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Ask Todd: Naming your estate as an IRA 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 Lutsky is here to answer your
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  Speaker 1: questions and help you plan for later life. Ask Todd
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  Speaker 1: England for more than thirty five years, helping families with
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  Speaker 1: a state and tax planning, medicaid planning, and probate law.
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  Speaker 1: Visit Cushingdolan dot com. Now Here's Todd Lutsky.
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  Speaker 2: Todd A Lotsky from Cushigan Dolan joins us now for
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  Speaker 2: Ask Todd. We got the phone lines open for your
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  Speaker 2: estate planning questions. Eight eight eight to zero five two
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  Speaker 2: two sixty three is the number again, That is eight
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  Speaker 2: eight eight to zero five two two six three. We
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  Speaker 2: can normally get through two to three calls, so make
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  Speaker 2: sure that you get calling early in offense so you
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  Speaker 2: can get in line to Ask Todd your estate planning questions.
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  Speaker 2: That phone number is eight eight eight two zero five
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  Speaker 2: two two six three. One more time it is eight
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  Speaker 2: eight eight two zero five two two six three. Mister Lutsky,
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  Speaker 2: how are you doing today?
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  Speaker 3: I am never better? And and how about yourself?
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  Speaker 2: Doing well. Yeah, but I was looking at the news.
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  Speaker 2: Are about the twenty twenty eight Olympics in Los Angeles?
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  Speaker 4: Oh?
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  Speaker 3: Yeah, are we doing those? We are?
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  Speaker 2: Did you see that Aladdin was banned from them? No,
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  Speaker 2: banned from the Olympics performance enhancing rugs ah, I know,
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  Speaker 2: it's a real problem, kind of sad. Let's talk a
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  Speaker 2: little bit about IRA beneficiaries and kind of guidance as
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  Speaker 2: it relates to, you know, estate planning and those bennies.
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  Speaker 2: What's kind of been the long term conventional wisdom about
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  Speaker 2: how you name IRA beneficiaries for you know, to coordinate
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  Speaker 2: with your state plan.
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  Speaker 3: Yeah. So IRA is probably one of the more complicated
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  Speaker 3: assets in a state planning. Remember state planning, we plan
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  Speaker 3: for all your assets. But with an IRA, it's just
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  Speaker 3: an added level of complexity because there's an income tax
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  Speaker 3: component associated with the estate tax component. So many people
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  Speaker 3: think that, oh, well it's an IRA, it's not you know,
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  Speaker 3: it's not going to be a state taxable it's income taxable.
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  Speaker 3: Well it's both. So even roths right, they're not income taxable,
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  Speaker 3: but they're still included in your estate for state tax purposes,
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  Speaker 3: so you kind of have to deal with them and
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  Speaker 3: so you know, I think your question is what's the
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  Speaker 3: common sort of approach to naming beneficiaries. And by the way,
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  Speaker 3: there you could do like an eight hour seminar and
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  Speaker 3: IRA beneficiary designations, but.
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  Speaker 2: Let's not do that right now.
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  Speaker 3: Let's not do that now. So so you know, common
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  Speaker 3: approach would be surviving spouse generally should be the primary beneficiary,
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  Speaker 3: and then the contingent beneficiary can be you know, children,
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  Speaker 3: it's an option if you have children, or you might
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  Speaker 3: name your estate planning trust, whether it be your revocable
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  Speaker 3: family trust or your irrevocable trust if you've done perhaps
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  Speaker 3: medicaid planning, so you could name a trust a beneficiary
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  Speaker 3: after you die. So in other words, iras cannot go
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  Speaker 3: into the trust while you're living without creating an adverse
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  Speaker 3: income tax consequence. Right, let's face it. If I'm going
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  Speaker 3: to take the IRA and put it in a trust,
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  Speaker 3: it's an individual retirement account, which means it has to
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  Speaker 3: be owned in your name. So in order to put
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  Speaker 3: it into a trust, you would have to take the
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  Speaker 3: assets out of it, which of course is a income
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  Speaker 3: taxable event, and then put whatever's left after you pay
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  Speaker 3: the tax into your trust. So we don't do that. However,
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  Speaker 3: at death it can get there. So if you're naming
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  Speaker 3: your children the beneficiaries, that's okay after your spouse. But
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  Speaker 3: if you do that, you don't have any control over it,
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  Speaker 3: no ability to protect it from future creditors, divorces how
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  Speaker 3: they get it when they get it. But if you
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  Speaker 3: name the trust the contingent beneficiary after the spouse, then
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  Speaker 3: you give yourself a chance to say, all right, these
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  Speaker 3: assets will now be held in a trust, protected from
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  Speaker 3: future divorces of the kids, perhaps getting to a generation
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  Speaker 3: below without a generation skipping tax applying. So there's benefits
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  Speaker 3: to naming your trust as the beneficiary. That's the consensus generally.
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  Speaker 2: Talking with Todd Lutski from the law firm of Cushing
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  Speaker 2: and Dolan, we do have room on the phone lines
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  Speaker 2: for you to ask your estate planning questions to Todd.
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  Speaker 3: Right now live on air.
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  Speaker 2: Number here is eight eight eight two zero five two
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  Speaker 2: two six three again. We can usually only get through
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  Speaker 2: two to three of these in any given show, so
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  Speaker 2: make sure that you get your your call place that
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  Speaker 2: to zero five two two sixty three is the number
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  Speaker 2: to call We're gonna take a quick break here, but
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  Speaker 2: when we return, we are going to get to your
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  Speaker 2: Still chatting with Todd Lutsky from the law firms Christandlan.
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  Speaker 2: One more time. It's eight eight eight to zero five
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  Speaker 2: two two six three.
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  Speaker 1: Todd.
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  Speaker 2: We were talking beneficiaries for iras previously. Yeah, is there
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  Speaker 2: anything that people can do as far as beneficiary designations
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  Speaker 2: that may be able to help them from a qualifying
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  Speaker 2: from medicaid perspective? Or is that kind of off the table.
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  Speaker 2: There's nothing that you can really do there.
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  Speaker 3: I think for the longest time the answer was there
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  Speaker 3: was there was really nothing you could really do there. Uh,
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  Speaker 3: you know, because again the idea of medicaid planning is
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  Speaker 3: to set up irrevocable trusts and take as many of
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  Speaker 3: your assets as you can now well you're healthy, and
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  Speaker 3: put them in there, and after five years of them
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  Speaker 3: being in there, they'd be protected from the nursing home.
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  Speaker 3: That's kind of the objective. But with an IRA, as
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  Speaker 3: we just explained, I can't take that money and put
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  Speaker 3: it in there, So you're right. For the longest time,
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  Speaker 3: it was like, what do I do? Not a lot? However,
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  Speaker 3: now and I say now, meaning the Secure Act, remember
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  Speaker 3: came out in I want to say Round two of
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  Speaker 3: the Secure Act came out in twenty twenty two ish,
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  Speaker 3: and that kind of changed the game. That changed the
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  Speaker 3: rules a little. Now, you know, if you have attained
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  Speaker 3: age seventy three, which I believe is the required beginning date,
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  Speaker 3: they call it the RBD, it's the required beginning date
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  Speaker 3: to take money from your IRA. So even though you
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  Speaker 3: might retire at sixty five, you don't have to take
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  Speaker 3: any money at that age. But when you reach seventy three,
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  Speaker 3: you must start taking minimum distributions. So if you reach
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  Speaker 3: that age, you can name the estate the beneficiary. Now
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  Speaker 3: that sounds like a bad deal, but naming the estate
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  Speaker 3: the beneficiary will force it through probate, which is only
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  Speaker 3: one asset, one item, so it doesn't really matter, okay,
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  Speaker 3: and then it goes into testamentary trust, so you always
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  Speaker 3: have to do this coupled with a testamentary trust. And
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  Speaker 3: then by putting it in that testamentary trust, what's going
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  Speaker 3: to happen is it's going to be available for your
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  Speaker 3: surviving spouse. This is if you die and never go
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  Speaker 3: to a nursing home, which again is our goal right
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  Speaker 3: when we do our planning, then that money would be
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  Speaker 3: held for the benefit of the surviving spouse, who if
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  Speaker 3: that spouse gets sick the next day or any time thereafter,
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  Speaker 3: it's immediately protected from the nursing home for the kids.
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  Speaker 3: So there's no five year waiting period. So it's really
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  Speaker 3: a home run to do it. But there's a lot
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  Speaker 3: of rules to understand when you're doing this, and that's
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  Speaker 3: what this new guide for this month is all about.
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  Speaker 3: And so it's you know, why name your estate and
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  Speaker 3: ira beneficiary, right, that's the guide and it explains the
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  Speaker 3: benefits of doing that from an income tax perspective and
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  Speaker 3: estate tax perspective. It also shelters it from future estate taxes,
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  Speaker 3: how it protects it from a nursing home, and again
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  Speaker 3: most importantly, how it doesn't create any adverse income tax
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  Speaker 3: consequences to the surviving spouse. So that is really, you know,
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  Speaker 3: the game changer when it comes to doing these naming
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  Speaker 3: the estate the beneficiary of an IRA in that regard,
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  Speaker 3: you can also do this for life insurance so and
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  Speaker 3: couple it with a testamentary trust. So those are the
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  Speaker 3: things that are in there. Call and get the guide.
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  Speaker 3: It's brand new for the month. It'll give you some
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  Speaker 3: new ideas on a state planning for these tough to
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  Speaker 3: plan for assets eight six six eight four eight five
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  Speaker 3: six nine nine or Legal Exchange show dot com. You
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  Speaker 3: can download it there 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 2: Top I get a question from Michelle in May and Michelle,
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  Speaker 2: you're on with Todd Lutsky. What's your question?
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  Speaker 4: My significant others for one K, she's eight years older
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  Speaker 4: than me upon his death, do I have to spend
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  Speaker 4: that within ten years?
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  Speaker 3: So you said, I think you beeped out on this part.
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  Speaker 3: Just let me confirm you said you are a significant
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  Speaker 3: other not married, correct, So that makes a great difference, right,
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  Speaker 3: if you're not married, it changes the game a lot.
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  Speaker 3: But let me ask you this. How old is your
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  Speaker 3: significant other? Eighty eighty?
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  Speaker 4: How old are you seventy two?
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  Speaker 3: Seventy two? So this is why when I explain this,
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  Speaker 3: the age is going to matter. Right. So in this case,
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  Speaker 3: first of all, do you know he's naming you as
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  Speaker 3: a beneficiary?
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  Speaker 4: Yes?
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  Speaker 3: Okay, because that would be the first you got to
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  Speaker 3: get over that hurdle. So if he names you as
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  Speaker 3: a beneficiary, there's rules that say, if it's going to
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  Speaker 3: a child, it must come out over ten years. And
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  Speaker 3: that's what you're asking me. Well, Todd, I'm not a child,
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  Speaker 3: I'm a significant other. Well, there happens to be another
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  Speaker 3: rule there. That's the general rule. So most of the time,
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  Speaker 3: when you're not naming a spouse, most of the time
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  Speaker 3: the assets need to be paid out over ten years.
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  Speaker 3: So forget your life expectancy anymore. If you were a spouse.
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  Speaker 3: Interestingly enough, in your situation, if he died tomorrow, you
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  Speaker 3: would be able to delay taking minimum distributions until you
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  Speaker 3: reach seventy three. Granted it's only one year but you
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  Speaker 3: could delay for that year and then you could take
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  Speaker 3: it out over your life expectancy, which would be what
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  Speaker 3: longer than his because he's eighty, So that's a win
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  Speaker 3: and likely longer than ten years. So that's a win,
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  Speaker 3: you know, from an income tax perspective for everybody else listening.
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  Speaker 3: Why that matters is the faster you take money out
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  Speaker 3: of an IRA to hire the income tax bracket you
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  Speaker 3: could be in. Right, So think about a lot of
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  Speaker 3: children who have to take it out over ten years.
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  Speaker 3: What if there's a million dollars sitting in an IRA
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  Speaker 3: and you're an only child, right, Well, you could be
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  Speaker 3: fifty when your parent dies. You might be making a
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  Speaker 3: couple hundred thousand dollars a year. Well, now I'm going
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  Speaker 3: to have to pull another one hundred thousand dollars a
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  Speaker 3: year plus out, pushing me into an even higher income
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  Speaker 3: tax bracket. I don't know where you are in this situation, Michelle,
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  Speaker 3: but that's the idea for everybody else. Now back to you, Okay,
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  Speaker 3: Well I'm not married, so I don't get that bonus.
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  Speaker 3: What do I get? There happens to be one other exception. Well,
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  Speaker 3: there's about four exceptions to the ten year rule. One
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  Speaker 3: of the exceptions is if you happen to be a
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  Speaker 3: minor child or a disabled child, then you can take
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  Speaker 3: it out or over your lifetime. You don't have to
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  Speaker 3: wait ten years or this. We said that was one
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  Speaker 3: and here's the final one that you might fit into.
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  Speaker 3: If you are the designated beneficiary and you are less
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  Speaker 3: than ten years or less than younger than the participant,
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  Speaker 3: so you are you're within that ten year window. Okay,
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  Speaker 3: So you then would have the ability to take it
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  Speaker 3: out over your life expectancy. So that's really a home
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  Speaker 3: run for you. So you could take it out because
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  Speaker 3: you're within that ten year window. You can take it
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  Speaker 3: out over your life expectancy. That's good. But remember you
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  Speaker 3: might need to do some planning for him because you
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  Speaker 3: never know. Not being married, you have no rights if
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  Speaker 3: he got sick and went to the nursing home. You know,
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  Speaker 3: there's not being a spouse. You don't get to avail
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  Speaker 3: yourself of any of the spousal rights in terms of
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  Speaker 3: protecting these assets from the cost of long term care.
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  Speaker 3: Long winded answer, I know, But folks, when you're dealing
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  Speaker 3: with an IRA, that's what happens. Iras have problems.
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  Speaker 2: Todd any final thoughts on beneficiaries and estate planning, just
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  Speaker 2: that you want to mention here.
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  Speaker 3: Yeah, I know we were talking about iras a lot
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  Speaker 3: and trying to do last minute planning protecting assets from
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  Speaker 3: the nursing home. Think about it also with a life
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  Speaker 3: insurance policy, folks, if you have a life insurance policy
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  Speaker 3: and you're trying to protect it from the nursing home,
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  Speaker 3: likely if you're making premium payments, you're not going to
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  Speaker 3: be able to put that into an irrevocable trust while
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  Speaker 3: you're living. And so when you die, if you're married,
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  Speaker 3: you can name the estate the beneficiary, just like we
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  Speaker 3: were talking about doing with an IRA, and that way
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  Speaker 3: it would flow into this testamentary trust and again be
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  Speaker 3: sheltered from a state taxes be available for the surviving
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  Speaker 3: spouse to enjoy those dollars from that life insurance policy.
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  Speaker 3: And again, because it flowed through probate to get to
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  Speaker 3: this item, to get to this trust, the s viving
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  Speaker 3: spouse can get sick the next day and there's no
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  Speaker 3: five year waiting period and those assets in there would
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  Speaker 3: be not only protect they'd be protected from the nursing
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  Speaker 3: home for the for the kids. So that's that's a thought.
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  Speaker 2: Mister Lutski, Thank you so much for joining us today.
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  Speaker 3: Always a pleasure. Thank you.
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  Speaker 1: This has been Asked Odd on the Financial Exchange Radio
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  Speaker 1: network Ask Todd with Todd. Lutsky has been presented by
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  Speaker 1: Cushing and Dolan, serving Massachusetts and New England for more
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  Speaker 1: than thirty years, helping families with the state and tax planning,
• 15:27
  Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
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  Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
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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 advisor. He does not provide any
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  Speaker 1: legal or tax advice. Please consult with your legal or
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