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Ask Todd: Reducing estate taxes · The Financial Exchange Show

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  Speaker 1: This is Ask Todd on the Financial Exchange Radio network.
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  If you have an existing estate plan or in the
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  market for one, Todd Letsky is here to answer your
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  questions and help you plan for a later life. Ask
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  Todd is presented by Cushing and Dolan, serving Massachusetts and
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  New England for more than thirty five years, helping families
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  with a state and tax planning, medicaid planning, and probate law.
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  Visit Cushingdolan dot com. Now here's Todd Lutsky.
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  Speaker 2: As promised, We're now joined by Todd Lutsky for Ask Todd.
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  This is the segment where you get to ask your
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  questions to Todd Lutsky live on air. Anything related to
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  your estate plan or lack thereof. This is your opportunity.
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  We've got the phone lines open at eight eight eight
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  to zero five two two six three. That is the
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  number to call to Ask Todd your estate planning questions
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  right now. Again, that number is eight eight eight to
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  zero five two two six three. Last couple weeks, we
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  haven't enough time to get all the way through, so oh,
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  get dialing I early, get in line and we'll get
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  to you again. Eight eight eight two zero five two
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  two six three is the number, mister Lutsky. How are
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  you today?
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  Speaker 3: I am doing wonderful and and you pretty good overall?
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  Oh yeah, what's going on?
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  Speaker 4: Well?
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  Speaker 2: I ate an I ate an abacus yesterday an abacus
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  talking to my parents and they told me that it's
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  really on the what's on the inside that counts, and
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  so I.
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  Speaker 3: Went that to one of those Yeah, yeah, yeah, everything's.
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  Speaker 2: Great, though, Todd, I want to talk to you a
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  little bit about retirement accounts and how they relate to
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  the estate tax.
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  Speaker 3: Yeah, tough, tough apples.
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  Speaker 2: Is there any way through estate planning that someone with
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  retirement accounts IRA four one k roth, iray, whatever it
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  might be, Is there any way to potentially reduce one's
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  estate tax burden that they might have that they might incur,
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  you know, through holding those retirement accounts or they kind
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  of stuck with it.
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  Speaker 3: Yeah. So, I guess when you're looking at IRA accounts,
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  there's lots of components. Right first and foremost, remember there's
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  an estate tax, as you're mentioning, Chuck, and an income tax.
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  So already right out of the gate, we have to
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  think about two types of taxes when you're dealing with
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  an IRA. So makes it a little more complicated. And
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  by the way, I'm just going to throw this out
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  there too. It you didn't ask about it, But a
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  roth ira is still an ira, and so as much
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  as we think in our minds, oh, it's tax free,
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  that's what I understand about roths that's true. So when
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  I'm dealing with a roth ira, I have one less
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  tax to deal with, meaning when you withdraw the money,
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  it's income tax free. But what people forget when they
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  say tax free is that there's still the estate tax
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  side of the equation. Sure, right, so many people right think, oh, well,
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  it's a roth ira, so it's tax free. I don't
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  have to worry about it. But it's still included in
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  your estate when you die, because you own it after all,
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  and therefore it is subject to the estate tax, even
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  though it's not subject to the income tax. So just
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  keep that in mind when you're doing it. Now, if
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  we're talking about the estate tax side, for both iras
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  and roth iras, to reduce the debt, to reduce your
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  estate tax, there's really only one way to do it,
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  right if you leave your ira to your spouse, which
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  most people will do, and it's okay It's a great
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  income tax way to leave your your IRA, no question
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  about it. But it's a horrible estate tax way to
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  leave your IRA. Why because if you've got a million
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  dollar IRA and you just leave it to your spouse,
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  your spouse, the state just went up by a million dollars.
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  It's not sheltered, so that's just adding to whatever your
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  spouse has in her own right follow me, So it's
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  subject to a state tax if you, on the other hand,
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  want to leave it the designated beneficiary to your family trust,
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  and inside the family trust it hits the q tip share.
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  I'll call it the marital share, but it's a q tip.
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  Then it can still come out to the beneficiary your
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  spouse over her lifetime, which is what you want from
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  an income tax perspective, but it's sheltered in the trust
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  when she dies for estate tax purposes. So at least
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  you're winning now on both fronts, not harming the payout
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  for income and sheltering it from being included in her
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  estate when she dies. If she has not spent a.
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  Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
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  and Dole, and again the number to call to ask
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  Todd your questions about your estate plan eight eight eight
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  to zero five two two sixty three. That is eight
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  eight eight to zero five two two sixty three. Still
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  a little bit of room on the phone line, so
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  again get calling if you do have a question for Todd.
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  That number again is eight eight eight to zero five
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  two two six three. Todd, when when you're looking at
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  I guess again just sticking with kind of the the
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  estate tax side of things, What about other assets that
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  might not be retirement accounts, after tax investment accounts. Is
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  there a different approach that is utilized there in terms
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  of trying to minimize estate taxes?
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  Speaker 3: Yeah, I mean after tax investment accounts. Please a much
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  simpler answer, thankfully. Please just retitle those while you're alive
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  to your family revocable trust, an end or to your
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  irrevocable trust to the extent you want to for medicaid, nursing,
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  home plannings. Just put it in there, and now it
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  will be avoiding probate and sheltered first eight taxes.
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  Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
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  and Dolan. Again, still a little bit of room on
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  the phone lines at eight eight eight to zero five
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  two two six three. That's the number to call to
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  ask Todd your questions live on air. We're going to
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  take a quick break right now, but when we come back,
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  it's going to be right to your questions with Todd.
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  That number one last time is eight eight eight to
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  zero 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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  only here on the Financial Exchange Radio Network. Todd Letsky
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  answers your questions about a state and elder life planning
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  every Wednesday at ten thirty, right here on the Financial
• 6:58
  Exchange Radio Network.
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  Speaker 2: Right to your calls with Tod Letsky. First up, we
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  got Sal in Boston. Sal, what's your question for Todd?
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  Speaker 4: Hey, Todd, question about inherited IRA. I heard you can
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  turn it into a like kind IRA in your own
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  name and you have like ten years to the clear
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  the the money.
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  Speaker 3: Are you the child?
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  Speaker 5: Yes?
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  Speaker 3: Okay, so a parent died and you're the you're the beneficiary.
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  Speaker 4: Go ahead, So if you do that, does that affect
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  like your own IRA, you know, contributing to it or
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  prevent you from contributing to your own in that year?
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  Speaker 6: Or is this no?
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  Speaker 3: I think this is what I'm talking about. What we're
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  talking about here is not whether you're able to contribute
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  to your own IRA or how much you're able to
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  contribute to your IRA. This has no effect on that.
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  This simply is about you withdrawing from that. Meaning again,
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  how old are you.
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  Speaker 6: Eight?
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  Speaker 3: So you're fifty eight, So your iras are you don't
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  have to touch them, you don't have to withdraw, you
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  don't have to do anything with them. But this IRA
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  you kind of have to, right, depending on how old
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  your father or mother was when they passed, but likely
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  at worst case scenario, you have to take this out
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  over ten years, and you have to either a start
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  right now and minimum distributions have to come out. Probably
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  one tenth would make sense from an income tax standpoint,
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  but depending on whether or not your parent had reached
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  their required beginning date, you might be able to delay
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  the distribution and not make required minimums, but it still
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  has to come out over ten at the end of
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  the tenth year, and you'd never wait ten years to
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  take it out, because yeah, you'd have tax deferred growth
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  for ten years, but then you're going to get hammered
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  in year ten when you have to take it all out.
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  From an income tax standpoint, So no impact on what
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  you can contribute that I'm aware of to your own iras,
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  but you do got to focus on the withdrawing from
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  this IRA sooner rather than later and watch out for
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  any penalties if you do not. Folks, iras tough assets,
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  tricky assets to deal with. This is why we put
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  together a guide this month naming your estate and IRA beneficiary.
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  When would you do it? How do you do it?
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  Does it make sense to do it right? This is
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  a situation where if you want to now reduce estate
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  taxes by sheltering these for IRA purposes, you want to
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  not get an adverse income tax when the beneficiary takes
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  out the money that's the required minimum distributions. And at
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  the same time, if you have a surviving spouse, you
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  want the surviving spouse to be able to enjoy the
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  money access the money. But if they get sick even
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  the next day before they go into the nursing home,
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  not at risk for the nursing home, which is way better,
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  perhaps and just leaving it directly to the spouse, in
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  which case it would be at risk for the nursing
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  home and less to the children. Lots to think about
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  with an IRA folks from an estate planning and nursing
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  home planning perspective. Pretty new stuff here. Get the guide
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  eight six six eight four eight five six nine nine
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  or Legal Exchange Show dot com again eight sixty six
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  eight four eight five six nine nine or Legal Exchange
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  Show dot com.
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  Speaker 2: Todd, I got another one qu'ed up for you here.
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  Let's go to Bob in Wooster Bob, you are on
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  with Todd Lutsky.
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  Speaker 5: Hi, Tod, good morning. I'm considering putting my rental property
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  in a trust with a spendthrift provision that states something
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  to the effect that the assets shall not be subject
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  to sale or transfer in any manner. Is this going
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  to make it difficult for my beneficiaries to eventually sell
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  the property at some point down the road.
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  Speaker 3: Well, I think you're you're comparing apples and oranges, right.
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  So the trusts have language in it regarding what the
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  trust's powers are, the trustees powers are. I don't mind
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  having the spendthrift language in there. That's certainly a great
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  idea to put in your trust. I may suggest that
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  the rental property go into an LLC first, and then
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  the shares go into your trust. That way, in case
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  there's a lawsuit, you are going to have creditor protection
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  from that tenant rather than being sued personally, you would
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  be sued that LLC would be sued, and your other
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  assets would not be at risk. To your point, again,
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  selling when the beneficiaries get it. If the trust says, hey,
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  pay it out to your kids and let them do
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  what they want with it, then there's absolutely no restriction
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  on selling it, even if you hold the asset in trust.
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  Again forgetting the spendthrift language, that doesn't really impact this.
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  You simply have language in there that says hold it
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  in trust for my kids for their life, to give
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  them creditor protection and divorce protection. Trust would still generally
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  have the ability to sell the property or not sell
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  the property. So I don't think that's going to be
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  a problem. I hope that that helps a little ton.
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  I've got another one here for you. Let's go to
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  Lynn in Springfield, Linn. You are on with Todd Lutsky.
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  Speaker 6: Hey, Tod, good morning, Thank you for taking my call.
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  I have a problem. It's a very good problem, but
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  it's a problem done the less.
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  Speaker 3: Okay, we like problems.
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  Speaker 6: Well, here's a good one. For you to work on.
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  I am sixty one, almost sixty two. I'm retired. I've
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  been retired for a couple of years. I've been drawing
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  off of my four oh one K. My four oh
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  one K currently has about a million dollars in it,
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  and what I've drawn down, I've made back up because
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  the stock market's been doing pretty good.
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  Speaker 1: Okay.
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  Speaker 6: I have about another half million dollars in cash, a property,
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  a parcel of land that's worth about a half million,
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  and a home that's worth about another million. So I
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  have ample means. And this is before four oh one K,
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  before I mean social Security and a small pension.
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  Speaker 3: Are you single?
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  Speaker 6: I'm single, okay, and I have one child.
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  Speaker 3: Okay.
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  Speaker 6: So I have a lot of stuff, a lot of
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  moving pieces, and I know that as and I live
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  very simply, okay.
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  Speaker 3: So now try to ask the question. Just ask the question.
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  Speaker 6: I'm just trying to figure out how to best minimize
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  my income tax in the future when I start drawing
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  off of Social Security and continuing to pull out of
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  my four oh one K, and then minimize my state
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  tax for my child when I pass my assets along.
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  Speaker 3: So a couple of things, and I know we don't
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  have a lot of time left. But a couple of
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  things to point out here. One, you know, from an
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  income tax perspective, there's not really a lot of planning
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  to do there. Maybe sitting with your accountant, maybe sitting
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  with a financial advisor might help you. But as you
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  withdraw money from your qualified it's always taxable, and you know,
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  your other investments, if you invested in, like, you know,
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  income tax free municipal bonds or something, might reduce your income.
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  But I can't really address the income tax side of
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  that equation. But on the estate tax side, we can.
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  I guess if I ran the numbers correctly, you're somewhere
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  around you know, three million ish, maybe a little more
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  in total assets. Good news is, federally you don't have
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  any estate tax. I don't even see it being a
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  problem in twenty twenty six, when the exemption drops back
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  down to seven million, give or take, I think you'll
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  be fine. And even in Massachusetts, if you know, I
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  assume you live here, So if you're in Massachusetts, it's
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  also not a really big problem because the exemption went
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  up to two million. So yeah, you're over a little bit.
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  But you know, do we want to start thinking about
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  lifetime gifting. And by the way, under the new estate
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  tax legislation, there's no more cliff rule, so we're able
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  to make gifts and be able to still get a
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  credit and reduce our gift to our Massachusetts of state tax.
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  So yeah, there might be a way to do some gifting,
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  but we'd have to balance that, of course with the
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  idea of a loss of a step up in basis.
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  But most importantly, maybe you want a trust if it's
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  not revocable, you want to add some nursing home protection
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  to protect some of the non qualified assets and focus
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  on living off of the qualified assets so that you
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  can now add nursing home protection at the same time.
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  Speaker 2: Mister Lutsky, thank you so much for joining us today.
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  Speaker 3: Always a pleasure.
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  Speaker 1: This has been asked OD on the Financial Exchange Radio Network.
• 15:42
  Askedd with Todd Lutsky. Has been presented by Cushing and Dolan,
• 15:45
  serving Massachusetts in New England for more than thirty years,
• 15:48
  helping families with the state and tax planning, Medicaid planning
• 15:51
  and probate law. Call eight hundred and three nine three
• 15:53
  four thousand and one or visit Cushingdolan dot com. The
• 15:57
  views expressed in this segment are solely those of Cushing
• 15:59
  and Dolan Armstrong advisor. He does not provide any legal
• 16:01
  or tax advice. Please consult with your illegal or tax
• 16:03
  advisor on such matters. Cushing and Armstrong do not endorse
• 16:06
  each other and are not affiliated