Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:12):
He served at the Pentagon as an army jag. He
graduated from Notre Dame and has two law degrees from
Boston University and Georgetown University. He's been practicing law for
over thirty years. He's your family's personal attorney. It's time
for the David Carrier Show.
Speaker 2 (00:33):
Hello, and welcome to the David Carrier Show. I'm David Carrier,
your family's personal attorney, and you have found the place
you all was so lucky. I can't even believe the
look you are or maybe you were looking for it,
so it wasn't luck. It was much more in the
skill arena. It could be luck, could be skilled. Whatever
it is. You have found a place where we talk
about a state planning retirement law, which is really kind
(00:57):
of like a state planning. It blends together the real
estate and business law. So if you have a question, comment,
or concern about anything that has to do with people
who are getting a little bit creaky, there a little
bit you know v and stage. You know, if you'd
like to retire, if you have retired, if you're thinking
about retirement someday, if you know somebody who's retired, well,
(01:19):
now's the time. Give us a call six one six
seven seven four twenty four twenty four. That's sixty one
six seven seven four twenty four twenty four. We talk
about wills, trusts, probate, long term care. Boom boomp bom.
Everybody worried about that, except the reality is nobody's worried
(01:39):
about that, although you should be. And so for the
last forty years, I've made my mission to make you
worry about thirty five years. Now you're worrying. You know,
you got to be accurate about these things. So man,
they come down and you like a ton of bricks,
an absolute ton of ton of something bricks, is what
I'm saying. Anyway. Six one six seven seven four twenty
(02:00):
four twenty four. That's six one six seven seven four
twenty four twenty four. You can also send us an
email David at David Carrier Law. When word squish it
all together, you know, use that little a in the
circle there, David, little a in the circle at that's
at Davidcarrier Law dot com. And at Davidcarrier Law dot
(02:23):
com you'll find out where to go for oh the
workshops that are live and local and all over the place,
up and up in the Norton Shores there down in
the portage, and over and over in Holland. So we
make it easy for you, you know, nasty weather outside,
nice weather outside, in between, weather outside, we don't care.
(02:44):
We'll be there. Just sign up for one of our workshops. Now, fellas,
I'm not telling tales out of school, I don't think
if if I let you in on a little secret.
As we get older, you know, as the as the
circles around our trips around, the trips around the sun
(03:07):
continue to pile up, it gets a little more difficult
to you know, what can you say? Keep your woman excited,
you know involved? You know, you start, you know, and
I don't want to be doctor Ruth here or nothing,
but you know, it's it's a reality that you know,
(03:28):
it gets You've got to be more creative, am I right?
And after so many uh so many evolutions of the planet,
the revolutions of the planet, it gets more and more
difficult to find things that you haven't done before. Wink
wink not. I know you know what might mean. So
and so it was with no no little pride that
(03:49):
I point out that I discovered one of these things
and I'd like to share it with you now, something
never done before. It involves cowboy hats and dress up.
It's just wonderful. And it's called PBR. Now, if you're
like me, PBR is a certain kind of beverage that
was relatively inexpensive and which helped us out with the
(04:10):
women at the other end of the spectrum if you were,
you know, back in the high school days. The PBR
back then was a little peraps blue ribbon. You know,
it was a little lubricant at that time. Nowadays, PBR
refers to professional bull riding professional bull riding, and I
(04:32):
had the occasion to take the missus to the professional
bull riding, which I had never you know, like I say,
you're always looking to inject a little spice, keep it lively, right,
So I thought, well, why not, you know, Friday night,
let's do some or at least observe some professional bull riding. Well,
there were a few thousand people there to watch the
(04:55):
professional bull riders, and there must have been I don't know,
maybe thirty of them. At least, there's a whole bunch
of them. You know, we're in the chaps in the
whole bit. Now, if again, if you're a certain age
for you. Bull riding is one of those wide world
of sports things, you know what I'm saying. Remember the
wide world of sports. They were spanning the globe to
(05:15):
bring you the constant variety of sports, the thrill of victory,
the agony of defeat. I still have that guy who
fell off the ski jump, you know, kind of burned
in my and we just lost everything. Anyway, burned in
my mind, that guy who you know, the ski jumper guy. Anyway,
(05:40):
long story short, the professional bull riding. In order to
score at all, right, in order to make anything happen
with professional bull riding, you have to you have to
stay on the bull for at least for at least
(06:06):
eight seconds. Okay, so it's an eight second deal. If
you're not on there for eight seconds, then it just
it doesn't count. Yeah, I tell you what I am.
I am trying trying desperately here to get my get
my computer working again. I'm John. Could you just text
(06:28):
me is this is this? Are you still getting me?
Because my computer just died? Oh well that would be
a bad Oh you're okay, so you're still getting the
all right, you're still getting the audio anyway. I just
updated the computer, so I don't know anyway, long story short, boy,
(06:50):
this was such a good little piece here. You know
what I mean? You know, well, here's the deal with
professional bull riding anyway? In case, well, I tell you what.
Let's do. Let's go too, Let's go to Scott and Luddington. Scott.
You've got a question about your vocable trust.
Speaker 3 (07:07):
Hey David, you don't worry.
Speaker 2 (07:08):
Don't worry. I'll get to the professional bull riding in
the second segment.
Speaker 3 (07:12):
Yeah, yeah, no, we missed you last week. Hope you
had a good weekend from that standpoint. But uh oh yeah, quick, quick,
quick question for you to give me just a second,
give you the background. So three years ago, my in
laws created an irrevocable trust and they funded it to
a level that they whatever they felt comfortable with. Within
(07:34):
a couple of weeks ago, they basically signed up to
go into a facility, a community facility that has multiple
levels of care because my while my father in law
is in great shape, my mother in law is failing.
So they wanted to get into there where they have
and they're going into assisted living or sorry, independent living.
But as she is going to progress, she'll need higher levels.
(07:56):
So the question now is and they're financially they're in
a in a great situation. They've been blessed. They're in
a situation where they don't need to sell their home
to make all this happen there, you know, and medicaid
is not an issue for them type things. But there
is this question and he they made the irrevocable trust.
He is the trustee, not the benefactor obviously, but he
(08:19):
is a trustee. But there is a question of what
to do with the home because maybe it's something would
happen to my mother in law that maybe a year
or two he may go back when and go back home,
maybe longer, who knows, maybe not, maybe not. He may
be a one way trip as well. He may just
enjoy the community. But there is a concern. They thought
about renting the house, but then they have the you know,
(08:40):
the homestead capital gains issue, and so there's a r
This is what this is what I want to get
your thought on. If they if the irrevocable trust were
to buy the home from basically the grantors of my
in laws, so it goes into the irrevocable trust, they
buy that market used to capture the capital gains. Uh uh,
(09:04):
tax break for homestead for the last fifty years. It
could be a significant capital gain and then and then.
Speaker 2 (09:11):
How much be both three hundred about how much.
Speaker 3 (09:18):
Probably in that in that ballpark, And then so let
the trust then basically buy it on the like a
land contract where they pay the trust pays him monthly
for the purchase price, which then he can turn around
and use to help pay the monthly fees at the
home which he doesn't need, but still pay that. And
then let the trust administer the rental property so they
(09:39):
can capture the gain, and they can also still rent
it out and have it available in case he turns
round and decides that he wants to not be in
the home after his wife may pass away and he
can go back home. Just getting your thoughts on that, Yeah,
I think I think I got it.
Speaker 2 (09:54):
And we've got like a minute left, which is not
enough time. So let me let me say this about
this about that. Who did the irrevocable trust?
Speaker 3 (10:03):
He did?
Speaker 1 (10:03):
They?
Speaker 2 (10:04):
I mean why why did why did they do an
irrevocable tru What was the point of it? What did
they think was the point of it?
Speaker 3 (10:11):
Yeah, they did it to protect the assets so that
they could make beneficial for their kids in case anything
were to go really sideways in their life. They do
have a quote unquote nest egg that is set aside
that they can pass on to their uh benefit their
kids and grandkids.
Speaker 2 (10:29):
So were they were they planning? I mean, did they
do the irrevocable Because here's the thing, unless you're doing
long term care planning, it's extremely unusual to do any
sort of irrevocable trust. Now there's a there are statutory
irrevocable truck like if you're a doctor, a dentist, a lawyer,
and accountant, somebody who's got malpractice protective malpractice liability. William. Okay,
(10:52):
that music means I got to get out, but we'll
get back to it in the next segment. Okay, I'm
kind of put up professional bull riding for you at
another other second, but we'll get we'll get right back
to what you're talking about. Okay, all right, you've been
listening to the David Carrier Show. On David Carrier your
family's personal attorney.
Speaker 1 (11:30):
Okay, this hour of the David Carrier Show is pro bono,
so call in now at seven seven four twenty four,
twenty four. This is the David Carrier Show.
Speaker 2 (11:45):
He's come to me, he said, going, he said, he's
going back to man.
Speaker 4 (11:55):
God, what's the left of this work? The world he
left behind me? Not so long.
Speaker 2 (12:10):
Back to the David Carrier Show. I'm David Carrier, your
family's personal attorney. Frustrated SIPs. I mean I would think
they you know, when you love loved to be a pip,
you know Gladys Knight and the Pips. I mean one
of the pips. I mean I have to do is
every once in a while you go, you know, you
get dressed up every night. I could have done that.
(12:33):
I could have had a career in show business. But no,
I have to go to well school. You know, I
have to go to college. Stupid. Anyway, Welcome back to
the David Carrier Show. I'm David Carrier, your family's personal attorney.
We're talking with Scott and here's the deal. It's your
in laws, right, Scott. Did I get that right? Okay?
(12:57):
So the in laws at some point created Scott is
describing as an irrevocable trust. And I'm wondering because I'll
tell you what, Scott. It is very common for people
to say when we're talking irrevocable trust, and they mean
a revocable trust. To the revocable trust is the very
common everybody does that. Irrevocable trust are either done purposefully
(13:23):
to plan for the long term care and asset protection.
And I will say that it's kind of unusual if
you're not thinking about the long term care part of it.
Like we've got clients, you know, the professional types we're
subject to malpractice where you know, malpractice doesn't care if
you have a corporation. Malpractice doesn't care what else they're
(13:47):
going to you personally, to your personal stuff. And so
what we will do for professionals the doctors, lawyers, accountants,
anyone who's nurses, anyone who's subject to malpractice liability, it's
not unusual to do an irrevocable trust for asset protection. Okay,
(14:08):
but if it's not that and it's not long term care,
then I just it's it's an open question in my
mind whether or not they have a revocable trust, which
would be what you'd expect, or an irrevocable trust, which
you would not expect.
Speaker 3 (14:23):
In any of either either irrevocable.
Speaker 2 (14:27):
It is irrevocable. Okay, was he a doctor or something?
Speaker 3 (14:32):
Yeah? He actually I mean.
Speaker 2 (14:35):
I won't, I won't go into some sort of professional.
Speaker 3 (14:39):
Yes, he is a professional, and it was literally it
was for asset protection as well as liability to protection. Okay, oh,
I know.
Speaker 2 (14:48):
I he was a bar owner, right, he wants to
avoid dreamshop liability. Okay, who knows. Maybe's a bootlegger. I
don't know. But here's the Okay, so good, good, good.
So we do have the ear vocable trust, we've got
assets in there. Let's assume that those assets do qualify
for devestment from medicaid purposes, because an asset protection trust
(15:09):
is actually you know, the ones that would typically do
for that purpose, are they tend to be more restrictive
than you need for the long term care for the Medicaid.
Now let's talk about the house. We've got some time, right,
We've got five years really to decide, because you have
(15:29):
to live in it for two out of the last
five years, so say really three years, right, they've did
it for two years. Yeah, so add three years to it.
Now you get your five years before you have to
decide decide what to do with it. In the meantime,
because they're in a long term care facility, you know,
continuity of care facility. You're still going to get the
(15:51):
homestead exemption on it, so one as no one else
is moving in and you're not rent to get out,
so your tax is going to stay relatively low. And
I'm guess that from your response that you know that
they can exclude. You're saying the profit on the house
is around three eighty four hundred thousand. Well, the two
of them together can exclude five hundred thousand of gain
(16:14):
if they you know, two fifty each, two hundred and
fifty thousand of gain each if they sell it within
like I said, the three years after they vacate the premises, right,
So you got that going on for the capital gain. Also,
even if it's in an irrevocable trust, I'm gonna guess,
(16:35):
which is only a guess, that they're able to change
the beneficiaries in that trust. Right, So if they are
able to change the beneficiaries in the trust, then they'll
then whatsoever in the trust would still be included in
their taxable estate, right, which means that they get stepped
up basis, so you don't have to worry about the
(16:56):
capital gains if they hang onto the house till you die.
So were are three answers to the capital gains issue.
Number one, they sell it within three years, they get
the five hundred thousand exclusion. Number two, they sell it
when they die, and if they have any control over
the property, and we can make sure that they do,
(17:16):
then they get the stepped up basis okay, at death.
So when they die, the basis steps up, and again
they don't pay any there's no limit on that one.
They don't pay any capital gain at all. The third option,
which is one that has come up in the practice
several times in the last month or so, well, it's
tax time people looking at it has to do with
(17:40):
the nature of capital gains. Now, I forget the exact numbers,
but if you've got a married couple with less than
I think it's ninety six thousand, but let's say it's
ninety thousand, less than ninety thousand of income annual income, right,
less less than that much, the capital gain tax rate
(18:01):
is zero. So even if they were to sell it,
you know, yeah, you've got a three hundred and eighty
thousand dollars capital gain. And let's assume we don't get
primary residence and we don't get stepped up basis either. Well,
what's your tax rate. Oh well, we only have eighty
thousand of income a year, sixty forty thousand of income
a year. Right, Well, you're not going to pay capital
(18:23):
gain tax on it anyway because the tax rate is zero. Okay,
So those are all, you know, the tax consequences obviously
something you want to think about. If you do rent
it out, then we're going to lose the residence, you know,
the primary residence thing. And if you take depreciation within
the three years before you sell it, then you have
(18:45):
to get recaptured. You have to treat that much as
ordinary income, you know, So a little tax twist there.
I guess still get full step up basis at death,
and the capital gain tax rate might still be as
I say, it might still be a zero if you
do a if you do a sale, so you know
(19:05):
from which way.
Speaker 3 (19:06):
Which Yeah, from a trust perspective, if the trust were
to buy the property, in other words, the air Vocal
trusts were to buy it from him, even though he
would be a grant or if he gifted it, but
the trusts were to buy it from them, they go
ahead and get their tax free stepped up basis for
the trust. And when the kids get it some day.
(19:26):
They've got a higher basis, and that's the trust administer
the rental. If they were to rented, let the trust
administer the rental and pay him, you know, for purchasing
the property like a like a monthly you know, like
a mortgage payment back to him. You know, I'm not
from the trust perspective.
Speaker 1 (19:43):
Is that?
Speaker 3 (19:44):
Is there any issues with the trust perspective actually buying
it from him and administering as a rental.
Speaker 2 (19:52):
The short answer is yes. The longer answer is I'll
catch you after the news because the music's about to start.
But yes, I mean there are there's what you're saying
is not It's not crazy at all. I mean, definitely
it can be done. But let's talk about exactly how
to take advantage of as much of the tax you know,
(20:12):
available tax benefits that are available. Okay, we'll do that
when we get back. If you don't mind, all right,
thank you for calling. You've been you've been listening to
the David Carrier Show. I'm David Carrier, your family's personal
attorney retirement law, and I am, of course a frustrated
pip never did never did do that wants.
Speaker 4 (20:37):
To be wonder it.
Speaker 1 (20:58):
David's got the how to you're looking for. Just call
seven seven four twenty four twenty four. This is the
David Carrier Show.
Speaker 2 (21:07):
We welcome back to the David Carrier Show. On David
Carrier your family's personal attorney, and you have found the
place where we talk about a state planning, retirement law,
real estate and business law. So if you have a question, comment,
or concern about wills, trust probate, how do we avoid
the high cost of long term care? I want to
sell my house, I want to keep my house. I
(21:28):
want to get a new business. I don't know any
of that stuff. Now's the time to call sixty one
six seven seven four twenty four twenty four. That's six
one six seven seven four twenty four twenty four. You
can always drop me an email if you're shy, if
you're the bashful type, just drop me an email David
at David Carrier Law dot com. And you can always
(21:50):
go to Davidcarrier Law dot com. If you thought me
you heard me say something that you couldn't believe I
was saying, which it does get me in trouble from
time time. But if that's the case, just go to
the website and all the radio shows are on there.
You can you know, you can refresh your recollection. As
we say in criminal court. Anyway, six one, six, seven,
(22:10):
seven four, twenty four to twenty four. We're talking to Scott.
And here's how far we've gotten. Scott's in laws have
a house about almost four hundred thousand dollars of gain,
you know, more money than they paid for the house
fifty years ago, is locked into the house. They do
have an irrevocable trust. I suspect for some sort of
business purposes. Whether it was a whether they ran a
(22:33):
high risk enterprise such as a retail store of alcoholic
beverages were involved or what. I don't. I have no clue,
but doctors lawyers accounts there are very legitimate business reasons
for establishing could have had rental properties. A lot of
our clients with rental properties do a irrevocable trust specifically
(22:56):
to protect their home their savings from the potential liability
that can arise from even the best run a residential
excuse me in residential real estate. Okay, so nothing nefarious
about it, just good common sense planning. But I don't
but I think that's what they It was for the
asset protection, not so much for the long term care.
(23:18):
But that's okay, because if you've got a trust that
will provide you with the asset protection almost guaranteed, it's
going to also protect you for the long term care.
So that's all good. But the house never made it
into the trust. And now the question is if we
sell the house. Well, if you sell the house, you
(23:40):
get half a million of gain protected okay, two hundred
and fifty thousand for each spouse. If you hang on
to it till you die, that's no problem because now
the kids get stepped up basis and they're not going
to pay tax on it. The third possibility is that
they have less than less than ninety six thousand dollars
(24:01):
of annual income, in which case there married couple filing
filing jointly, in which case their capital gain tax liability
is going to be zero. Thank you Warren Buffett. Anyway,
so that's where we're going on it. Now. The question
that Scott is very perspicaciously asking is, yeah, well, what
(24:25):
if I put it in the trust? What if we
sell it to the trust? Now I don't have a
divestment and the trust owes the money back to Mom.
And Dad, and you certainly can do that. And of
course I'm always thinking about the medicaid aspect of it. Okay,
you cannot ignore that when skilled nursing care is eighteen
thousand dollars a month, while unless you go to the
(24:46):
cheap place and then it's only twelve or fifteen thousand
dollars a month. You know, let's cut corners here and
go for cheap. But up north Traverse City whatnot gets pricey.
So would I advise to sell it on land contract.
I would not advise to sell it on land contract.
I do think dating it into the irrevocable trust makes
(25:07):
all the sense in the world. Do that. But then
if mom and Dad retain a fractional life estate, a
life estate in a fractional interest of the property, you
still get all the tax benefits, right, it's still included
in your estate. You still get the principal residence exemption
until you use the property for some other purpose and
(25:28):
you still get the You still get the principal residence
thing the five years three you know, living it for
two out of the preceding five years, you still get
the two hundred and fifty thousand each. But unless they've
got more than like I say, right around one hundred
thousand of income. The tax rate's going to be zero anyway,
So you need to look at that just to decide
(25:53):
are we solving a problem that doesn't exist. A lot
of people, I'll tell you a lot of people don't
understand how the capital gains work, right, and they think,
oh my god, I'm going to be paying all this
money in capital gains. And then I explained how it works.
And you know, I think I think the last week,
you know, you got people coming in one selling a farm,
(26:13):
they're selling some other real estate what have you, and
they're thinking, you know, oh, oh, we're going to be
paying One of them one of them thought it was
tax like ordinary income. So they were looking at you know,
like a forty percent tax rate and I'm actually, a
tax rate is going to be zero, you know, so
you just put X hundred thousand dollars back into the family,
you know, just by I mean I didn't do it.
(26:34):
I just pointed it out. But we had a couple
of couple of those, you know, and you know, I
mean that's what that's why you come see us, right
because we're you know, we're thinking about that they're like, oh, yes,
please give me.
Speaker 3 (26:50):
And if you talk about the fractional interest expanding, yeah,
just that you could.
Speaker 2 (26:55):
Okay, So, so so what you want to do, what
we take we will do is deed the property into
the trust right, but we will retain a life estate. Okay.
There's two aspects of real estate. And I apologize for
going further, but Scott wanted me to. So when when
you did it in there's the remainder interest, okay. The
(27:18):
remainder interest is the part of the real estate that
does not involve living in it. Right now, Then there's
a life estate. The life estate says you can live
in this place as long as you live. Those are
two different components of value. Okay, be with me on this, right.
So but here's the here's the here's the twist the
(27:42):
cat's tail, right is, you can then deed ninety nine
percent of the life is and the life estate has
a value. Surprising amount of value in the life estate
right into your eighties, it's still like forty percent of
the value is the ability to live there for the
rest of your life. Okay. And there's a there's a
(28:03):
thing in the back of the book, in the in
the back of the Bridge's eligibility manual, there's a life
estate factor table that tells you what the state of
Michigan will accept as the value of the right to
live in there for the rest of your life. Okay,
that's that's there, so you can calculate this value. Well,
it's still forty percent. Holy crap, I don't want to
(28:25):
forty percent. I would much rather have a bzo point
four of a percent value. So what we'll do after
we deed the property to the trust reserving a life estate,
is then we will deed ninety nine percent of the
life estate into the You gotta do it as a
two step. We're gonna reason. We're going to deed ninety
nine percent of the life estate into the trust and
(28:48):
retain that one percent interest. Now, the way real estate
law works, a one percent interest enables you to keep
the whole house, to live in the entire house. It's
an undivided one percent life estate, So you get to
live in the who house. That doesn't change, right, which
means that you still get your principal residence exemption, which
means you still have control of it, which means it
still gets included in your estate. For state tax purposes. Well,
(29:12):
estate taxes for married couple don't kick intil twenty seven million,
so we're not worried about that, right, But the key
is because it's included for estate tax purposes, now I
get a step up basis.
Speaker 3 (29:24):
M hm, you see that's exactly yeah, okay, all right.
Speaker 2 (29:29):
The other thing to be very very cautious about when
you're doing, when you're doing life estates, when you're doing
any and you I get that you're not worried quote
unquote not worried about the Medicaid. You should be. It
should it should be, it should always be part of
you should know what the answer is. What if we
need long term care because you can wind up on
(29:50):
a respirator thirty thousand bucks a month. Okay, I mean
it's more now, but anyway, I mean things can happen. Okay,
So they did the they did the your asset protection planning, wonderful.
Let's also do the Medicaid planning. Okay. And in order
to qualify for the Medicaid, all your contracts, your land contract,
(30:11):
your your snow plowing of the house, painting the house,
they all have to be consistent with the Medicaid rules
for home care contracts, personal care contract. So there's a
whole other rational law that has to be satisfied in
order for painting the house not to be a divestment.
(30:32):
All right, that's a whole other aspect. So my point is,
you know, when you start peeling this away, it's like,
you know, here's the here's the problem, scout. I'll tell you,
and I'm glad you're stuck with me so far. So
often when we're talking about this stuff, people just kind
of throw up their hands and like, oh, it's too complex,
and it's like, yeah, it's complex, but if you do
(30:54):
it right, the benefits are enormous. Okay, stick around, stick
around if you want to. You know, I'd be more
happy to finish this up with the music that's Gladys
Knight again. Means I gotta get off. You've been listening
to the David Carrier Show. I'm David Carrier, your retirement
loss specialist. Give us a call sixty one, six seven
(31:14):
some of the four twenty four, twenty four I'll be.
Speaker 4 (31:23):
I can't touch.
Speaker 1 (31:33):
David's perking and working and taking your calls.
Speaker 2 (31:36):
Now.
Speaker 1 (31:37):
This is the David Carrier Show of life.
Speaker 4 (31:40):
Some sent downs, but fates been count the downs have
been few. I guess you could say.
Speaker 2 (32:01):
The leg Sorry, I just like Gladys Knight.
Speaker 4 (32:06):
I guess you could see.
Speaker 1 (32:10):
That is so.
Speaker 4 (32:13):
So c you.
Speaker 2 (32:16):
Welcome back to the David Carrier Show. I'm David Carrier,
your family's personal attorney. Now's the time to give us
a call. Six one six seven seven four twenty four
twenty four. This is where you found the place where
we do retirement law. So if you're retired, why don't
retire and know somebody who's retired, or you know, envy
people who are retired, any of those things. Now's the
(32:38):
time to call. Six one, six seven seven four twenty
four twenty four. Okay, Scott, let's uh, let's bring this
one home, give me a whole hour on the show.
That's great.
Speaker 3 (32:48):
So you've been great. I appreciate you very much. David.
Speaker 2 (32:51):
Sure sure. I mean, but let's you know, just to
kind of just to kind of recap the I think,
the I think the Look, there's all kinds of stuff
that can be done right, all kinds of stuff. The
thing is that when you're when you're exploring these issues,
the correct what I would call the correct attitude, the
(33:16):
correct approach, is to simply say, yeah, it's is it difficult,
is it complex? Is it confusing? Is it all those things?
Yes it is, yes it is. But you've you've gotten
obviously you've gotten into this right because you're saying the
right things and you're concerned about the right things. So
(33:37):
that's all good. But it's massive the difference between what
you're doing, which is exploring and figuring it out and
asking questions and what about this and what about that?
And you know that's exactly what you need to be
doing because it's a system. Okay, it's not. It's not
(33:58):
oh I just do a land contract. Oh that's the answer.
Well maybe it's the answer, but it's not the answer.
It's it's part of an answer, okay. And so to
look at the tax ramifications, the ownership, the long term
care issues, you know, all those things. You know, do
(34:19):
you want to rent out the property, Well there's a
whole there's a whole range of issues that come that
come from that. You know, there are people on the
interwebs who think, oh, you know, make money while you sleep,
all you have to do is reunt out the house.
Well i'll be nice if it was that way, but
it isn't really you know, so I think I think
(34:40):
what you're doing is exactly correct. You know, it's like
peeling onions. There's always another layer and it makes you cry.
Speaker 3 (34:51):
Well, mister carry, I do appreciate your time, and I
hope twenty twenty five is a great year for you.
And thanks for your thank you and insights.
Speaker 2 (35:00):
You bet you, you bet you see. Let me know
how it works out me. You know what you decide,
what you guys decide to do, because that'll be that'll
be kind of interesting. Okay, very good. All right, you're
listening to the David Carrier Show. I'm David Carrier, your
family's personal attorney. Six one, six, seven seven, twenty four
twenty four. Now the way to start getting involved in this? Okay.
(35:25):
It sounds to me like Scott's done his homework, done
a lot of homework on this, which is great. One
of the things that see, it's always a balancing act, right.
You don't want to become you don't want to be me,
Believe me, you don't. You don't need to be to
(35:46):
do the deep dive by yourself, okay. And I'm not
trying to turn you into a trust lawyer where it's like,
oh yeah, well this is how this works, and that's
how that works. No, but there is a process, you see,
you got to know what it is you're doing, right,
it seems like to me on some level. And my
favorite analogy here is the air conditioning in your car. Right,
(36:09):
so you know how does the air conditioning work? Well,
you hit the blue button. When it's warm outside, you
hit the button, you as the numbers, and then it
gets cooler inside. Okay, well that's a way to know
how it works. You know that you have a need.
It's too hot in here. You know that that machine's
going to fix it. You know that if you adjust
it like this, it'll be suitable to your personal needs. Okay, Now,
(36:32):
what's going on behind the dashboard? You have no idea, like, no,
no conceivable clue. It could be you know, Antarctic leprechauns
behind the with ice cubes from out of space behind
the dashboard. You don't know. You don't care so long
as it gets to the correct temperature, which is fine.
All right, that's fine. That's certainly is a way to
(36:56):
approach this thing. We've got I don't know, twenty percent
forty percent of our clients who kind of keep it
on that level. But there are other levels. When you
go behind the dashboard, when you say I'm air conditioning
in my car, maybe it's not antarctic leprechauns. Maybe there's
some mechanical process going on back there. What is the
mechanical process? Okay, And so we do a workshop, the
(37:21):
first workshop, which is, here's the trouble, here's the problem,
here's the big thirty thousand foot view solution. You know,
that's the three Secrets workshop that we do every week.
What's going on with that? Well, here's what's going on
with it. Here's why we do it. Okay, things don't
have to be as bad as everyone tells you. There's
actually things you can do about it. Here are in
(37:44):
big picture. Here's what some of them are. And then
if you say, whooh, yeah, that makes sense. You know
I can see that happening with friends and neighbors. That's
not crazy. Maybe I wouldn't want those bad things to
happen to me, right, which, of course get then I
get that this is what I love. Oh you're a
fear monger. Oh you're just scaring people. And it's like,
(38:07):
wait a second, I didn't build a nursing home. I
didn't create dementia. Right, I'm not charging eighteen thousand bucks
a month, you know, for a long term. I mean,
I'm not doing any of that. All right, How is it?
It's like insane, It's like, how am I I'm just
pointing out, you know, Oh, I guess it's better that
(38:28):
you go broke than not recognize what's really happening out there.
I guess that's better. You know. Oh, fear mongering, it
just drives me, you know, it's one of those things
and laugh or cry. But anyway, so you recognize. Now, hey,
I got a situation that people have been in denial
about forever. Now I'm going to do something about it. Okay,
(38:49):
that's when we get behind the dashboard. That's when we
get behind the hit the button to turn the air
conditioning on. Here's how it works. Okay. Now again, I'm
not I'm not teaching a grad level course on trusts
and medicaid planning a little on all the rest of that.
I'm not doing that. What we're doing is saying, look, basically,
this what's this is what's going on? Okay, you got
(39:12):
the high pressure lines, the low pressure lines. You get
your condenser, you get your refrigerant, you got your heat exchanger, radiator,
whatever you want to call it. You got the one
thing inside the car, outside the car, here's the fan,
here's the soul. Just a basic kind of you know,
a thematic idea of what's going on with the air conditioning,
what's going on with the trust. Now, if you want
(39:35):
to get deeper, if you want to find out, well,
why do you put that kind of host clamp on?
And why is the return low pressure pipe you know,
tube at this diameter. Okay, we can get there. We
can get there. You want to fine, you know, how
does that work? How does this work? We can we
can do the deep graduate level dive if you want to. Okay,
(39:56):
but you don't need to in order to turn on
the air conditioner and enjoy boy cool air on a
hot day, which I'm dreaming of. I think even it's
two degrees outside. But that's that's how it works. Okay,
you've been listening to the David Carrier Show. I'm David Carrier,
your families, attempting not to be overwhelming retirement lawyer. But
He served at the Pentagon as an army jag. He
graduated from Notre Dame and has two law degrees from
Boston University and Georgetown University. He's been practicing law for
over thirty years. He's your family's personal attorney. It's time
for the David Carrier Show.
Speaker 2 (00:33):
Hello, and welcome to the David Carrier Show. I'm David Carrier,
your family's personal attorney, and you have found the place
you all was so lucky. I can't even believe the
look you are or maybe you were looking for it,
so it wasn't luck. It was much more in the
skill arena. It could be luck, could be skilled. Whatever
it is. You have found a place where we talk
about a state planning retirement law, which is really kind
(00:57):
of like a state planning. It blends together the real
estate and business law. So if you have a question, comment,
or concern about anything that has to do with people
who are getting a little bit creaky, there a little
bit you know v and stage. You know, if you'd
like to retire, if you have retired, if you're thinking
about retirement someday, if you know somebody who's retired, well,
(01:19):
now's the time. Give us a call six one six
seven seven four twenty four twenty four. That's sixty one
six seven seven four twenty four twenty four. We talk
about wills, trusts, probate, long term care. Boom boomp bom.
Everybody worried about that, except the reality is nobody's worried
(01:39):
about that, although you should be. And so for the
last forty years, I've made my mission to make you
worry about thirty five years. Now you're worrying. You know,
you got to be accurate about these things. So man,
they come down and you like a ton of bricks,
an absolute ton of ton of something bricks, is what
I'm saying. Anyway. Six one six seven seven four twenty
(02:00):
four twenty four. That's six one six seven seven four
twenty four twenty four. You can also send us an
email David at David Carrier Law. When word squish it
all together, you know, use that little a in the
circle there, David, little a in the circle at that's
at Davidcarrier Law dot com. And at Davidcarrier Law dot
(02:23):
com you'll find out where to go for oh the
workshops that are live and local and all over the place,
up and up in the Norton Shores there down in
the portage, and over and over in Holland. So we
make it easy for you, you know, nasty weather outside,
nice weather outside, in between, weather outside, we don't care.
(02:44):
We'll be there. Just sign up for one of our workshops. Now, fellas,
I'm not telling tales out of school, I don't think
if if I let you in on a little secret.
As we get older, you know, as the as the
circles around our trips around, the trips around the sun
(03:07):
continue to pile up, it gets a little more difficult
to you know, what can you say? Keep your woman excited,
you know involved? You know, you start, you know, and
I don't want to be doctor Ruth here or nothing,
but you know, it's it's a reality that you know,
(03:28):
it gets You've got to be more creative, am I right?
And after so many uh so many evolutions of the planet,
the revolutions of the planet, it gets more and more
difficult to find things that you haven't done before. Wink
wink not. I know you know what might mean. So
and so it was with no no little pride that
(03:49):
I point out that I discovered one of these things
and I'd like to share it with you now, something
never done before. It involves cowboy hats and dress up.
It's just wonderful. And it's called PBR. Now, if you're
like me, PBR is a certain kind of beverage that
was relatively inexpensive and which helped us out with the
(04:10):
women at the other end of the spectrum if you were,
you know, back in the high school days. The PBR
back then was a little peraps blue ribbon. You know,
it was a little lubricant at that time. Nowadays, PBR
refers to professional bull riding professional bull riding, and I
(04:32):
had the occasion to take the missus to the professional
bull riding, which I had never you know, like I say,
you're always looking to inject a little spice, keep it lively, right,
So I thought, well, why not, you know, Friday night,
let's do some or at least observe some professional bull riding. Well,
there were a few thousand people there to watch the
(04:55):
professional bull riders, and there must have been I don't know,
maybe thirty of them. At least, there's a whole bunch
of them. You know, we're in the chaps in the
whole bit. Now, if again, if you're a certain age
for you. Bull riding is one of those wide world
of sports things, you know what I'm saying. Remember the
wide world of sports. They were spanning the globe to
(05:15):
bring you the constant variety of sports, the thrill of victory,
the agony of defeat. I still have that guy who
fell off the ski jump, you know, kind of burned
in my and we just lost everything. Anyway, burned in
my mind, that guy who you know, the ski jumper guy. Anyway,
(05:40):
long story short, the professional bull riding. In order to
score at all, right, in order to make anything happen
with professional bull riding, you have to you have to
stay on the bull for at least for at least
(06:06):
eight seconds. Okay, so it's an eight second deal. If
you're not on there for eight seconds, then it just
it doesn't count. Yeah, I tell you what I am.
I am trying trying desperately here to get my get
my computer working again. I'm John. Could you just text
(06:28):
me is this is this? Are you still getting me?
Because my computer just died? Oh well that would be
a bad Oh you're okay, so you're still getting the
all right, you're still getting the audio anyway. I just
updated the computer, so I don't know anyway, long story short, boy,
(06:50):
this was such a good little piece here. You know
what I mean? You know, well, here's the deal with
professional bull riding anyway? In case, well, I tell you what.
Let's do. Let's go too, Let's go to Scott and Luddington. Scott.
You've got a question about your vocable trust.
Speaker 3 (07:07):
Hey David, you don't worry.
Speaker 2 (07:08):
Don't worry. I'll get to the professional bull riding in
the second segment.
Speaker 3 (07:12):
Yeah, yeah, no, we missed you last week. Hope you
had a good weekend from that standpoint. But uh oh yeah, quick, quick,
quick question for you to give me just a second,
give you the background. So three years ago, my in
laws created an irrevocable trust and they funded it to
a level that they whatever they felt comfortable with. Within
(07:34):
a couple of weeks ago, they basically signed up to
go into a facility, a community facility that has multiple
levels of care because my while my father in law
is in great shape, my mother in law is failing.
So they wanted to get into there where they have
and they're going into assisted living or sorry, independent living.
But as she is going to progress, she'll need higher levels.
(07:56):
So the question now is and they're financially they're in
a in a great situation. They've been blessed. They're in
a situation where they don't need to sell their home
to make all this happen there, you know, and medicaid
is not an issue for them type things. But there
is this question and he they made the irrevocable trust.
He is the trustee, not the benefactor obviously, but he
(08:19):
is a trustee. But there is a question of what
to do with the home because maybe it's something would
happen to my mother in law that maybe a year
or two he may go back when and go back home,
maybe longer, who knows, maybe not, maybe not. He may
be a one way trip as well. He may just
enjoy the community. But there is a concern. They thought
about renting the house, but then they have the you know,
(08:40):
the homestead capital gains issue, and so there's a r
This is what this is what I want to get
your thought on. If they if the irrevocable trust were
to buy the home from basically the grantors of my
in laws, so it goes into the irrevocable trust, they
buy that market used to capture the capital gains. Uh uh,
(09:04):
tax break for homestead for the last fifty years. It
could be a significant capital gain and then and then.
Speaker 2 (09:11):
How much be both three hundred about how much.
Speaker 3 (09:18):
Probably in that in that ballpark, And then so let
the trust then basically buy it on the like a
land contract where they pay the trust pays him monthly
for the purchase price, which then he can turn around
and use to help pay the monthly fees at the
home which he doesn't need, but still pay that. And
then let the trust administer the rental property so they
(09:39):
can capture the gain, and they can also still rent
it out and have it available in case he turns
round and decides that he wants to not be in
the home after his wife may pass away and he
can go back home. Just getting your thoughts on that, Yeah,
I think I think I got it.
Speaker 2 (09:54):
And we've got like a minute left, which is not
enough time. So let me let me say this about
this about that. Who did the irrevocable trust?
Speaker 3 (10:03):
He did?
Speaker 1 (10:03):
They?
Speaker 2 (10:04):
I mean why why did why did they do an
irrevocable tru What was the point of it? What did
they think was the point of it?
Speaker 3 (10:11):
Yeah, they did it to protect the assets so that
they could make beneficial for their kids in case anything
were to go really sideways in their life. They do
have a quote unquote nest egg that is set aside
that they can pass on to their uh benefit their
kids and grandkids.
Speaker 2 (10:29):
So were they were they planning? I mean, did they
do the irrevocable Because here's the thing, unless you're doing
long term care planning, it's extremely unusual to do any
sort of irrevocable trust. Now there's a there are statutory
irrevocable truck like if you're a doctor, a dentist, a lawyer,
and accountant, somebody who's got malpractice protective malpractice liability. William. Okay,
(10:52):
that music means I got to get out, but we'll
get back to it in the next segment. Okay, I'm
kind of put up professional bull riding for you at
another other second, but we'll get we'll get right back
to what you're talking about. Okay, all right, you've been
listening to the David Carrier Show. On David Carrier your
family's personal attorney.
Speaker 1 (11:30):
Okay, this hour of the David Carrier Show is pro bono,
so call in now at seven seven four twenty four,
twenty four. This is the David Carrier Show.
Speaker 2 (11:45):
He's come to me, he said, going, he said, he's
going back to man.
Speaker 4 (11:55):
God, what's the left of this work? The world he
left behind me? Not so long.
Speaker 2 (12:10):
Back to the David Carrier Show. I'm David Carrier, your
family's personal attorney. Frustrated SIPs. I mean I would think
they you know, when you love loved to be a pip,
you know Gladys Knight and the Pips. I mean one
of the pips. I mean I have to do is
every once in a while you go, you know, you
get dressed up every night. I could have done that.
(12:33):
I could have had a career in show business. But no,
I have to go to well school. You know, I
have to go to college. Stupid. Anyway, Welcome back to
the David Carrier Show. I'm David Carrier, your family's personal attorney.
We're talking with Scott and here's the deal. It's your
in laws, right, Scott. Did I get that right? Okay?
(12:57):
So the in laws at some point created Scott is
describing as an irrevocable trust. And I'm wondering because I'll
tell you what, Scott. It is very common for people
to say when we're talking irrevocable trust, and they mean
a revocable trust. To the revocable trust is the very
common everybody does that. Irrevocable trust are either done purposefully
(13:23):
to plan for the long term care and asset protection.
And I will say that it's kind of unusual if
you're not thinking about the long term care part of it.
Like we've got clients, you know, the professional types we're
subject to malpractice where you know, malpractice doesn't care if
you have a corporation. Malpractice doesn't care what else they're
(13:47):
going to you personally, to your personal stuff. And so
what we will do for professionals the doctors, lawyers, accountants,
anyone who's nurses, anyone who's subject to malpractice liability, it's
not unusual to do an irrevocable trust for asset protection. Okay,
(14:08):
but if it's not that and it's not long term care,
then I just it's it's an open question in my
mind whether or not they have a revocable trust, which
would be what you'd expect, or an irrevocable trust, which
you would not expect.
Speaker 3 (14:23):
In any of either either irrevocable.
Speaker 2 (14:27):
It is irrevocable. Okay, was he a doctor or something?
Speaker 3 (14:32):
Yeah? He actually I mean.
Speaker 2 (14:35):
I won't, I won't go into some sort of professional.
Speaker 3 (14:39):
Yes, he is a professional, and it was literally it
was for asset protection as well as liability to protection. Okay, oh,
I know.
Speaker 2 (14:48):
I he was a bar owner, right, he wants to
avoid dreamshop liability. Okay, who knows. Maybe's a bootlegger. I
don't know. But here's the Okay, so good, good, good.
So we do have the ear vocable trust, we've got
assets in there. Let's assume that those assets do qualify
for devestment from medicaid purposes, because an asset protection trust
(15:09):
is actually you know, the ones that would typically do
for that purpose, are they tend to be more restrictive
than you need for the long term care for the Medicaid.
Now let's talk about the house. We've got some time, right,
We've got five years really to decide, because you have
(15:29):
to live in it for two out of the last
five years, so say really three years, right, they've did
it for two years. Yeah, so add three years to it.
Now you get your five years before you have to
decide decide what to do with it. In the meantime,
because they're in a long term care facility, you know,
continuity of care facility. You're still going to get the
(15:51):
homestead exemption on it, so one as no one else
is moving in and you're not rent to get out,
so your tax is going to stay relatively low. And
I'm guess that from your response that you know that
they can exclude. You're saying the profit on the house
is around three eighty four hundred thousand. Well, the two
of them together can exclude five hundred thousand of gain
(16:14):
if they you know, two fifty each, two hundred and
fifty thousand of gain each if they sell it within
like I said, the three years after they vacate the premises, right,
So you got that going on for the capital gain. Also,
even if it's in an irrevocable trust, I'm gonna guess,
(16:35):
which is only a guess, that they're able to change
the beneficiaries in that trust. Right, So if they are
able to change the beneficiaries in the trust, then they'll
then whatsoever in the trust would still be included in
their taxable estate, right, which means that they get stepped
up basis, so you don't have to worry about the
(16:56):
capital gains if they hang onto the house till you die.
So were are three answers to the capital gains issue.
Number one, they sell it within three years, they get
the five hundred thousand exclusion. Number two, they sell it
when they die, and if they have any control over
the property, and we can make sure that they do,
(17:16):
then they get the stepped up basis okay, at death.
So when they die, the basis steps up, and again
they don't pay any there's no limit on that one.
They don't pay any capital gain at all. The third option,
which is one that has come up in the practice
several times in the last month or so, well, it's
tax time people looking at it has to do with
(17:40):
the nature of capital gains. Now, I forget the exact numbers,
but if you've got a married couple with less than
I think it's ninety six thousand, but let's say it's
ninety thousand, less than ninety thousand of income annual income, right,
less less than that much, the capital gain tax rate
(18:01):
is zero. So even if they were to sell it,
you know, yeah, you've got a three hundred and eighty
thousand dollars capital gain. And let's assume we don't get
primary residence and we don't get stepped up basis either. Well,
what's your tax rate. Oh well, we only have eighty
thousand of income a year, sixty forty thousand of income
a year. Right, Well, you're not going to pay capital
(18:23):
gain tax on it anyway because the tax rate is zero. Okay,
So those are all, you know, the tax consequences obviously
something you want to think about. If you do rent
it out, then we're going to lose the residence, you know,
the primary residence thing. And if you take depreciation within
the three years before you sell it, then you have
(18:45):
to get recaptured. You have to treat that much as
ordinary income, you know, So a little tax twist there.
I guess still get full step up basis at death,
and the capital gain tax rate might still be as
I say, it might still be a zero if you
do a if you do a sale, so you know
(19:05):
from which way.
Speaker 3 (19:06):
Which Yeah, from a trust perspective, if the trust were
to buy the property, in other words, the air Vocal
trusts were to buy it from him, even though he
would be a grant or if he gifted it, but
the trusts were to buy it from them, they go
ahead and get their tax free stepped up basis for
the trust. And when the kids get it some day.
(19:26):
They've got a higher basis, and that's the trust administer
the rental. If they were to rented, let the trust
administer the rental and pay him, you know, for purchasing
the property like a like a monthly you know, like
a mortgage payment back to him. You know, I'm not
from the trust perspective.
Speaker 1 (19:43):
Is that?
Speaker 3 (19:44):
Is there any issues with the trust perspective actually buying
it from him and administering as a rental.
Speaker 2 (19:52):
The short answer is yes. The longer answer is I'll
catch you after the news because the music's about to start.
But yes, I mean there are there's what you're saying
is not It's not crazy at all. I mean, definitely
it can be done. But let's talk about exactly how
to take advantage of as much of the tax you know,
(20:12):
available tax benefits that are available. Okay, we'll do that
when we get back. If you don't mind, all right,
thank you for calling. You've been you've been listening to
the David Carrier Show. I'm David Carrier, your family's personal
attorney retirement law, and I am, of course a frustrated
pip never did never did do that wants.
Speaker 4 (20:37):
To be wonder it.
Speaker 1 (20:58):
David's got the how to you're looking for. Just call
seven seven four twenty four twenty four. This is the
David Carrier Show.
Speaker 2 (21:07):
We welcome back to the David Carrier Show. On David
Carrier your family's personal attorney, and you have found the
place where we talk about a state planning, retirement law,
real estate and business law. So if you have a question, comment,
or concern about wills, trust probate, how do we avoid
the high cost of long term care? I want to
sell my house, I want to keep my house. I
(21:28):
want to get a new business. I don't know any
of that stuff. Now's the time to call sixty one
six seven seven four twenty four twenty four. That's six
one six seven seven four twenty four twenty four. You
can always drop me an email if you're shy, if
you're the bashful type, just drop me an email David
at David Carrier Law dot com. And you can always
(21:50):
go to Davidcarrier Law dot com. If you thought me
you heard me say something that you couldn't believe I
was saying, which it does get me in trouble from
time time. But if that's the case, just go to
the website and all the radio shows are on there.
You can you know, you can refresh your recollection. As
we say in criminal court. Anyway, six one, six, seven,
(22:10):
seven four, twenty four to twenty four. We're talking to Scott.
And here's how far we've gotten. Scott's in laws have
a house about almost four hundred thousand dollars of gain,
you know, more money than they paid for the house
fifty years ago, is locked into the house. They do
have an irrevocable trust. I suspect for some sort of
business purposes. Whether it was a whether they ran a
(22:33):
high risk enterprise such as a retail store of alcoholic
beverages were involved or what. I don't. I have no clue,
but doctors lawyers accounts there are very legitimate business reasons
for establishing could have had rental properties. A lot of
our clients with rental properties do a irrevocable trust specifically
(22:56):
to protect their home their savings from the potential liability
that can arise from even the best run a residential
excuse me in residential real estate. Okay, so nothing nefarious
about it, just good common sense planning. But I don't
but I think that's what they It was for the
asset protection, not so much for the long term care.
(23:18):
But that's okay, because if you've got a trust that
will provide you with the asset protection almost guaranteed, it's
going to also protect you for the long term care.
So that's all good. But the house never made it
into the trust. And now the question is if we
sell the house. Well, if you sell the house, you
(23:40):
get half a million of gain protected okay, two hundred
and fifty thousand for each spouse. If you hang on
to it till you die, that's no problem because now
the kids get stepped up basis and they're not going
to pay tax on it. The third possibility is that
they have less than less than ninety six thousand dollars
(24:01):
of annual income, in which case there married couple filing
filing jointly, in which case their capital gain tax liability
is going to be zero. Thank you Warren Buffett. Anyway,
so that's where we're going on it. Now. The question
that Scott is very perspicaciously asking is, yeah, well, what
(24:25):
if I put it in the trust? What if we
sell it to the trust? Now I don't have a
divestment and the trust owes the money back to Mom.
And Dad, and you certainly can do that. And of
course I'm always thinking about the medicaid aspect of it. Okay,
you cannot ignore that when skilled nursing care is eighteen
thousand dollars a month, while unless you go to the
(24:46):
cheap place and then it's only twelve or fifteen thousand
dollars a month. You know, let's cut corners here and
go for cheap. But up north Traverse City whatnot gets pricey.
So would I advise to sell it on land contract.
I would not advise to sell it on land contract.
I do think dating it into the irrevocable trust makes
(25:07):
all the sense in the world. Do that. But then
if mom and Dad retain a fractional life estate, a
life estate in a fractional interest of the property, you
still get all the tax benefits, right, it's still included
in your estate. You still get the principal residence exemption
until you use the property for some other purpose and
(25:28):
you still get the You still get the principal residence
thing the five years three you know, living it for
two out of the preceding five years, you still get
the two hundred and fifty thousand each. But unless they've
got more than like I say, right around one hundred
thousand of income. The tax rate's going to be zero anyway,
So you need to look at that just to decide
(25:53):
are we solving a problem that doesn't exist. A lot
of people, I'll tell you a lot of people don't
understand how the capital gains work, right, and they think,
oh my god, I'm going to be paying all this
money in capital gains. And then I explained how it works.
And you know, I think I think the last week,
you know, you got people coming in one selling a farm,
(26:13):
they're selling some other real estate what have you, and
they're thinking, you know, oh, oh, we're going to be
paying One of them one of them thought it was
tax like ordinary income. So they were looking at you know,
like a forty percent tax rate and I'm actually, a
tax rate is going to be zero, you know, so
you just put X hundred thousand dollars back into the family,
you know, just by I mean I didn't do it.
(26:34):
I just pointed it out. But we had a couple
of couple of those, you know, and you know, I
mean that's what that's why you come see us, right
because we're you know, we're thinking about that they're like, oh, yes,
please give me.
Speaker 3 (26:50):
And if you talk about the fractional interest expanding, yeah,
just that you could.
Speaker 2 (26:55):
Okay, So, so so what you want to do, what
we take we will do is deed the property into
the trust right, but we will retain a life estate. Okay.
There's two aspects of real estate. And I apologize for
going further, but Scott wanted me to. So when when
you did it in there's the remainder interest, okay. The
(27:18):
remainder interest is the part of the real estate that
does not involve living in it. Right now, Then there's
a life estate. The life estate says you can live
in this place as long as you live. Those are
two different components of value. Okay, be with me on this, right.
So but here's the here's the here's the twist the
(27:42):
cat's tail, right is, you can then deed ninety nine
percent of the life is and the life estate has
a value. Surprising amount of value in the life estate
right into your eighties, it's still like forty percent of
the value is the ability to live there for the
rest of your life. Okay. And there's a there's a
(28:03):
thing in the back of the book, in the in
the back of the Bridge's eligibility manual, there's a life
estate factor table that tells you what the state of
Michigan will accept as the value of the right to
live in there for the rest of your life. Okay,
that's that's there, so you can calculate this value. Well,
it's still forty percent. Holy crap, I don't want to
(28:25):
forty percent. I would much rather have a bzo point
four of a percent value. So what we'll do after
we deed the property to the trust reserving a life estate,
is then we will deed ninety nine percent of the
life estate into the You gotta do it as a
two step. We're gonna reason. We're going to deed ninety
nine percent of the life estate into the trust and
(28:48):
retain that one percent interest. Now, the way real estate
law works, a one percent interest enables you to keep
the whole house, to live in the entire house. It's
an undivided one percent life estate, So you get to
live in the who house. That doesn't change, right, which
means that you still get your principal residence exemption, which
means you still have control of it, which means it
still gets included in your estate. For state tax purposes. Well,
(29:12):
estate taxes for married couple don't kick intil twenty seven million,
so we're not worried about that, right, But the key
is because it's included for estate tax purposes, now I
get a step up basis.
Speaker 3 (29:24):
M hm, you see that's exactly yeah, okay, all right.
Speaker 2 (29:29):
The other thing to be very very cautious about when
you're doing, when you're doing life estates, when you're doing
any and you I get that you're not worried quote
unquote not worried about the Medicaid. You should be. It
should it should be, it should always be part of
you should know what the answer is. What if we
need long term care because you can wind up on
(29:50):
a respirator thirty thousand bucks a month. Okay, I mean
it's more now, but anyway, I mean things can happen. Okay,
So they did the they did the your asset protection planning, wonderful.
Let's also do the Medicaid planning. Okay. And in order
to qualify for the Medicaid, all your contracts, your land contract,
(30:11):
your your snow plowing of the house, painting the house,
they all have to be consistent with the Medicaid rules
for home care contracts, personal care contract. So there's a
whole other rational law that has to be satisfied in
order for painting the house not to be a divestment.
(30:32):
All right, that's a whole other aspect. So my point is,
you know, when you start peeling this away, it's like,
you know, here's the here's the problem, scout. I'll tell you,
and I'm glad you're stuck with me so far. So
often when we're talking about this stuff, people just kind
of throw up their hands and like, oh, it's too complex,
and it's like, yeah, it's complex, but if you do
(30:54):
it right, the benefits are enormous. Okay, stick around, stick
around if you want to. You know, I'd be more
happy to finish this up with the music that's Gladys
Knight again. Means I gotta get off. You've been listening
to the David Carrier Show. I'm David Carrier, your retirement
loss specialist. Give us a call sixty one, six seven
(31:14):
some of the four twenty four, twenty four I'll be.
Speaker 4 (31:23):
I can't touch.
Speaker 1 (31:33):
David's perking and working and taking your calls.
Speaker 2 (31:36):
Now.
Speaker 1 (31:37):
This is the David Carrier Show of life.
Speaker 4 (31:40):
Some sent downs, but fates been count the downs have
been few. I guess you could say.
Speaker 2 (32:01):
The leg Sorry, I just like Gladys Knight.
Speaker 4 (32:06):
I guess you could see.
Speaker 1 (32:10):
That is so.
Speaker 4 (32:13):
So c you.
Speaker 2 (32:16):
Welcome back to the David Carrier Show. I'm David Carrier,
your family's personal attorney. Now's the time to give us
a call. Six one six seven seven four twenty four
twenty four. This is where you found the place where
we do retirement law. So if you're retired, why don't
retire and know somebody who's retired, or you know, envy
people who are retired, any of those things. Now's the
(32:38):
time to call. Six one, six seven seven four twenty
four twenty four. Okay, Scott, let's uh, let's bring this
one home, give me a whole hour on the show.
That's great.
Speaker 3 (32:48):
So you've been great. I appreciate you very much. David.
Speaker 2 (32:51):
Sure sure. I mean, but let's you know, just to
kind of just to kind of recap the I think,
the I think the Look, there's all kinds of stuff
that can be done right, all kinds of stuff. The
thing is that when you're when you're exploring these issues,
the correct what I would call the correct attitude, the
(33:16):
correct approach, is to simply say, yeah, it's is it difficult,
is it complex? Is it confusing? Is it all those things?
Yes it is, yes it is. But you've you've gotten
obviously you've gotten into this right because you're saying the
right things and you're concerned about the right things. So
(33:37):
that's all good. But it's massive the difference between what
you're doing, which is exploring and figuring it out and
asking questions and what about this and what about that?
And you know that's exactly what you need to be
doing because it's a system. Okay, it's not. It's not
(33:58):
oh I just do a land contract. Oh that's the answer.
Well maybe it's the answer, but it's not the answer.
It's it's part of an answer, okay. And so to
look at the tax ramifications, the ownership, the long term
care issues, you know, all those things. You know, do
(34:19):
you want to rent out the property, Well there's a
whole there's a whole range of issues that come that
come from that. You know, there are people on the
interwebs who think, oh, you know, make money while you sleep,
all you have to do is reunt out the house.
Well i'll be nice if it was that way, but
it isn't really you know, so I think I think
(34:40):
what you're doing is exactly correct. You know, it's like
peeling onions. There's always another layer and it makes you cry.
Speaker 3 (34:51):
Well, mister carry, I do appreciate your time, and I
hope twenty twenty five is a great year for you.
And thanks for your thank you and insights.
Speaker 2 (35:00):
You bet you, you bet you see. Let me know
how it works out me. You know what you decide,
what you guys decide to do, because that'll be that'll
be kind of interesting. Okay, very good. All right, you're
listening to the David Carrier Show. I'm David Carrier, your
family's personal attorney. Six one, six, seven seven, twenty four
twenty four. Now the way to start getting involved in this? Okay.
(35:25):
It sounds to me like Scott's done his homework, done
a lot of homework on this, which is great. One
of the things that see, it's always a balancing act, right.
You don't want to become you don't want to be me,
Believe me, you don't. You don't need to be to
(35:46):
do the deep dive by yourself, okay. And I'm not
trying to turn you into a trust lawyer where it's like,
oh yeah, well this is how this works, and that's
how that works. No, but there is a process, you see,
you got to know what it is you're doing, right,
it seems like to me on some level. And my
favorite analogy here is the air conditioning in your car. Right,
(36:09):
so you know how does the air conditioning work? Well,
you hit the blue button. When it's warm outside, you
hit the button, you as the numbers, and then it
gets cooler inside. Okay, well that's a way to know
how it works. You know that you have a need.
It's too hot in here. You know that that machine's
going to fix it. You know that if you adjust
it like this, it'll be suitable to your personal needs. Okay, Now,
(36:32):
what's going on behind the dashboard? You have no idea, like, no,
no conceivable clue. It could be you know, Antarctic leprechauns
behind the with ice cubes from out of space behind
the dashboard. You don't know. You don't care so long
as it gets to the correct temperature, which is fine.
All right, that's fine. That's certainly is a way to
(36:56):
approach this thing. We've got I don't know, twenty percent
forty percent of our clients who kind of keep it
on that level. But there are other levels. When you
go behind the dashboard, when you say I'm air conditioning
in my car, maybe it's not antarctic leprechauns. Maybe there's
some mechanical process going on back there. What is the
mechanical process? Okay, And so we do a workshop, the
(37:21):
first workshop, which is, here's the trouble, here's the problem,
here's the big thirty thousand foot view solution. You know,
that's the three Secrets workshop that we do every week.
What's going on with that? Well, here's what's going on
with it. Here's why we do it. Okay, things don't
have to be as bad as everyone tells you. There's
actually things you can do about it. Here are in
(37:44):
big picture. Here's what some of them are. And then
if you say, whooh, yeah, that makes sense. You know
I can see that happening with friends and neighbors. That's
not crazy. Maybe I wouldn't want those bad things to
happen to me, right, which, of course get then I
get that this is what I love. Oh you're a
fear monger. Oh you're just scaring people. And it's like,
(38:07):
wait a second, I didn't build a nursing home. I
didn't create dementia. Right, I'm not charging eighteen thousand bucks
a month, you know, for a long term. I mean,
I'm not doing any of that. All right, How is it?
It's like insane, It's like, how am I I'm just
pointing out, you know, Oh, I guess it's better that
(38:28):
you go broke than not recognize what's really happening out there.
I guess that's better. You know. Oh, fear mongering, it
just drives me, you know, it's one of those things
and laugh or cry. But anyway, so you recognize. Now, hey,
I got a situation that people have been in denial
about forever. Now I'm going to do something about it. Okay,
(38:49):
that's when we get behind the dashboard. That's when we
get behind the hit the button to turn the air
conditioning on. Here's how it works. Okay. Now again, I'm
not I'm not teaching a grad level course on trusts
and medicaid planning a little on all the rest of that.
I'm not doing that. What we're doing is saying, look, basically,
this what's this is what's going on? Okay, you got
(39:12):
the high pressure lines, the low pressure lines. You get
your condenser, you get your refrigerant, you got your heat exchanger, radiator,
whatever you want to call it. You got the one
thing inside the car, outside the car, here's the fan,
here's the soul. Just a basic kind of you know,
a thematic idea of what's going on with the air conditioning,
what's going on with the trust. Now, if you want
(39:35):
to get deeper, if you want to find out, well,
why do you put that kind of host clamp on?
And why is the return low pressure pipe you know,
tube at this diameter. Okay, we can get there. We
can get there. You want to fine, you know, how
does that work? How does this work? We can we
can do the deep graduate level dive if you want to. Okay,
(39:56):
but you don't need to in order to turn on
the air conditioner and enjoy boy cool air on a
hot day, which I'm dreaming of. I think even it's
two degrees outside. But that's that's how it works. Okay,
you've been listening to the David Carrier Show. I'm David Carrier,
your families, attempting not to be overwhelming retirement lawyer. But
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