The pitfalls of giving away your assets

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 (00:37):
Welcome into the 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 (00:51):
I am never better and you I'm excellent.

Speaker 2 (00:54):
Thank you. What do you have for us today?

Speaker 3 (00:56):
Couple of cases, Sir, We're going to go to Tennessee
where we have a Pellet court case actually, and then
a real life story case. So I guess one real
case and one court case. Nope, Nope, this one's interesting.
It's about basically spendthrift clauses in trusts and protection from medicaid.

(01:17):
How does that work? And actually, this case involves a
revocable trust and medicaid questions, which I know and we
know in reality those two don't mix very well. So
I will explain all of that to you in this case.
And it's again a Tennessee case, so a little fact
specific and case specific, state specific. Excuse me, but we'll

(01:39):
come back to that and we'll explain how this revocable
trust and spendthrift language in the trust works or doesn't
work with a medicaid situation. Then I've got a real
life story situation for you where you know, at the
end of the day, you know doing the right thing

(02:00):
is not always the right thing. Is sort of what
happened here. And these are where parents had passed away
and a bunch of sisters or three siblings rather four
siblings got a piece of property and one sibling really
needed the house, so they put together a trust and
put the property all back into a trust, thinking it's
going to be there for that one sibling. And it
was a Nominee realty trust, and things don't always go

(02:23):
well with Nominee realty trusts. Even though you're trying to
do the right thing. What happens if the person who
you gave it to gets sick and goes to the
nursing home. Anyways, lots of questions need to be answered
there and we'll figure it out. And I think really
what it comes down to, folks, is is getting planning right,
doing it right, and understanding what you're doing, because the

(02:45):
right thing isn't always the right thing, It just needs
to be done right. In this case, think about this
fact pattern, which was more of an ended up being
a gift. And that's what this guide is about this month,
right making the most of gifting or not gifting, or
at least understand diff in fact you are gifting and
then what are the consequences of that gift, not only

(03:05):
from the state tax, from income tax step up in
basis medicaid right control issues. You don't think about what
did I give up when I gave this away? And
was it the right thing to do? This guide talks
about it from slats to putting things even jointly owned
and how that affects Medicaid and is a jointly owned

(03:25):
asset a completed gift Folks learn whether to make a
gift or not to make a gift, how to make
the gift, whether it's outright or to a gifting trust
for the kids, and all the consequences that go with it.
Eight six six eight four eight five six ninety nine
or Legal Exchange show dot com Making the most of

(03:47):
Gifting Assets eight six six eight four eight five six
nine nine or Legal Exchange Show dot Com. Back to Tennessee. So,
in this case, Vivian died on March tenh twenty twenty three,
but had been in a nursing home and received two
hundred and thirty one thousand dollars of care benefits from

(04:12):
Tennessee Care. They call it ten Care there and Vivian
had created a revocable trust in twenty sixteen, and she
transferred title to her property to it to that trust. Well.
TENCRE then petitioned the trial court to probate Vivian's estate.
Why because they're creditors of the estate. Right, Tencare paid

(04:36):
out two hundred and thirty one thousand dollars and wants
to be paid back. Well, the parties all agreed that
ten Care's claim was a valid claim a valid debt
of the estate, but the estate filed an exception, arguing
that since Vivian suffered from dementia and had diminished capacity
at the time of her death, and of course prior

(04:58):
to her death, and had transferred the property to the
revocable trust, that she didn't own the property, and that
the trust became irrevocable when she lost capacity. Thus it's
not subject to credit or claims. Yeah, you should be
looking at me funny like that, Susan, because you're absolutely right.
That sounds very strange. Yeah, and it sounds strange to me,

(05:20):
but that was their argument. Well, the trial court didn't
like that argument at all, and it makes sense, right.
The trial court denied the estate, denied the estate claim,
stating that even if Vivian lost capacity, it doesn't automatically
convert the revocable trust to irrevocable just because you lose capacity.

(05:40):
And you'll know that when even in our trust, right,
you know, it's just because you become incapable of managing
the trust doesn't mean the trust became irrevocable because if
you're a donor, the power of attorney can act on
behalf of the donor and revoke the trust, so it's
not irrevocable at that point. So I do agree with

(06:03):
the court. Also, you know, regardless of the spendthrift provision
they said that was the property of the revocable trust,
are still subject to claims of the creditors. See appealed.
The estate appealed as you might imagine, and the appellate
court affirmed, basically saying the Tennessee UTC Uniform Trust Code

(06:24):
states that, regardless of spendthrift language, property of a revocable
trust following the donor's death is still subject to the
set lawers creditors. That makes sense. It's you know, you
put spendthrift provision in for beneficiaries down the road, not
so much for that. So folks, I think they got
the answer right here. But I just want to make

(06:44):
some clear distinctions because this really should never have been
a medicaid issue to begin with. So medicaid trust versus
irrevocal trust very important to distinguish that a revocable trust
will never protect assets from the nursing home. It just
hard stop, right, it never starts the five year clock

(07:06):
from running. It's revocable. After all, if you can get it,
they can get it. And that's the case here, and
that's what this didn't become irrevocable when she lost capacity,
and even if it did at that point, there'd be
a five year waiting period then. So that's how that is. Now.
Remember another thing to distinguish here is a state recovery

(07:29):
versus medicaid, right, and this is a state by state situation.
So in Massachusetts, if this home was in an irrevocable trust,
then the asset would avoid state recovery because in Massachusetts
they can only specifically recover against probate assets of the
estate and assets in the trust avoid probate. So if

(07:52):
they set up an irrevocable trust and got past the
five year waiting period, then it would avoid probate, avoid
a state recovery, and be protected from the nursing home
not a revocable trust. But let's let's explore that a
little bit. So Massachusetts, like I say, specific so the
two hundred and thirty one thousand dollars would not be recovered.
Other states like New Hampshire, says any asked any interest

(08:14):
you had in the real estate right before you died
would be countable like a licensed state A very good See.

Speaker 2 (08:21):
I listened to you occasionally over the past twenty.

Speaker 3 (08:23):
Years, like a life estate right that peace would be
at risk in New Hampshire. Now let's just play out
the string. Right, So a revocable trust like they had
here what happened in Massachusetts if you did this, If
you had a revocable trust in mass you never would
have been able to get on Medicaid to begin with. See.
So this I don't know how Tennessee allowed this person

(08:45):
to get on Medicaid and run up a two hundred
and thirty one thousand dollars bill when the house was
in a revocable trust.

Speaker 2 (08:51):
Do you think she transferred into the trust after she
was already in there and approved.

Speaker 3 (08:55):
No, she set the trust up in twenty sixteen. She didn't.
Oh yeah, she didn't die until twenty or sitting die
until twenty twenty three. So so no, I don't understand
that right if you set up a revocable trust in Massachusetts. Remember,
a home is non countable if you're married, if the
spouse is living there and owns it. If the trust

(09:17):
owns it, got to take it out right, put it back.
If you're single, a house in Massachusetts is non countable.
If you check a box saying I intend to return home,
and it's less than a million dollars in value, then
it's non countable but leanable. So in other words, if

(09:39):
it was in the revocable trust and you were single
like this case, and you applied for medicaid, you'd be
denied until you took it out. Why because now if
you die, you own it in your name. It's a
probate asset and they can recover from it. So that's
the difference, folks, And that's what needs to be understood here.
Just the whole case of here is revocable trusts don't

(09:59):
protect from a nursing home. Irrevocable do protect, folks. The
guide we're given away, though, is about gifting assets. Figure
out what's the best way to gift or not gift
eight sixty six eight four eight five six ninety nine
or Legal Exchange show dot com.

Speaker 2 (10:18):
You've been listening to Todd Lutsky. I'm a partner with
a law firm of Cushing and Dolan. I'm Susan Powers,
a financial advisor the Armstrong Advisory Group. We've got much
more to come when we return to the Legal Exchange
with Todd Lutsky.

Speaker 1 (10:33):
Cushing and Dolan want to help you avoid costly mistakes
when it comes to gifting assets to your children. Their
brand new guide, Making the Most of Gifting Assets shares
crucial strategies to help you protect your legacy and your family.
Many people think gifting is always a good thing, but
if it's done the wrong way, they can create real headaches.
Even well intentioned gifts can cause complications if your children

(10:54):
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The guide also explains how a major gift like a
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that may impact your entire estate plan. Before you make
any big moves, arm yourself with the facts and this
new guide from Cushing and Dolan. Call eight sixty six
eight four eight five six ninety nine right now to
get your copy. That's eight sixty six eight four eight

(11:16):
five six nine nine, or request it online at Legal
Exchange Show dot com. That's Legal exchange show dot com.
The proceeding was paid for in the views expressed are
solely those of Cushing and Dolan. Cushing and Dolan in
or Armstrong Advisory may contact you offering legal investment services.
Cushing and Dolan Armstrong Advisory do not endorse each other.
In are not affiliated.

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HI.

Speaker 4 (11:34):
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(12:16):
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Speaker 1 (12:21):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong Guide 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.

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Speaker 1 (13:36):
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 time right now and make 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 (13:51):
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 by Todd Lutsky, a partner with a
law firm of Cushing A. Dolan with a master's in taxation.
Where we headed now, Todd, nowhere.

Speaker 3 (14:07):
We're realize through life. So check this out. So mom
and dad had passed away and they left property to
all four kids. The kids were well into their sixties
when the parents died. The one sister, Mary, let's call her,
had never married and had no kids and had retired,

(14:30):
and the siblings all agreed that, you know, the house,
that she really needed the house. So they decided to
set up a trust, which turned out to be a
realty trust, and and they put the property. They all
contributed the property to this realty trust. So the deed
went from four to to the trust for the trust YEP.

(14:50):
The beneficiary schedule, the dreaded beneficiary schedule indicated that the
current beneficiary is one married.

Speaker 2 (15:01):
Then schedular beneficiary.

Speaker 3 (15:03):
The schedule of beneficiaries was one hundred percent Mary current beneficiary.
To them, this made sense because they wanted to make
sure that Mary was obligated to pay all the bills,
maintain it. She's living there, I get that. Well, she
owned it, so yeah, she was obligated to pay all
those bills and maintain it. And the contingent beneficiaries following

(15:27):
her death were the remaining siblings. Okay, that seems fine.

Speaker 2 (15:32):
Can you do that on many realities?

Speaker 3 (15:35):
Yeah, sure, just put one hundred percent and then following death, Yeah,
absolutely can do that. So the problem is as time
went went on, you know, Mary developed some dementia and
ended up moving in with one of the other siblings.
So it's a nice family. This is a really you know, again,
doing the right thing is no good deed goes unpunished.

(15:57):
And so they came in when Mary had moved in
with one of the siblings and they said, well, we're
wondering the status of this house, so who owns it
and what's protected if Mary declines further and needs to
enter a nursing home. That was why they came in.

(16:17):
So I'm like, let's take a look at everything, and
I tried to figure out how everything was owned and
explain to them that yeah, it looks like Mary owns
the house one hundred percent. So they said, well, what
happens if she goes into the into the nursing home. Well,
I want to give you all that, but I want
to remind you that this was a completed gift through

(16:42):
a Nominee realty trust and that brings can't help but
bring me to this guide because this is exactly what
we talk about. In fact, that's in the guide is
then is dealing with Nominee realty trusts, and you know
sometimes they're not you don't think about it, but that's
a completed gift. So so making the most of gifting
assets or not gifting assets is the guide and understand

(17:05):
that sometimes even when you don't think you made a gift,
you made a gift. And then other times when you
might set up a joint account thinking you made a gift,
you actually didn't make a gift. But then from a
medicaid perspective, how you own things jointly could affect what's
countable and what's not countable. And you need to understand
that there are income tax issues. When you give away things,

(17:26):
you lose the step up in basis that I might
be saving a state taxes, but that might not be
the smartest thing to do. Or maybe I want to
give things to my kids but control it. Maybe gifting
trusts are a better way to go, you know, figure
out whether to gift or not to gift, and even
how to gift and retain control and enjoy what you
give away. This guide explains all of that, including spousal

(17:50):
lifetime access trusts eight six six eight four eight five
six nine nine or Legal exchange Show dot com. Get
the guide i'd eight six six eight four eight five
six nine nine or Legal exchange Show dot com. Let's
go back to this what what are we learning here? Right?

(18:12):
And again we learned that they made a gift, and
they didn't realize they made a gift. First and foremost, remember, folks,
short answer is nomine realty trusts never are great trusts
to use. You know, we always say stay away from
them because they are often misunderstood. So in fact, here
the siblings in essence gifted their entire property to Mary

(18:34):
by titling it to her, well, not to her, but
to a trust that's a Nominee realty trust that indicated
Mary was the one hundred percent beneficiary of the trust.

Speaker 2 (18:44):
Which doesn't mean she's got to die to be that beneficiary.

Speaker 3 (18:48):
She's the owner now, right, And that's exactly the point, right,
And these kinds of trusts, they're not really trust, they're
principal agency relationships. Cause a Nominee realty trust, and go
look it up. A few have one of these. The
Nominee realty trust will have language in it that says
the trustee has no power to act unless directed by

(19:10):
the beneficiary.

Speaker 2 (19:11):
In which this case would be just Mary at this point.

Speaker 3 (19:14):
Just Mary. So Mary's really the one who owns the property,
and so Mary now has it one hundred percent. So
they didn't even realize that they made a completed gift
when they put this in here. And so that's again
why you need to get this guide, folks. Gifting is
not the easiest thing to do. Feels good, but it's
not always the smartest thing to do. Or make sure

(19:34):
you know how to do.

Speaker 2 (19:35):
It, do it yourself. Legal work not.

Speaker 3 (19:37):
Good, not good, definitely not a good idea. And so
now the question is, well, what what what happens? What's
at risk? What's not at risk? You know, if we
gift it back to them, you know they you have to.
I'm sure they don't even file a gift tax return.
But what's at risk? Well, one hundred percent of the
home is at risk, I tried to explain to them, right,

(19:57):
not just the one quarter with which is what they
thought was at risk. Remember they each had a quarter interest,
which is only the way it was owned prior to transfer. Yep, Okay. Now,
at least if Mary gets sick, the house could come
out of the trust to her. We could check a

(20:18):
box that she intends to return home and it would
become non countable but leanable. So that's helpful. So I
explained to them if she was starting to decline quickly,
that this is what we could do. For this house.

Speaker 2 (20:33):
Helpful, but you got to keep your fingers cross it.
The lean is only one quarter of the value.

Speaker 3 (20:39):
Yeah, you hope it doesn't doesn't eat up the whole house.
But again it'll be leveraged because it'll be a Medicaid rate.
So it's it's better than nothing. Okay, Well, can we
return to back the way it was, Well, we could,
but it would create a five year waiting period, so.

Speaker 2 (20:54):
You know, and now it would be a risk for
all of them.

Speaker 3 (20:56):
Right, what am I going to do? Now, take and
put it back? Well, we could take it and put
it back, and then you know, it's a year, a
five year waiting period. But I'm saying, if you're going
to do that, and she's home living with another sibling,
and we have time, if we have time, we might
as well just have her set up a Medicaid irrevocable trust.

(21:18):
Now take the property out, put it in to a
regular Medicaid irrevocable trust. The same five year waiting period
will result, as it would if she took it and
gave it back one quarter one quarter one quarter. The
difference and the better side of it is at the

(21:38):
end of the five years, not only is it protected.
But when Mary passes and it goes to these three
other siblings. If Mary passes first, they will inherit it
with a step up in basis and that will eliminate
the built in capital gain on the property. So that's
actually better for the siblings than getting it now and

(22:01):
crossing their fingers for five years.

Speaker 2 (22:02):
And if she doesn't make the five years, it can
always come out to get her qualified the lean.

Speaker 3 (22:10):
Yeah, it's a great point, right, You're no worse off
because you would put it back the way it would
be now and she would check a box that she
intends to return home on the application and then apply
for medicaid and they'd put a lien on it. Arguably,
there's this sibling exception that could exist where I guess
if the siblings have an equity interest in the property

(22:30):
and the individual who went in the nursing home and
they lived there for at least one year, So that wouldn't.

Speaker 2 (22:36):
Work short straw, who's moving.

Speaker 3 (22:38):
In Yeah, No one would be moving in there. They
all have their own houses, so so that little sibling
exception wouldn't work. So I think we're back to the
idea of this putting it, getting it out of where
it is, putting it in a Medicaid income only trust,
getting the five year clock started, and moving moving forward. So, folks,
I just think at the end of the day, you know,

(22:59):
you really need some guidance when you're doing things. Doing
it yourself, as you said, Susan, is really what got
them in trouble here. Or perhaps they went to the
wrong lawyer who told them to set up a nominee
realty trust. So you know, I'll always pick your estate
planning lawyer. Make sure that's what they do.

Speaker 2 (23:16):
Yeah, you're real estate lawyer, right, folks.

Speaker 3 (23:18):
This this guide is about making the most of gifting
assets because in this case, setting up nominee realty trusts
inadvertently created a gift and they didn't even realize it.
So learn how to make a gift the right way.
Get the guide eight six six eight four eight five
six nine nine or Legal Exchange show dot com.

Speaker 2 (23:37):
You've been listening to Todd Lutsky, a partner with the
law firm of Cushing A. Dolan. I'm Susan Power as
a financial advisor with the Armstrong Advisory Group, and Todd
will be answering your listener questions when we return to
the Legal Exchange with Todd Lutsky.

Speaker 1 (23:52):
Cushing and Dolan want to help you avoid costly mistakes
when it comes to gifting assets to your children. Their
brand new guide Making the Most of Gift Assets shares
crucial strategies to help you protect your legacy and your family.
Many people think gifting is always a good thing, but
if it's done the wrong way, they can create real headaches.
Even well intentioned gifts can cause complications if your children

(24:13):
are dealing with financial pressure or legal issues like a divorce.
The guide also explains how a major gift like a
home or vacation property could come with hidden tax consequences
that may impact your entire estate plan. Before you make
any big moves, arm yourself with the facts and this
new guide from Cushing and Dolan. Call eight six six
eight four eight five six ninety nine right now to
get your copy. That's eight sixty six eight four eight

(24:35):
five six nine nine, or request it online at Legal
exchainshow dot com. That's Legal exchange show dot com. The
proceeding is paid for in the views expressed are solely
those of Cushing and Dolan. Cushing and Dolan and or
Armstrong Advisory may contact you offering legal investment services. Cushing
and Dolan Armstrong Advisory do not endorse each other and
are not affiliated.

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Speaker 4 (26:21):
Hi, this is Mike Armstrong from the Armstrong Advisory Group.
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Speaker 1 (27:08):
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 and it's
time for Ask Todd, the segment where Todd will answer
your questions about anything and everything that's included in the

(27:31):
estate planning process. Once again, here's Todd Lutsky and Susan Powers.

Speaker 2 (27:39):
Welcome back. Todd. Have a few questions from listeners for you.
First one's a little long, so I'm going to give
you the question and then I'll give you some summarization.
So Paul from Belmont, mass writes, I'm fifty nine, have
no children, and I'm not married. I have a rental
property and a second home, as well as roughly three
million in retirement accounts and investment account.

Speaker 3 (28:00):
Okay, I'm already lost. No, just kidding, God, you got this.

Speaker 2 (28:03):
I have two brothers, one that I care for who
lives with me if I pass before them. I want
to make sure my brother is cared for and that
I can help out my other brother. I also want
to help out my nephews. I'm not sure I want
my brother's spouse or my nephew's spouses to receive assets
if they pass. I Also, here's the kicker, I don't

(28:26):
want the government to tax anyone if possible. What do
you recommend? Do you have a magic trust that can
fill all these requests? I love this guy so basically
three things. Primarily his brother who he takes care of.
He wants to be cared for. He wants to get
rid of the spouses getting their clutches on anything, and
he wants no tax. Yeah, how do you accomplish that?

Speaker 3 (28:46):
So easy? The nice part about it is, folks, and
this is really what trust planning is all about you
can do anything you want pretty much. Yeah, pretty much,
And let me explain it seems complicated, but no, the
trust will allow this. Right. You can't just put designated
beneficiaries on accounts and get this right, right, You can't.

(29:08):
That can't be done. But boy, or a trust, you can. Okay.
So let's assume first that at fifty nine, not married,
he has no children, so we're I assume I can't
assume he might be saying, I want to actually take
care of my brother, so I want to protect the
assets for them. I don't think medicaid right away. Number

(29:32):
sixty and over is my magic age to sort of
talk to people about protecting assets from the nursing home.
And so in this case, you know, I might say,
you know, does it matter that these people just get
whatever's left when you die, or do you really want
to make sure there's something there to take care of.

Speaker 2 (29:47):
Somebody If he's caring for his brother. It may be
that the brother can't work, right, maybe he's disabled.

Speaker 3 (29:54):
That's right.

Speaker 2 (29:54):
There probably some kind of benefits from the government.

Speaker 3 (29:58):
So it sounds like the answer is yes, I probably
need to make sure something is there for at least
my brother. And if I'm going to do that, well,
then the others will benefit as well, because if it's protected,
it's protected. So that's the first hurdle. Let's say we
get over that and they say, yes, I want the
trust that we're going to talk about to be irrevocable
from the get go. Fine, then we will put the

(30:19):
assets into it. A house, he's got a rental property,
I'll put that in. Maybe we even set up an
LLC for the rental property so that that can provide
him protection from creditors during his life, ye Paul's life,
and then put the shares of the LLC into the
irrevocable trust so that that would be protected. The home
and some of his money, not iras and things like that,

(30:41):
but other assets into the trust. And once it's in
the trust, the five years goes by, it's protected from
the nursing home, it avoids probate. He's living his life. Fine,
then what then he passes? But because we did that trust,
we now know there'll be something in there for them. Right, Okay,

(31:01):
now we have carve outs. Okay, well, depends on what
the brother needs. Maybe the brother needs that place to live,
so hold the property located at in trust, Maybe tuck
away some money into that trust bucket to pay the
bills to maintain that that trust property for him, and
then say, you know, upon his passing, this can go

(31:22):
to my foreur nephews. You know, who knows if that's
ultimately what they want. Or I guess he's got another sibling.

Speaker 2 (31:29):
He's got two brothers, one he takes care of and
one his other brother.

Speaker 3 (31:32):
And again that those are probably the children of the brothers.
So so you know, you could say, hold this in
trust for my disabled brother. Let's say first, maybe hold
everything in trust for my brother first, then to my
other brother and the kids. Right, and you can either
carve it up or you could give it all to
the other sibling and then down the line from there.

(31:53):
So there's many ways that this can be done. But
the answer is it can be done, and yes, Paul,
you should do it, and you should set up an
ir probably an irrevocable trust, if that's the goal. But
all of your wishes can be accomplished through a trust,
and not in this case necessarily by gifting assets away,

(32:14):
which is what the guide is about. Folks. Don't just
gift assets away. Remember The biggest example is just because
you give it away doesn't mean it's better for taxes.
Because if you don't have a death tax because you're
under thirteen million dollars in change, then I'm not saving
forty percent. So what am I saving? While I'm saving
ten percent for mass But I'm trapping capital gains tax

(32:37):
because I lose the step up in basis which is
twenty eight point eight percent. Well that's not helpful. So
always got to think about income tax, estate tax when
making a gift. Then think about how to make the
gift outright to a trust and even yourself if you
want to give it away and retain control and benefits
over it. Learn how SLATS spousal Lifetime Access trust works.

(33:00):
So much to think about when giving. Don't just gift.
Get the guide 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. Making the most of
gifting assets.

Speaker 2 (33:19):
Our last question comes from Gene in Westboro, mass and
Gene writes, my husband and I set up a joint
irrevocable trust many years ago with you. He passed away
and we funded the remainder share with around half of
the proceeds. Can I now use the money that is
in the two trust accounts to improve my vacation property.
Should I use the funds and the remainder share or

(33:40):
the original trust? Is there a benefit to using one
versus the other? And are there any restrictions?

Speaker 3 (33:47):
Well that's a lot of questions. That's a lot more
than one question.

Speaker 2 (33:51):
Well, all right, well that's okay. The people want to know.

Speaker 3 (33:55):
People want to know. All right, here we go. So
the great the joint trust work. It established these two buckets,
the marital share and the remainder share, and depending on
the size of the estate, is going to help me
answer the question right, because I won't know what's in
each bucket. Let's assume that there was two million dollars
in the joint EREV trust. Then if that's the case,

(34:20):
because it's an EREV trust, only half is included on
the first death, So one million would end up in
the remainder share because that's all that's included, and one
million is less than two million, which is the estate
tax exemption for Massachusetts. Never Mind that I made the
value of the estate the value of the trust two million.

(34:41):
That's a coincidence. So because it's less than the two
million dollar estate tax exemption, and the estate of the
first to die is only half the assets, then one
million would be in the remainder share. Well, that answers
the first question. So if the asset is in the
remainder share and the house is in the remainder share,

(35:03):
then yes, I'm going to use the money in the
remainder share to fix up the house. Okay, no restriction there.
Remember that's just using assets of a trust to fix
up another asset in the trust. It's not taking money
out and putting it in the spouse's pocket. So remember
one is dead. The money in that remainder share has

(35:26):
language in it that says and again since it's a
medicaid trust, it says income to spouse who's alive. But
principle it cannot go to the spouse much the same
way it said when they were both alive, you had
no access to the principle, at least not directly, so

(35:47):
that part hasn't changed. So whatever's in that remainder share,
if it's generating interest and dividends or rent, that can
come out to the spouse. Okay, if it's got principle
in it, like a half a million dollar portfolio and
a half a million dollar home, that half a million
dollar portfolio is principal. While it can't come out to

(36:11):
the pocket of the spouse, it can be used to
fix up other assets in there.

Speaker 2 (36:18):
Okay, So if it's half, if half the house is
in the remainder share and half the house is in
the original is there a benefit to using one versus
the other.

Speaker 3 (36:28):
Not really, because what's in the remainder share is already
outside of the estate of the surviving spouse. Yep, right,
And again, spending it to fix up a house doesn't
really change the value of anything. It just reduces the
cash side and increases the value of the real estate side, right.

(36:49):
Whereas if it's the part that's in the estate the
other half the original trust that's in the estate of
the survivor, same thing just reduces the cash and increases there.
So not really no restrictions, but again more showing you
the flexibility of these irrevocable trusts even after one dies.
Folks figure out the best way to gift assets or

(37:10):
not to gift assets, call and get the guide eight
sixty six eight four eight, five, six, nine nine, or
go to the website Legal Exchange Show dot com.

Speaker 2 (37:20):
If you have a question you would like to ask Todd,
visit his website Legal Exchange Show dot com and submit
your questions there. You've been listening to Todd Lutski, a
part and with the law firm of Cushing and Dolan.
I'm Susan Powers, a financial advisor with the Armstrong Advisory Group.
Be right back with more on the Legal Exchange with
Todd Lutsky.

Speaker 1 (37:41):
Cushing and Dolan want to help you avoid costly mistakes
when it comes to gifting assets to your children. Their
brand new guide Making the Most of Gifting Assets shares
crucial strategies to help you protect your legacy and your family.
Many people think gifting is always a good thing, but
if it's done the wrong way, they can create real headaches.
Even well intentioned gifts can come complications if your children

(38:01):
are dealing with financial pressure or legal issues like a divorce.
The guide also explains how a major gift like a
home or vacation property could come with hidden tax consequences
that may impact your entire estate plan. Before you make
any big moves, arm yourself with the facts and this
new guide from Cushing and Dolan. Call eight six six
eight four eight five six ninety nine right now to
get your copy. That's eight sixty six eight four eight

(38:24):
five six ninety nine, or request it online at legal
exchange show dot com. That's legal exchange show dot com.
The proceeding was paid for. The views expressed are solely
those of Cushing and Dolan. Cushing and Dolan and or
Armstrong Advisory may contact you offering legal investment services. Cushing
and Dolan Armstrong Advisory do not endorse each other and
are not affiliated.

Speaker 3 (38:41):
HI.

Speaker 4 (38:41):
This is Mike Armstrong from the Armstrong Advisory Group. If
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Speaker 3 (38:49):
Required minimum distributions, or.

Speaker 4 (38:51):
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it could mean big penalties, but getting them right might
help keep your money working for you. Our latest guide
Understanding rmds breaks down how they work, when to take them,

(39:13):
and strategies that may make them less of a tax
headache and more of a financial opportunity. Request your copy
today by calling eight hundred three nine three for zero
zero one, or by visiting Armstrong Advisory dot Com. That
number again is eight hundred three nine three four zero
zero one or Armstrong Advisory dot Com.

Speaker 1 (39:29):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or 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.

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Speaker 5 (40:36):
Please visit DAV five K dot Boston to show your support.

Speaker 1 (40:40):
Today your tune to the Legal Exchange with Todd Lutsky.
If you were a loved one needs a nursing homes day,
call Todd right now at eight six six eight four
eight five six ninet nine and let him make sure
your assets are protected. That's eight sixty six eight for
eight five six nine nine, or visit him online at
Legal Exchshow dot com.

Speaker 2 (41:02):
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 A. Dolan with a
master's in taxation todd. For a lot of people, their
house is their biggest asset and they don't realize that
when they put a child's name on it, that they're

(41:25):
actually gifting the asset to them. So I just want
to go over some of the pitfalls of doing this,
both adding your child to the deed so it's you
and your child and then outright putting your child's name
on basically taking.

Speaker 3 (41:39):
Yourself off, completely off, completely off. Yeah.

Speaker 2 (41:41):
So, okay, there's got to be some pros to adding
your child. Because nothing's black and white, very gray in
the legal world. What are some of the benefits of
putting your child's name on as a joint owner on
your primary presidence.

Speaker 3 (41:58):
You think, I'm gonna let me, let me think really
long and hard.

Speaker 2 (42:07):
I know you don't like that and you would never
recommend that. However, if someone's done it, let's say, what
are the silver linings that you've done this?

Speaker 3 (42:16):
So I assume we're saying it's it's not we're adding
not a spouse, we're adding a child. Child. Yeah, so
when you put a child's name on the deed, is
there a benefit. I can see one silver little lining. Okay, Yeah,

(42:38):
it's a very little lining. It would allow the property
at your death to automatically pass to the surviving joint owner,
assuming it's jointly held, not tenants by the entirety. That's
a difference. If you add a child's name to your
deed and it says, let's say, you know, Todd and

(43:00):
Jake tenants by the entirety, that's not even going to
avoid probate.

Speaker 2 (43:08):
Okay.

Speaker 3 (43:09):
But if it says Todd and Jake joint owners, yeah,
the rights of the vivorship, then on death of Todd,
it would automatically go to Jake and it would avoid probate.
So that is probably the only thing that I can
see that would be the remote And I'm reluctant to

(43:33):
even say it's a positive, but because it's so many
negatives are going to outweigh that. But I just want
to do one at a time, one.

Speaker 2 (43:39):
At a time. Yeah, okay, all right, so we avoid probate, yay, yay.
Kind of what happens if you end up going into
a nursing home and your primary residence is owned jointly
with your child, how do they treat that? House.

Speaker 3 (43:57):
Wow, Susan trying to find another posity here?

Speaker 2 (44:00):
Is that a positive?

Speaker 3 (44:01):
Well kind of is?

Speaker 2 (44:03):
So? Okay?

Speaker 3 (44:04):
Only half, so it's half a positive. The house would
be at risk for the.

Speaker 2 (44:09):
Nursing as long as it was five years.

Speaker 3 (44:11):
Long, as it was five years ago, right, five years ago, Yes,
I would. I'm going to say yes on the five years.
So that's that's interesting because it's only half owned by
the individual. Unlike a joint bank account with a child
that's still deemed one hundred percent for medicaid owned by

(44:33):
the person going in the nursing home unless the other
owner can prove contribution. So very different. Joint bank account
with a third with a third party not a spouse, yeah,
versus house.

Speaker 2 (44:47):
Okay, So let's go down the path the timeline a
little bit further. So you go into the nursing home.
Did they put a lean on your half of the
house a single individual?

Speaker 7 (44:58):
Right?

Speaker 3 (44:59):
Oh, yes, they're going to put lean on that half
of the house, which is not good for the other
half owner.

Speaker 2 (45:04):
So in this case, even if it were beyond the
five year period, you go into the nursing home, they've
put a lien on that house, and now your child
when you die, they have to pay off that lian
and what if they don't have money to pay it
off and they're living at that house.

Speaker 3 (45:22):
So here's the interesting dilemma you have with that. Arguably
the state might say you have to change this to
tenants in common in order for it to be not countable,
oh right, because it would avoid probate if they left
it that way. Now, if they don't catch it, it

(45:43):
would avoid probate and the lean would go away at
death because you can't recover against non probate assets. So
that would be a very interesting play. It would be
really interesting to see what the state does during the
application process if they came across that form of ownership.

Speaker 2 (46:01):
That if they're doing their jobs right, and it would
technically purposes of this conversation they.

Speaker 3 (46:07):
Are, they would say change it.

Speaker 2 (46:09):
Okay, so change it and then and then maybe you'd
have bigger pickles. Then you have bigger problems for sure. So, folks,
these questions that Susan's asking really do make the reason
for getting the guide so important, right, making the most
of gifting assets right.

Speaker 3 (46:29):
Think about it. Jointly held assets for medicaid purposes is
different than jointly held assets for gift tax purposes. Right,
did I make a gift? Yeah, if it's if it's
jointly owned. Maybe not because you didn't actually cut the
string yet. But with real estate, yeah, you made half
a gift, but put a name on a joint bank

(46:49):
account or joint brokerage account for gift tax purposes, no
gift is made until you actually take out the money.
So figure out all the estate and in tax benefits
and negatives to making gifts and how to do it.
Call and get the guide eight six six eight four
eight five six nine nine or Legal Exchange Show dot

(47:11):
com again eight six six eight four eight five six
nine nine or Legal Exchange Show dot com.

Speaker 2 (47:18):
So they make you, They force you to put a
tenants in common so they can put a lien on
the half of the house that is owned by mom.
So then Mom passes away, and let's say Billy's living
at that house and Billy has no other asset, so
Billy's forced to you know, sell. Maybe Billy can't get
a mortgage because you have horrible credits. So sure, there's
a reason why you have a child. You put a
child on sometimes, right, So he sells that house? How

(47:43):
is that handled from a tax perspective.

Speaker 3 (47:47):
So is it being sold well the person one joint
owner is still in the nursing home, or after the.

Speaker 2 (47:53):
Joint owner died after they died, So.

Speaker 3 (47:56):
After they died, assuming it was left joint YEP, if
it was left joint, then likely the house would just
automatically avoid probate pass to the surviving.

Speaker 2 (48:06):
Nope, not tenants in common forced us to change it.
So what does he have to do now he has
to sell the house because he can't pay the lien.

Speaker 3 (48:13):
Right, So, now, if it's tenants by the entirety or
tenants in common, excuse me, then you're right, that would
end up being owned one half in the estate of
the decedent. It would be a probate asset and the
lian would attach for Medicaid estate recovery. And so when

(48:35):
the property gets sold, and again let's say the will
leaves it to that same same joint owner, so the
joint owner ends up owning one hundred percent of the
house and and that's fine, but when that joint owner
goes to sell the property, then the lean will have
to be satisfied. So if if it's if it's a

(48:57):
two hundred thousand dollars, Lian and I sell it for
eight hundred thousand. Two hundred thousand gets paid off back
to the state. The other individual walks away with six
hundred thousand. However, there would be a half step up
in basis for capital gains tax perpose moms half, yes,
for Mom's half, So the surviving joint owner would have

(49:19):
less capital gains tax to pay because of that step up.

Speaker 2 (49:23):
But let's say he didn't live there with mom. So
now when he sells that, when she had originally gifted
him half of it, because that's what she did. Essentially
by putting his name on she gifted him half her
cost basis, which could be teeny tiny if she lived
there for a long time.

Speaker 3 (49:40):
But at least it would only be half of the
gain subject to tax.

Speaker 2 (49:44):
Which as an alternative if instead, as a better route,
she transferred into her trust, her irrevocable trust. How would
all this shake out when he does so.

Speaker 3 (49:55):
If it was in an irrevocable medicaid trust at the
end of and let's assume five years had gone by
before she went to the nursing home. Yep, Wow, Now
we have no probate issues, We have no lean to
deal with by the state. We don't have to worry
about releasing any leans, we don't have to worry about
paying back the state for any benefits, and the kid

(50:15):
still gets it with a full step up in basis,
eliminating all the built in capital gain, no taxes. Boy, folks,
sometimes giving away things ends up worse than keeping them,
and planning doesn't mean you can't gift, So please get
the guide learn how to make the most of your
gifting do it right eight six six eight four eight

(50:38):
five six ninety nine or Legal Exchange show dot com
and you can download it right there.

Speaker 2 (50:44):
Todd Lutsky from the law firm of Cushing and Dolan,
thank you so much.

Speaker 3 (50:48):
Thank you, Susan, always a pleasure.

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

Speaker 1 (51:00):
Want to help you avoid costly mistakes when it comes
to gifting assets to your children. Their brand new guide
Making the Most of Gifting Assets shares crucial strategies to
help you protect your legacy and your family. Many people
think gifting is always a good thing, but if it's
done the wrong way, they can create real headaches. Even
well intentioned gifts can cause complications if your children are
dealing with financial pressure or legal issues like a divorce.

(51:23):
The guide also explains how a major gift like a
home or vacation property could come with hidden tax consequences
that may impact your entire estate plan. Before you make
any big moves, arm yourself with the facts and this
new guide from Cushing and Dolan. Call eight sixty six
eight four eight five six ninety nine right now to
get your copy. That's eight sixty six eight four eight
five six nine nine, or request it online at Legal

(51:45):
exchange show dot com. That's legal exchange show dot com.
The proceeding is paid for in The views expressed are
solely those of Cushing and Dolan. Cushing and Dolan and
or Armstrong Advisory may contact you offering legal investment services.
Cushing and Dolan Armstrong Advisory do not endorse each other
and are not affiliated HI.

Speaker 4 (52:00):
This is Mike Armstrong from the Armstrong Advisory Group. Turning
seventy isn't just another birthday. It's when the clock starts
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at age seventy five if you were born in nineteen
sixty year later, you need to start withdrawing money from
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(52:21):
of account matters, since your IRA and four oh one
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(52:42):
hundred three nine three four zero zero one or 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 is 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
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