 3: maybe not everybody understands fully. If you were to sell
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  Speaker 3: your primary residence that you have owned and used as
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  Speaker 3: your primary residence, so owned and used as your primary
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  Speaker 3: residence for two of the last five years, then you
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  Speaker 3: get your capital gains exclusion. So it sounds to me
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  Speaker 3: like you have one more year. So if you want
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  Speaker 3: to sell this, you better hurry up, okay and sell it,
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  Speaker 3: because right now you have have owned and used this
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  Speaker 3: property for two of the last five years. In fact,
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  Speaker 3: three of the last five years. Okay, because you're still
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  Speaker 3: in that window, so one year to go. So let's
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  Speaker 3: say you decide, okay, this is the year I'm selling. Okay,
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  Speaker 3: Well that's okay, and I would hurry. So now you
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  Speaker 3: have a three hundred and fifty thousand dollars gain. You
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  Speaker 3: do not have to buy anything, right, you do not
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  Speaker 3: have to reinvest this property into something else, which you
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  Speaker 3: might not. You're you're in an independent or assistant living
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  Speaker 3: of some kind and and you won't need to do that.
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  Speaker 3: So you will get first of all, are you single,
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  Speaker 3: I'm widowedea with okay, So you will get a two
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  Speaker 3: hundred and fifty thousand dollars capital gains exclusion. Okay. Now
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  Speaker 3: if you were married, folks, just for everybody else listening,
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  Speaker 3: if you were married, you get a five hundred thousand
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  Speaker 3: dollars exclusion as long as you've owned and used the
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  Speaker 3: property as your primary residence for two of the last
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  Speaker 3: five years. But in your case it's two fifty. Well,
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  Speaker 3: three point fifty minus two point fifty is one hundred.
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  Speaker 3: So now you have a one hundred thousand dollars gain
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  Speaker 3: that you ultimately will pay taxes on so on a
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  Speaker 3: four hundred and fifty thousand dollars sale, you're going to
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  Speaker 3: be paying taxes of somewhere around you know, twenty eight grand,
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  Speaker 3: give or take, and you might not even be in
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  Speaker 3: that high of a bracket. It might be lower than that.
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  Speaker 3: So to me, not a bad deal. I'd say it's
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  Speaker 3: kind of a win for you if if you're ready
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  Speaker 3: to do it. I think the market, at least for
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  Speaker 3: the real estate world is still pretty high, so why
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  Speaker 3: not give that a go. But that's a great question, folks,
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  Speaker 3: and it's very important that you understand the tax dynamics
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  Speaker 3: when you're making decisions about selling your real estate.
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  Speaker 2: Todd, we appreciate you joining us today. Thank you so
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  Speaker 2: much for the time.
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  Speaker 3: It's always a pleasure. Thanks, thank you.
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  Speaker 1: This has been Asked Todd on the Financial Exchange Radio network.
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  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 three nine
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  Speaker 1: three four thousand and one or visit Cushingdolan dot com.
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  Speaker 1: The views expressed in this segment are solely those of
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  Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
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  Speaker 1: or tax advice. Please consult with your illegal or tax
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  Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
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  Speaker 1: each other and are not affiliated