Estate planning for second marriages

Episode Transcript

Speaker 1 (00:01):
This is the Legal Exchange with Todd Lutsky from the
law firm of Cushing and Dolan and Susan Powers of
the Armstrong Advisory Group. Each week, Todd and Susan will
discuss many topics, including estate planning, how to avoid probate,
and protecting your money from a nursing home. If you
need assistance in any of these areas, or have a
question about another issue that may affect your future, call

(00:21):
eight six six eight four eight five six ninety nine
to make an appointment. That's eight sixty six eight four
eight five six ninety nine. Operators are standing by. Now
Here are your hosts, Todd Lutsky and Susan Powers.

Speaker 2 (00:38):
Welcome into Legal Exchange with Todd Lutsky. I'm Susan Powers,
a financial advisor with the Armstrong Advisory Group, and I'm
joined by Todd Lutsky, a partner with the law firm
of Cushing and Dolan with a master's in taxation. Welcome Todd.
How are you today?

Speaker 3 (00:53):
I'm never better and you I'm great?

Speaker 2 (00:55):
Thank you? What do you have for us this week?

Speaker 3 (00:57):
I'm going to go back to Ohio, my old stomping grounds,
and give you this Ohio Pellet court case that says,
in essence, can a surviving spouse change the beneficiaries of
a deceased spouse's trust and change a trustee? Well, seems
like a simple question. It also seems like it could
be a problem not so much on a first marriage,

(01:19):
but could be on a second marriage.

Speaker 2 (01:22):
Huge problem.

Speaker 3 (01:23):
So let's talk about that and how to plan and
how to draft around that. Then we head over to
Georgia and an individual dies with a second marriage and
has two kids from a prior marriage and doesn't really
seem to be any real planning in place, so there's
going to be this discussion and fight over who gets what,
especially because there's a surviving spouse stepmom who's alive, so, folks,

(01:47):
in essence, we're going to learn a lot about how
to plan for second marriages, and almost in both of
these cases they have it. And interestingly enough, since it
is a new month and we have a new guide,
it's basically a state planning potholes to avoid. And when
you think about it, you know, you ask yourself certain questions, like,
you know, should I just rely on a will? Is

(02:08):
that enough? I don't need to do anything else? Is
my estate too small? You know what if I've done
my plan ten years ago, should I review it? See
what's going on? You know, when one spouse dies, please
don't empty the spouse's trust and take everything out and
put it in your own name. Not helpful. Don't forget
to you know, do tax returns on the surviving spouse.
When the surviving spouse is alive. There's a trust now

(02:30):
that needs a tax return that needs to be prepared.
Make sure you look into these things. How you leave assets,
don't leave them jointly owned. Maybe you should have a trust.
There's so many things to think about when you're doing
your estate planning, and if you've never done one, this
is the guide to help you get started because it
shows you all the mistakes that you could make. Don't

(02:51):
make these mistakes. Get the guide. A state planning Potholes
to Avoid eight six six eight four eight five six
nine nine or Legal Exchange show dot com again eight
six six eight four eight five six nine nine or
Legal Exchange Show dot com Off to Ohio we go.

(03:13):
So in this case, Roy and Barbara second marriage, and
they had no kids together, but they created a joint
revocable trust in two thousand and one. So this is
one trust for both of them. That's what I mean
by the word joint. They were both co trustees and
designated beneficiaries while they're alive, perfectly normal. They named each

(03:37):
of their respective children. Now they had more children, but
they took one from each side and put them on
a successor co trustees did so far. I love this.
Roy Son, Rick and Barbara roy Son Rick and Barbara's
son John were named.

Speaker 1 (03:56):
Well.

Speaker 3 (03:56):
In twenty fourteen, Roy died, okay, and guess what. Shortly
after that, Barbara amended the trust, eliminating Roy's kids as
contingent beneficiaries and removed Rick, Roy's son as co trustee
and appointed her other son, William, to serve as successor trustee.

(04:18):
Wow wows right, So Barbara died in twenty twenty one. Well,
in twenty twenty two, as you might imagine, Roy's kids
filed a complaint seeking a declaratory judgment, arguing that Barbara
could not amend the trust, changed the beneficiaries after Roy's death,
and that a credit shelter trust was automatically established funded

(04:42):
to hold the assets. Well that all sounds like, is
is what's supposed to happen. Credit should have happened. The
credit shelter trust does get established, that does hold the assets.
That's all normal. So so far i'm reading this, I'm
going this doesn't seem out of the ordinary yet. Well,
the trial court had to respond. So the trial court

(05:04):
rules in favor of Roy's kids and agreed that this
credit Shelter Trust was established. It precluded Barbara from becoming
the sole trustee of the trust, and the provision stating
that she is the sole trustee was a drafting error. Well,
as you might imagine, her kids appealed and guess what,

(05:28):
the appellate court reversed. And I'm not surprised because I
thought the trial court was wrong. It was the language.
It was clear that Barbara was to become the sole
trustee after Roy's death, and the trustee did have discretion
to create this credit Shelter trust funded and then the
mandatory obligations existed in that credit Shelter trust if it

(05:52):
was created, so they had some discretionary powers to do that.
I don't I don't think this is a wrong reason.
I think it's the right result. But I think it's
scary to perhaps the everyday listener.

Speaker 2 (06:06):
It's all the drafting, right, Yeah, as to.

Speaker 3 (06:08):
What does this mean? Because I love joint.

Speaker 2 (06:11):
Trusts, how do you approach it when you have a
second marriage for your client's todd.

Speaker 3 (06:15):
Yeah, and I think that's exactly what we need to
talk about. I mean, I love the joint trust in
general for a moderate state. So remember it's very simple.
They're easy. You're both donors, you're both trustees. Just like here,
it's easy to fund. You don't have to separate the assets.
You put everything in in one bucket. And it's common
for both spouses to serve as trustee and the survivor

(06:38):
to serve alone. It's not uncommon, at least for our
first marriage, right, you know, that's very common, nothing wrong
with that. Now for second marriages. However, in this case,
you know, if you want, you know, you could allow
a child from a previous marriage to serve as co
trustee with the spouse. Probably what and they did that here,
but probably what you need to do is you need

(06:59):
to put that in the language that says you're not
if you're going to do that, you don't have it
set up where it says the surviving spouse can serve
a sole trustee, right, you just have language in there
that says, at any time after the death of one spouse,
a child of the other spouse must always be serving.
The child of the deceased spouse must always be serving.

(07:22):
So you might be able to remove that child, but
you have to replace them with another child of that
side of the marriage. So you just put you know,
check and balance language in. And the credit shelter share
also very common, right, it's generally mandatory, it's funded. It's
funded with the amount of money equal to the state
death tax exemption.

Speaker 2 (07:42):
So that's like your.

Speaker 3 (07:45):
Exactly right, that's the shelter share. And and it's two
million here in mass or if they're you're in a
state with no tax, it would be the amount of
the federal exemption. So and remember this is designed to
shelter the amount that that could have been taxed on
this that would be taxed on the second death, and
this way it's not going to be taxed. And these

(08:05):
joint trusts are phenomenal because they have a general power
of apployment in them that allow all the assets in
the trust to be included in the estate of the
first to die, So you can shelter a lot more
assets federal and state than you could if you just
had a single trust and you divided everything between the

(08:25):
two trusts. So I really like that idea, you know.
I think the bigger problem that you had here is
now this is good for smaller estates. When I say
smaller estates, all estates under fourteen million. For sure. This
seems to be good language to have. And remember you
have language in there that says income and principle to
the surviving spouse. It could have hem standards for health, education, maintenance.

(08:50):
The co trustee of the kid could be a check
in balance over these distributions, you know. But remember the
standard also protects the spouse if the spouse needs it
to pay a medical bills or a health expense or
a you know, if you meet the standard, you can't
say no.

Speaker 2 (09:05):
So things great would enjoy having one trust. If I
was getting married for a second time, I'd want my.

Speaker 3 (09:10):
Own trust, you could. It might be something to think
about in second marriages. And that's exactly what I was
going to say here. The biggest issue here is not
the one trust versus two trusts. The biggest issue is
whether or not you include the limited power of appointment
in a trust situation. For a second marriage.

Speaker 2 (09:27):
So that's what protects your kids from being disinherited exactly.

Speaker 3 (09:31):
If that language was not in here, then the surviving
spouse would not be able to change the beneficiaries after
one spouse died period on the trust.

Speaker 2 (09:41):
On the trust, they could for I arrays or anything
else that's not governed by that.

Speaker 3 (09:45):
You have to yeah, yeah, I rays are tough, but
things that you can put in the trust, you can
get that protection. So this limited power of appointments great
for first marriages and okay for second marriages, but you
gotta talk through it and decide whether or not you
really want that in there. So I think it's not.
The joint trust is the power of appointment. Folks, learn
how not to make these drafting mistakes. Get the guide

(10:08):
Estate Planning Potholes to avoid. It helps you understand how
to draft your documents and to avoid certain problems eight
sixty six eight four eight five six nine nine or
Legal Exchange show dot com.

Speaker 2 (10:21):
You've been listening to Todd Lutski, a partner with the
law firm of Cushing and Dolan. I'm Susan Power as
a financial advisor with the Armstrong Advisory Group. We've got
much more to come when we return to the Legal
Exchange with Todd Lutsky.

Speaker 1 (10:36):
Creating an estate plan can be a difficult process if
you aren't working with an expert who can make sure
your plan is secure. Cushing and Dolan can help. Call
them today at eight six six eight four eight five
six ninety nine. Estate planning is their business, and their
new monthly guide is called Detour a head estate planning
blunders to avoid. Don't put your assets at risk and
open yourself up to severe tax consequences even if you

(10:58):
already have a plan. This guide may correct an issue
that could come back to haunt you in the years
to come. Proper estate planning is crucial to you being
able to enjoy your later years, and it may be
the difference between retiring comfortably or living under incredible financial pressure.
Cab Cushing and Dolan right now at eight six six
eight four eight five six ninet nine and get your
free guide today that's eight six six eight four eight

(11:21):
five six nine nine, or requested online from their website
Legal Exchange show dot com. The proceeding was paid for
and the views expressed are solely those of Cushing and Dolan.
Cushing and Dolan ind or Armstrong Advisory may contact you
are offering legal or investment services. Cushing and Armstrong do
not endorse each other and are not affiliated. The United
States Virgin Islands has consistently voted one of the top

(11:41):
Caribbean destinations, and recently two of their beaches, Trunk Bay
and Saint John and Magan's Bay and Saint Thomas, were
voted at top ten best beach in the Caribbean at
the twenty twenty five Travelers Choice Best of the Best awards.
From the pristine beaches to its world class dining, rich history,
incredible golf and perfect weather, the USVII has everything you

(12:01):
need to make memories that will last a lifetime. From
the moment you arrive, you will fall naturally in rhythm
with the heartbeat of the islands. There's no money to exchange,
and travel from New England could not be easier. Whether
you're looking for a romantic getaway or a family vacation,
the US Virgin Islands is the perfect place for your
next adventure. Go to visit USVII dot com right now

(12:23):
for more information and to book your trip. The USVII
is Americas Caribbean Paradise. Go to visit USVII dot com Today.
That's visit USVII dot com.

Speaker 4 (12:37):
A solid financial plan has many layers, and trusts are
often a core piece. Hi, this is Mike Armstrong from
the Armstrong Advisory Group. Understanding the various kinds of trusts
that exist can be extremely beneficial to your strategy. If
you're retired or nearing retirement age, a trust may help
you with a wide range of issues such as asset protection,
tax efficiency, and avoiding probate. Call us today at eight

(12:57):
hundred three nine three four zero zero one and ask
for our new guide called Trusts and your Financial Plan.
We'll discuss a number of different trusts in the areas
in which they may help, and how to determine which
one may be right for you. Even if you already
have a trust in place. This guide can provide a
description of certain issues that may arise and could help
you decide if changes are needed. Call us today at

(13:17):
eight hundred three nine three four zero zero one and
get your guide today, or you can request the guide
online at Armstrong Advisory dot com.

Speaker 1 (13:24):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services. You're listening to the Legal Exchange with Todd Lunsky,
an expert in elder life planning and taxation. Need help
with your estate plan? Comp Todd right now and make

(13:46):
an appointment. Eight six six eight four eight five six
ninety nine. That's eight six six eight four eight five
six ninety nine.

Speaker 2 (13:54):
Welcome back into the Legal Exchange with Todd Lutsky. I'm
Susan Powers, a financial advisor with the Armstrong and I Group,
and I'm joined by Todd Lutsky, a partner with the
law firm of Pushing in Dolan with a master's in taxation.
Where we headed now, Todd.

Speaker 3 (14:09):
We're gonna head over to Georgia.

Speaker 2 (14:10):
Still on the same second marriage.

Speaker 3 (14:12):
Yeah, another second marriage problem, but this time they did
even less planning. That's possible, so the Saunders. I'm sorry.
Tony Sanders died January twenty twenty one, survived by his wife, Molly,
and two adult kids from a prior marriage. Doesn't seem
to say that they have anything in place. Kevin and

(14:34):
Terry are the kids well. On September twenty twenty two,
Mollie files a petition for one year's worth of support.
Now I'm wondering if this is what the Intestate Succession
Statute of Georgia says if you die without a will.
I don't know that. Remember this is very case specific.
So Mollie files a petition for one year's worth of

(14:56):
support and requests certain real estate be set aside for
her support. So I don't know how she wants to
get that support, either money or real estate. Kevin, of course,
one of the kids objected, arguing that the estate should
be divided equally between Molly, Kevin, and Terry. Now again,

(15:18):
I think you really need to look and understand the
Intestate Succession Statute of Georgia to see if that's what
it says if you die with kids from a prior
marriage and you have no will, and does it go
that way. Mollie filed a petition to dismiss this action
that Kevin took, but Kevin never responded that's never good no. Therefore,

(15:42):
the court dismissed Kevin's objection and partially granted Molly's request
first for one years of support and awarded her a
life estate in real property with a remainder interest to
the two kids. Not uncommon. I think in Massachusetts there's
life estate arrangement that's granted under the Intestate Succession Statute

(16:05):
under certain conditions.

Speaker 4 (16:06):
Yep.

Speaker 3 (16:08):
Well, Molly appealed. She didn't like that, arguing that she
should have gotten the whole real estate and not just
the remainder interest for her support. Well, the appellate court reversed. Basically,
if an objection to a petition is disallowed, the probate
court is required to enter in order, setting aside the
real estate for the year's support as requested. But it

(16:32):
was never really objected to, remember so and his failure
to respond and allegedly allege any grounds to show otherwise,
the entire real property can go to to you know,
to support, to provide the support and not just that
portion of the property.

Speaker 2 (16:55):
They snooze, you lose.

Speaker 3 (16:56):
Yeah, I mean this is more about snoozing than lose.

Speaker 2 (17:00):
It's just about why planning?

Speaker 3 (17:02):
Why are you not planning? And folks, this guide this
month is designed to help you get off the dime
and do planning. It basically has potholes to avoid or
mistakes to avoid, you know, like, don't rely on your
own will, right, don't. If you've done planning in the
past ten years, fifteen years, maybe pull it off the shelf,

(17:24):
take a look.

Speaker 2 (17:24):
At it, right you make sure it still hit your
goals and objectives.

Speaker 3 (17:27):
Yeah, what if you got life events that have changed.
You know, you've got a second marriage, you've got creditor concerns,
you've lost a spouse, you've got remarried. You know, folks
think of these things, right, you know, did you do
your trust planning and never fund it? There's probably about
twelve different bullets in here about what to do and

(17:48):
what to avoid and if you've done your planning, even
how to keep up with your planning. So, folks, this
is really a nice refresher guide. Get the guide State
Planning Potholes to Avoid eight six six eight four eight
five six nine nine again eight six six eight four
eight five six ninety nine or Legal Exchange Show dot

(18:10):
com and you can download it there. Now, let's talk
about second marriages. Certainly one of the potholes to avoid
when you're doing your estate planning. So in this case,
I mean not really any planning was done. I mean,
to me, the first thing is Tony. You know, if
he had just done a trust irrevocable or revocable, I
don't even care which way he goes, because it becomes

(18:31):
irrevocable when you die, so it doesn't it doesn't really matter.
Now in this case, you would have allocated the real estate,
which was really the big problem here, the real estate
to be held in the trust for the surviving spouse's life. Oh,
that very clear. I don't have to worry about a
life estate or a remainder interest. Just hold it right

(18:52):
in there. You can even have language, generally, provide language
that says that she must pay the bills, upkeep maintenance,
et cetera. You know, if you move out for six
consecutive months, you lose your right. If you die, you
lose your right. I mean, put some teeth in there, right,
and so she could live there, right, And then when
she dies, the property goes to his kids from a

(19:15):
prior marriage. They're all covered. They don't need to fight
or mess around at all. You know. Thus, you can
even have language that the whole problem of this case
goes away, right if you've done a trust. I mean
that's really how easy this was. Now, remember that one
year of support, never mind one year. The trust could

(19:37):
go on and hold the assets for her entire life.
You have to mess around with one year. The trust
could also hold investments that say, you know what, we're
going to pay her income for life, not just for
one year. If we're going to pay income for life.
Now what she could actually be using that income to
pay the bills on the house that she's living in.

Speaker 2 (20:00):
Mm hm.

Speaker 3 (20:00):
So you can really take care of it, right. You
can even have discretionary distributions for health, education, maintenance and support,
and and you know, this would be a way to
provide for her money to pay all her bills and
to make her life happy without losing all the assets. Right,
just just do your trust planning right, and you can.

(20:23):
You can really do that, and that mitigates all those problems. Now,
the trustee in this case, you know, you may have
had a child from a prior marriage service trustee with
the spouse. Yeah, I probably would remember the last the
checks and balance we dog last segment, we talked about
the same idea, right, I don't think that would have
been a problem. So maybe in this case, you know,

(20:44):
Kevin or Terry could have been listed as a trustee
perhaps with her. Now, I don't think you have any
of these problems that you know that she that she's
going to be, you know, overreaching on these assets. And
so I like that approach. And again, do you want
to have her have the power to remove and replace

(21:06):
the trustee? Maybe maybe not. I might want always having
a child from a prior marriage serving as trustee. Now, also,
remember if the standards, it's there that you if you
put standards in rather than just sole discretionary distributions, you
say you can distribute out principle to the spouse for

(21:27):
things like health, education, maintenance, and support. Remember, like we
said before, this protects her as well as the kids.
This way, the kids can't just say no all the time.

Speaker 2 (21:38):
Right.

Speaker 3 (21:39):
If there's a standard and it's met, then the trustee
has to pay it out. Otherwise the trustee breaches their
own if I douciary duties. Yep, So we don't want
that to happen either. Now, I think the biggest problem
here is the no planning if you just have a will.
That's why I kept referring back to saying, well, how

(22:00):
come they're trying to do equally to the kids. And
you have to really look to the intestate Succession Statute
to see where these assets go when you die without
a will. And I just want to spend a minute
on that, because every state is different. I don't want
you to think that if you have a second marriage

(22:22):
here in Massachusetts even and that you are automatically just
going to say, well, it won't matter because it's all
going to go to my wife and that's what I
want to happen. That may not be the case, right,
So don't do a will. Don't not do a will
because you just think it's going to all go to
your spouse. Now, if you own everything jointly or you

(22:44):
put a beneficiary on every one of your accounts, these
are steps that you have to take. And you named
your spouse on every one of these, well, then I
guess that will happen. Right, But don't just do no
planning and think that it's all going to go that way.
We're good, right. And again, if you do that, you
have to realize that in some way your children from

(23:06):
prior marriage are probably not protected. Folks, call and get
the guide. It's a whole bunch of potholes. Listed estate
planning mistakes to avoid from emptying a trust when one
spouse dies to what happens when you are left with
a surviving spouse? How does it work? Folks eight six

(23:26):
six eight four eight five six ninety nine or Legal
Exchange show dot com.

Speaker 2 (23:32):
You've been listening to Todd Lutsky, a partner with a
law firm of Cushing and Dolan. I'm Susan Powers, a
financial advisor with the Armstrong Advisory Group. Todd will be
answering your listener questions when we return to the Legal
Exchange with Todd Lutsky.

Speaker 1 (23:47):
Creating an estate plan can be a difficult process if
you aren't working with an expert who can make sure
your planning a secure Cushing and Dolan can help. Call
them today at eight six six eight four eight five
six nine nine. Estate Planning their business and their new
monthly guide is called Detour a head estate planning blunders
to avoid. Don't put your assets at risk and open
yourself up to severe tax consequences even if you already

(24:10):
have a plan. This guide may correct an issue that
could come back to haunt you in the years to come.
Proper estate planning is crucial to you being able to
enjoy your later years, and it may be the difference
between retiring comfortably or living under incredible financial pressure. Call
Cushing and Dolan right now at eight six six eight
four eight five six niney nine and get your free
guide today that's eight six six eight four eight five

(24:33):
six ninety nine, or request an online from their website
Legal exchange show dot com. The proceeding was paid for
and the views expressed are solely those of Cushing and Dolin.
Cushing and Dolan and or Armstrong Advisory may contact you
offering legal or investment services. Cushing and Armstrong do not
endorse each other and are not affiliated. HI.

Speaker 4 (24:49):
This is Mike Armstrong from the Armstrong Advisory Group. A
state and financial plan and go hand in hand, and
one of the most common ways to keep that bond
secure is with a trust. Our new guide called Trusts
in your Financial Plan is available right now. In it,
we'll discuss the various types of trusts that exist and
how they might benefit your planning process. Trust provide a
number of different protections for your assets, including privacy control

(25:10):
and tax efficiency. If you're retired or nearing retirement and
have concerns about your financial strategy and whether or not
a trust may help. Call us today at eight hundred
three nine three four zero zero one and ask for
your free guide called Trusts and your Financial Plan. Learn
about how a trust could make a difference for you
and your family by calling eight hundred three nine three
four zero zero one. That number again is eight hundred

(25:31):
three nine three four zero zero one, or you can
request the guide from Armstrong Advisory dot Com.

Speaker 1 (25:35):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong Guide a specific financial, legal, or tax advice. Consult
your own financial, tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services. The United States, Virgin Islands has consistently voted
one of the top Caribbean destinations, and recently two of

(25:56):
their beaches, Trunk Bay and Saint John and Magan's Bay
and Saint Thomas. We're voted at top ten best beach
in the Caribbean at the twenty twenty five Travelers Choice
Best of the Best awards. From the Pristine Beaches to
its world class dining, rich history, incredible golf and perfect weather.
The USVII has everything you need to make memories that
will last a lifetime. From the moment you arrive, you

(26:18):
will fall naturally in rhythm with the heartbeat of the islands.
There's no money to exchange, and travel from New England
could not be easier. Whether you're looking for a romantic
getaway or a family vacation, the US Virgin Islands is
the perfect place for your next adventure. Go to visit
USVII dot com right now for more information and to
book your trip. The USVII is America's Caribbean paradise. Go

(26:42):
to visit USVII dot com today. That's visit USVII dot com.
You're listening to the Legal Exchange, and it's time for
Ask Todd, the segment where Todd will answer your questions
about anything and everything that's included in the estate planning promise.
Once again, here's Tod Lutsky and Susan Powers.

Speaker 2 (27:05):
Welcome back, Todd. Have a few questions from listeners. First
question comes from Bill and Bridgewater Mass and Bill writes,
I have an irrevocable trust that I funded four years ago.
I'd like to lend my son some money to buy
a house. Can I give him a loan from the trust?
Can I have it forgiven if I pass away and
consider it as part of his inheritance.

Speaker 3 (27:28):
So, not having read the trust, I'm going to have
to say that this is a foremost.

Speaker 2 (27:32):
Okay, mutual client of ours.

Speaker 3 (27:35):
So let's that makes me feel better. And again, folks,
I joke about that. I laugh about that. But remember
it's the drafting that matters, right, It really does. Words
on a page really matter, okay, And that's why it's
important to get a good lawyer that knows how to
draft these documents. So my trust. Sure, the trust does
allow for the lending of money. Now be careful, because

(27:59):
it's a Medicaid irrevocable trust. I have language in there
that specifically prohibits the trustee from lending money to the don.

Speaker 2 (28:10):
Oor so mom and dad.

Speaker 3 (28:11):
Mom and Dad can't borrow from the trust because you
could already see right the language. The problem you have
there is if there's any way then which principle can
come out to the donor, then it's countable for Medicaid.

Speaker 2 (28:25):
Right now, just say hey, borrow it from your trust.

Speaker 3 (28:28):
There's a way to get it, right, So we try
to specifically we put in big letters. You know that
that can't happen. But the trust is allowed to make loans,
you know, whether they're secured or unsecured loans, et cetera.
Can lend money from the trust. It's an investment. It's
a form of a fiduciary investment. And so could they

(28:53):
lend money to a child. It could take back a
promisory note like you like, any good invent would be
applicable federal interest rate applies, and you have payments being
made on an amortization schedule.

Speaker 2 (29:08):
Let me pause you there. Do you have to charge
them interest? Can you not charge your child in interest
free loan?

Speaker 3 (29:14):
Well, I mean I think you run into problems right one.
You're a fiduciary and you're supposed to be acting like
any other fiduciary would, and fiduciaries would not normally lend
money without interest, not to mention the fact that government
hates that and they tend to impute interest if you
don't charge interest, So probably a good idea to charge it.
I just look at the applicable federal rate and just

(29:35):
take that number. They're not overly high.

Speaker 2 (29:37):
Rather than it would be if you like we're looking
at a mortgage or something.

Speaker 3 (29:40):
They're not really high right now. So I think if
you use that, you have it. And now you have
what a nice flow of money coming into the trust.
And remember a portion of that money will be return
of principle, and a portion of that money will be interest.
And remember the trustee is allowed to give the in come,

(30:00):
which is interest to the donor. So mom and Dad
could actually be making money. So you see how it's
actually an investment that the trust is making. However, you
can have language in the trust that says the loan
continues at death, or you can have language that says
the balance of the loan will be treated as an

(30:24):
advancement right yep, to the child.

Speaker 2 (30:28):
So let's say they lend two hundred grand and he
pays back one hundred grand, and he still owes one
hundred when mom and Dad die.

Speaker 3 (30:34):
Good. So if the outstanding you put something in there
says the outstanding balance on the loan, I e. One
hundred thousand. In your case, Susan, it needs to be
treated as an advancement to that particular person, but it
will be forgiven. But it's treated as an advancement, meaning
it's paid but it comes out of your your share.

Speaker 2 (30:56):
So if there's two kids, there's.

Speaker 3 (30:58):
Two kids, and let's say there's a millillion dollars in
the trust YEP and it says treat the kids equally,
but you have this advancement language in there. So in essence,
what will happen is you will reach into the one
hundred thousand dollars and allocate that one hundred thousand into
the million excuse me, and allocate that one hundred thousand
dollars balance on the outstanding note to the one child

(31:21):
who didn't get it got it right because we paid
off the note. So now that child is made whole
because the other child got relieved of one hundred thousand,
and then you split the difference. Okay, so you can
do all of that. Again, it comes down to drafting, folks,
And that's really what this guide is all about. This
guide to me, is all the mistakes that can be

(31:42):
made when drafting, and not just when doing or starting
your estate plan, but even after you have it right. Hey,
if you have a plan for ten years, it's a
mistake not to look at it right. If you think
you've got your estate plan done, because all you did
was a realty trust. Please don't rely on that if
you think you've you've got your estate plan done, because
all you did is at will. There's so much more

(32:04):
you can read about how relying on a will is
a big mistake. Folks, life events change. Look at your
existing estate plan. There's so much to learn about existing
estate plans for people who have them, and to help
people who are starting their estate plan to avoid possible
mistakes when drafting them. This guy got something for everyone

(32:26):
avoiding the estate planning potholes eight six six eight four
eight five six ninety nine or Legal Exchange Show dot
com again eight six six eight four eight five six
nine nine or Legal Exchange Show dot com.

Speaker 2 (32:41):
Our last question comes from John in Woober, Mass and
John writes, my wife and I created irrevocable trust with
your firm and our house was transferred into them. Most
of our remaining assets are in annuities, some we are
taking income from and some are deferred annuities that we
aren't withdrawing anything from. Can these annuities be transferred into

(33:03):
our irrevocable trusts? Can we still receive the income?

Speaker 3 (33:08):
Folks? Annuities are very tricky assets. I'm not commenting on
whether they're good investments or bad investments. I'm just commenting
on their transferability. I've dealt with many insurance companies that
have issued annuities that get what I'm about to say,

(33:30):
and then I've dealt with some that don't get it.
So let's address the question of can they be transferred
into an irrevocable trust? First and foremost, If they're qualified
annuities meaning they're owned by an IRA, yep, then no,
they can't be transfered. Okay, So first check that is
it qualified, then yes, can't be transferred. If it's non

(33:54):
qualified annuity, then it may be transferred. Seventy two U
of the ent in a revenue code allows these annuities
to be transferred. But here's what you're going to get.
Many insurance companies will say, as soon as you transfer
the owner, not the innuittent or anything, just the owner

(34:16):
and the beneficiary to a trust, and you assign a
new ID number because now it's owned by the trust,
so it gets the trust tax ID number, they say
that assignment of the ID number triggers the taxation event,
saying you now have technically have to pay all the

(34:38):
built up interest on the note because you changed ID numbers.
The fact of the matter is that's not true. Code
Section seventy two U states that when you transfer it
to a trust that is a grand or trust for
income tax purposes, which means even though the ID number change,

(35:00):
the owner of that trust for income tax purposes is
still the person who owned it before.

Speaker 2 (35:08):
So in the eyes of the IRS, John in this
case would still be the.

Speaker 3 (35:12):
Owner, right. And so because it's the same tax owner,
you cannot trigger a new ten ninety nine to be issued.
You cannot because it's not a taxable event. So this
is why I frustrate. I get frustrated with these with
these insurance companies. I go, you can't do it if

(35:34):
you want to. You're not the government. You can't tax
things that aren't taxable. It's that simple. But they don't
always get it. So can you do it? Yes, but
before you do it, make sure you get an email
from the insurance company in writing saying we will not
issue a ten ninety nine at the end of the year.

(35:54):
Now you're covered.

Speaker 2 (35:55):
And I would think that it matters if you're taking
income from it already.

Speaker 3 (36:00):
Right, if it's making monthly payments, then it's harder to
put in there because each payment has a portion of
principle and a portion of interests right, and you're not
going to know which is which, and it's going to
be really hard for you to separate. Folks. This is
all part of planning. Get the guide. It's brand new
for the month. Basically potholes to avoid in your estate planning.

(36:22):
Don't rely on a will, don't rely on see if
your trust has been funded you don't know, look it over,
check it out, don't rely on nominee realty trusts. And
when life events change, act call and get the guide
eight six six eight four eight five six nine nine.

Speaker 2 (36:39):
If you have a question you would like to ask Todd,
visit his website Legal Exchange Show dot com and click
on the ass Tod tab. Maybe I'll be able to
read your question on the air, and hopefully his answer
will stop you from becoming one of his next real
life stories. You've been listening to Todd Lutsky, a partner
with the law firm of Cushing and Dolan. I'm Susan Powers,

(36:59):
a financial ADA advisor with the Armstrong Advisory Group. We'll
be right back with more on the Legal Exchange with
Todd Lutsky.

Speaker 1 (37:06):
Creating an estate plan can be a difficult process if
you aren't working with an expert who can make sure
your plan is secure. Cushing and Dolan can help. Call
them today at eight six six eight four eight five
six nine nine. Estate planning is their business, and their
new monthly guide is called Detour a head estate planning
blunders to avoid. Don't put your assets at risk and
open yourself up to severe tax consequences. Even if you

(37:29):
already have a plan, this guide may correct an issue
that could come back to haunt you in the years
to come. Proper estate planning is crucial to you being
able to enjoy your later years, and it may be
the difference between retiring comfortably or living under incredible financial pressure.
Call Cushing and Dolan right now at eight sixty six
eight four eight five six ninet nine and get your
free guide today that's eight six six eight four eight

(37:52):
five six nine nine, or requested online from their website
Legal exchange show dot com. The proceeding was paid for
in The views expressed are solely those of Cushing and Lan.
Cushing and Dolan, ind or Armstrong Advisory may contact you're
offering legal or investment services. Cushing and Armstrong do not
endorse each other and are not affiliated. The United States
Virgin Islands is consistently voted one of the top Caribbean destinations,

(38:13):
and recently two of their beaches, Trunk Bay and Saint
John and Magan's Bay and Saint Thomas, were voted at
top ten best beach in the Caribbean at the twenty
twenty five Travelers Choice Best of the Best awards. From
the pristine beaches to its world class dining, rich history,
incredible golf and perfect weather, the USVII has everything you
need to make memories that will last a lifetime. From

(38:35):
the moment you arrive, you will fall naturally in rhythm
with the heartbeat of the islands. There's no money to exchange,
and travel from New England could not be easier. Whether
you're looking for a romantic getaway or a family vacation,
the US Virgin Islands is the perfect place for your
next adventure. Go to visit USVII dot com right now
for more information and to book your trip. The USVII

(38:57):
is Americas Caribbean paradise. Go to visit USVII dot com today.
That's visit USVII dot com.

Speaker 5 (39:08):
This is Michael Valila, adjudent of the Disabled American Veterans
Department of Massachusetts. We focus on the people returning from service,
not their specific illness or injury. Our number one goal
is to make sure our veterans have the necessary services
they need, be it physical, emotional, or financial, so that
their transition can be seamless. You can help our great

(39:29):
American heroes as well by making a donation today by
visiting dav five k dot Boston. That's dav five k
dot Boston.

Speaker 4 (39:38):
A solid financial plan has many layers, and trusts are
often a core piece.

Speaker 1 (39:42):
Hi.

Speaker 4 (39:42):
This is Mike Armstrong from the Armstrong Advisory Group. Understanding
the various kinds of trust that exist can be extremely
beneficial to your strategy. If you're retired or nearing retirement age,
a trust may help you with a wide range of
issues such as asset protection, tax efficiency, and avoiding probate.
Call us today at eight hundred three nine three four
zero zero one and ask for our new guide called

(40:02):
Trusts and your Financial Plan. We'll discuss a number of
different trusts in the areas in which they may help,
and how to determine which one may be right for you,
even if you already have a trust in place. This
guide can provide a description of certain issues that may
arise and could help you decide if changes are needed.
Call us today at eight hundred three nine three four
zero zero one and get your guide today, or you
can request the guide online at Armstrong Advisory dot com.

Speaker 1 (40:25):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong Guide a specific financial, legal or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong make contact you to offer investment
advisory services. Your tune to the Legal Exchange with Todd Lutsky.
If you are a loved one needs a nursing homestay,
call Todd right now at eight sixty six eight four

(40:46):
eight five six ninet nine and let him make sure
your assets are protected. That's eight six six eight four
eight five six nine nine, or visit him online at
Legal Exchange show dot com.

Speaker 2 (40:59):
Welcome back into the Legal Exchange with Todd Lutsky. I'm
Susan Powers, a financial advisor with the Armstrong Advisory Group,
and I'm joined, of course by Todd Lutsky, a partner
with the law firm of Cushing and Dolan with a
master's in taxation. So, a state planning potholes, a state
planning mistakes that you want to avoid. I think that

(41:20):
a big one, Todd, and one that's in this guide
is assuming that your trust has been funded. Yeah, so
going through the process of creating your trust and not
actually moving anything into it. So I think if we
can start first by discussing how you actually go about
funding your trust. So let's start with a big acid

(41:41):
real estate. A lot of people have real estate. How
do you actually get it into your trust?

Speaker 3 (41:46):
So you're right, this is a great topic to begin
with because this affects people who are not only doing
their estate plan. Please fund it, But all of you
who have done your estate plan, you might want to
go back and check to see if you in fact
funded it after you created it. One way to check
real estate tax bill. So look at the real estate

(42:08):
tax bill if you've already done your planning, and see
if it comes in the name of a trust or
if it comes in your own personal name. Now, if
it comes in your own personal name, odds are it's
not in the trust, and.

Speaker 2 (42:24):
It can take a little while for it to be
updated in the records, right, Yeah.

Speaker 3 (42:27):
It can take about a year sometimes for the town
to catch up to the registry of deeds. Yep, So
don't always jump to that conclusion.

Speaker 2 (42:35):
What about the folks that say, oh, my kid's own
my house, now it comes in their name.

Speaker 3 (42:42):
Yeah, so you got to be careful about that. So
again the type of trust. First of all, how do
you get it in the trust? You get it in
by preparing a deed. I kind of skipped over the attorney. Yeah,
the attorney prepares a deed transferring the property into the trust,
and then you'll see it by the tax billy. But
you're right. So here you know, Okay, what if it
comes in the name of the kids, Well it won't.

(43:03):
It would normally say children. And then you got to
look trust E, so it might say Todd trust D
or e T t E E the name of the trust.
So yeah, my name appears there. Yeah, but I'm not
the owner. So your kid's name could appear there, but
they're not the owner. They're just trust D of the trust.

(43:27):
And sometimes it all doesn't fit on the on the lane,
on the line for the real estate tax bill. So
please don't think your kid owns it just because his
name's unless, of course, you gave it to them and
you didn't use a trust.

Speaker 2 (43:40):
Yeah, we don't want to do that.

Speaker 3 (43:42):
But if you know you use a trust, yeah, and
you see the name there, go back and check the
trust and see if that kid's name is also the
trust eye. If they are, then probably you're okay. But
if you've never done a trust and you see the
kid's name there, they're likely you gave it to them.

Speaker 2 (43:56):
Right. So a lot of attorneys do prepare that d
need for their clients to transfer real estate in, but
then a lot of times it's up to the clients
to actually move those liquid assets in. And that's where
I think the ball can certainly be dropped because they

(44:17):
might have investment accounts or bank accounts, So the process
of doing that, it's kind of on their own if
they're not working with an advisor, correct.

Speaker 3 (44:28):
Kind of. I mean the lawyer should push them along,
but you're right, they need the advisor sometimes too. So
we put together funding instructions and we explain to them.
And so let's say they were working with you, Susan
in essence, we would get the name of the financial advisor,
we would get the phone number, and we would simply
tell the client, please tell them it's okay to talk

(44:50):
to us, Yes, and then we get in touch with
the financial advisor. We send over the documents and we
say please transfer the accounts as follows and give them
a copy of the trust and we give them the verbiage.
And that's usually it, and it's done. The person does
the financial advisor changes the titling on the account. Client's happy,
everyone's happy, it's all done. They sign a few documents

(45:13):
for a bank doesn't work so well. So for the bank,
we have to just tell them what to do, and
that's what we put in the funding instructions. But that's
how you fund it, folks. One of the planning potholes,
as Susan said in this brand new guide for the month,
is just that make sure your trust is funded. Other
things to think about. Have I done planning ten years,

(45:33):
fifteen years ago? Pull it off the shelf, take a
look at it. Maybe I need to update things. Good
thing to do. Please don't rely on a nominee realty
trust thinking you have all your estate plan done. Don't
rely on a will think about what to do if
life events happen, like divorces or a spouse's death or
a kid's divorce. Folks call and get the guide. Good

(45:57):
for good for people who have done they're planning, and
good for people who have not done their planning yet.
Eight six six eight four eight five six nine nine
or Legal Exchange Show dot com again eight six six
eight four eight five six nine nine or Legal Exchange
Show dot Com.

Speaker 2 (46:17):
I want to step back to bank accounts for one minute, Todd,
because I just want to have you clarify all, Like,
let's say they're doing irrevocable trusts. Okay, all bank accounts
would go into the trust.

Speaker 3 (46:31):
Good question. So no, when you're doing this, First of all,
we never with irrevocable trust put all assets in. We
always leave some out, even non qualified money, we leave
some out. So and the one particular account we always
leave out is the account that they do all their
checking and paying bills out of. And it's usually the

(46:52):
one that gets their social security deposits pensions and so
right the pension. So those are the ones that we
leave out because you can't have those in the trust.
And every time it gets direct deposited into the trust.
You got a new five year waiting period, so please
don't make that mistake. Yep, keep it out. And even
with revocable trust, sometimes clients like to leave their regular

(47:15):
bank account. They're operating bank account outside the trust. And
if it's joint, that's fine. My advice is just keep
you know, small money in it, you know, twenty grand
or something.

Speaker 2 (47:25):
Just throw a beneficiary on there. Yeah, you know, which
can be your trust too, It can be sure, it
can be. So what happens if you don't fund your trust? Hard?
Is it all wasted? I mean it's probably a different
response for revocable versus the very evocable trust trust kind
of the you know, the how much harm you've done?

Speaker 3 (47:47):
So let's let's run through it slowly. The first one
would be the revocable trust. If you have absolutely nothing
in there, you did indeed your house and you didn'tdeed
the property, and you left all your bank accounts out.
Likely if you're married, then everything would probably be joint.
So the joint bank accounts, the joint investment accounts, the

(48:08):
house would be joint. And so to your point, you know,
is it all wasted? Yeah? Uh? Probably right, because if
you don't shelter anything in the trust on the first death,
you're definitely wasting your Massachusetts or your state exemption, maybe

(48:28):
not the federal exemption. You could elect portability and try
to save the unused exemption, but it kind of is
a waste because you're not cramming anything down. You're not
sheltering the future growth from being taxed later when the
survivor dies. So yeah, I'm gonna say pretty much, we're.

Speaker 2 (48:45):
Not going to reduce your estate tax liability.

Speaker 3 (48:47):
Yeah, pretty much a waste on the revocable side.

Speaker 2 (48:50):
Okay, what about if you're doing irrevocable trust planning, because
we have run into folks where they've done airevocable trust
planning and you meet sit down with them and meet
them because mom or dad are going into the nursing
home and there's nothing in there.

Speaker 3 (49:05):
Yes, yeah, so it's probably a double whammy, complete waste,
right because again, if you don't do planning and everything's
jointly owned, just like the scenario I laid out for
the revocable trust, that same situation would occur. You would
be wasting exemption. You wouldn't be sheltering assets on the
first death. So yes, you've kind of wasted that piece,

(49:29):
the same as with the revocable trust. But when I
say it's a double whammy, by the same token, if
you have done this years and years ago and you
get sick a year before you die and you spend
a year in the nursing home, these assets would not
be protected from the nursing home because you never would

(49:49):
have started the five year waiting period because you didn't
put the assets in. So you're kind of hurting yourself
on two fronts with that.

Speaker 2 (50:00):
So I know we're running out of time here, But
is there anything that can be done after the fact
if a spouse dies and you haven't funded your trust.

Speaker 3 (50:08):
There may be there may be a way to do disclaimers, right,
So a disclaimer is simply a way of denying what
you want and then it would go through the will.
And if the will doesn't have if the will has
a poor over trust, I mean, if the will, then
we'll get into the trust and you'll be able to
shelter it. So check into some post morning planning call
and ask yes for sure. Meanwhile, call and get the
brand new guide how to avoid a state planning potholes.

(50:31):
There's about twelve different things that exist here, something for
people who have planned and something for people who have
not eight six six eight four eight five six nine
nine or Legal Exchange show dot Com.

Speaker 2 (50:43):
Todd Lutsky from the law firm of Cushing and Dolan,
thank you so much.

Speaker 3 (50:47):
Thank you, Susan, always pleasure.

Speaker 2 (50:49):
I'm Susan Power as a financial advisor with the Armstrong
Advisory Group. We thank you for joining us and we'll
be back again next week on the Legal Exchange with
Todd Lutsky in the state.

Speaker 1 (51:00):
Plan can be a difficult process if you aren't working
with an expert who can make sure your plan is secure.
Cushing and Dolan can help. Call them today at eight
sixty six eight four eight five six nine nine. Estate
planning is their business and their new monthly guide is
called Detour a head estate planning blunders to avoid. Don't
put your assets at risk and open yourself up to
severe tax consequences. Even if you already have a plan,

(51:23):
this guide may correct an issue that could come back
to haunt you in the years to come. Proper estate
planning is crucial to you being able to enjoy your
later years, and it may be the difference between retiring
comfortably or living under incredible financial pressure. Call Cushing and
Dolan right now at eight sixty six eight four, eight
five six ninet nine and get your free guide today
that's eight six six eight four eight five six nine nine,

(51:46):
or request an online from their website Legal exchange show
dot com. The proceeding was paid for in The views
expressed are solely those of Cushing and Dolan. Cushing and
Dolan ind or Armstrong Advisory may contact you are offering
legal or investment services. Cushing and Armstrong do not endorse
each other and are not affiliated. HI.

Speaker 4 (52:00):
This is Mike Armstrong from the Armstrong Advisory Group. A
state and financial plan and go hand in hand, and
one of the most common ways to keep that bond
secure is with a trust. Our new guide called Trusts
in your Financial Plan, is available right now. In it,
we'll discuss the various types of trusts that exist and
how they might benefit your planning process. Trust provide a
number of different protections for your assets, including privacy control

(52:21):
and tax efficiency. If you're retired or nearing retirement and
have concerns about your financial strategy and whether or not
a trust may help, call us today at eight hundred
three nine three four zero zero one and ask for
your free guide called Trusts and your Financial Plan Learn
about how a trust could make a difference for you
and your family by calling eight hundred three nine three
four zero zero one. That number again is eight hundred

(52:42):
three nine three four zero zero one, or you can
request the guide from Armstrong Advisory dot com.

Speaker 1 (52:47):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong Guide a specific financial, legal, or tax advice. Consult
your own financial, tax into state planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services. The United States Virgin Islands has consistently voted
one of the Topcribbean destinations, and recently two of their beaches,

(53:07):
Trunk Bay and Saint John and Magan's Bay and Saint Thomas,
were voted at top ten best Beach in the Caribbean
at the twenty twenty five Travelers Choice Best of the
Best awards. From the pristine beaches to its world class dining,
rich history, incredible golf and perfect weather, the USVII has
everything you need to make memories that will last a lifetime.
From the moment you arrive, you will fall naturally in

(53:30):
rhythm with the heartbeat of the islands. There's no money
to exchange, and travel from New England could not be easier.
Whether you're looking for a romantic getaway or a family vacation,
the US Virgin Islands is the perfect place for your
next adventure. Go to visit USVII dot com right now
for more information and to book your trip. The USVII
is America's Caribbean paradise. Go to visit USVII dot com today.

(53:55):
That's visit USVII dot com.