What happens to your trust when you get divorced?

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):
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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, Tod Lutsky and Susan Powers.

Speaker 2 (00:37):
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.

Speaker 3 (00:51):
How are you today? I am never better in you.

Speaker 2 (00:54):
I'm great? Thank you. What do you have for us
this week?

Speaker 3 (00:56):
A couple of things. I've got a Connecticut Appellate Court
case dealing with breach of fiduciary duty and divorce. Interesting
to see how these two go together. Obviously there's a
trust involved life insurance and then a divorce. Yeah, you
can see how that might play out, but at least
there's a trust. Next, I head over to Pennsylvania. I

(01:17):
got a Supreme Court case, and you're going to find
out just how tough it is to destroy a joint
tendency with the right of survivorship. Of course, it goes
all downhill after the mother gives half the property to
a son. I don't think we need to say anything else,
but we always say don't give away your stuff, especially
real estate. And you're going to say why, Yeah, nothing

(01:39):
good comes from that. You're going to see why in
a moment that said. Folks, when you're doing a state planning,
it does have real estate in it, it does have
money in it. But in this case, I want you
to focus on IRA benefits, which is what the new
guide is about. If you have a life insurance policy
and or an IRA, this guide is really an important

(01:59):
part of your estate and couple that with the fact
that you might want to do nursing home planning at
the same time. This guide will teach you how to
name your estate the beneficiary of an IRA and life
insurance to get better estate tax savings and nursing home
protection savings. Yes, I said nursing home protection savings on

(02:21):
an IRA, which is not easy to do, all while
not causing any adverse income tax consequences. But it's all
done coupled with a testamentary trust which is also explained here,
coupled with that in your will. Call and get the
guide Naming your estate an IRA beneficiary eight six six
eight four eight five six nine nine or Legal Exchange

(02:46):
Show dot com again eight six six eight four eight
five six nine nine or Legal Exchange Show dot com.
Lots of stuff in this guide, folks. Okay, head over
to connetiy. Let's take a look at this appellate court case.
So we have Ahmed and he has a revocable trust.

(03:09):
They do it and this is done in April of
twenty seventeen. Then his wife Lisa was the primary beneficiary
and six kids were the contingent beneficiaries. Well, the trust
owned a two million dollar life insurance policy. And by

(03:29):
the way, this I believe was a first marriage to
begin with, and they had a two million dollar life
insurance policy which was apparently owned by which is important
distinction versus just being named the beneficiary of it was
owned by the revocable trust. I can only assume the
beneficiary was also the revocable trust. Well, Ahmed managed to

(03:54):
pay the premiums until twenty twelve, when he and Lisa
got divorced. Makes sense. Lisa then paid the premiums from
twenty thirteen to twenty eighteen to keep the policy alive
for the kids. Lisa treated those payments as a loan
to the trust. Now you have to pause there for
a minute, because if they got divorced, I'm wondering, why

(04:15):
the heck is Lisa still on his trustee of this trust?

Speaker 1 (04:18):
Right?

Speaker 3 (04:18):
I mean, that's just a red flag in my head
right now. But we'll get we'll come back to that.

Speaker 2 (04:23):
Maybe they were friendly, but that just thinks you got
to be able to have a conversation.

Speaker 3 (04:29):
I'm just mind blown still right there. So that's like
a hard stop for me, all right. Nevertheless, that's the
facts that we're dealing with. Lisa then is told tells
the insurance company in twenty eighteen, Apparently she's tired of paying,
so in twenty eighteen she tells the life insurance policy
company to terminate the policy and transfer the cash surrender

(04:51):
value to the trust bank account. Well, I apparently on
that is still alive, and so are the kids. In fact,
the money went to her personal bank account and then
to her personal brokerage account. Well, that wasn't good. Lisa
never tells Ahmed or the kids that she terminated the policy.

(05:15):
This isn't looking good for Lisa. No Ahmed's attorney, however,
finds out about it and tells Lisa of her bad conduct.
And so Lisa then returns one hundred and eighty thousand
dollars to the trust bank account. Kids don't care. They sue.
They see her for breach of fiduciary duty as she

(05:35):
took the money personally makes sense. Lisa said, oh no, no, no,
she was acting under the authority of the trust. Plus
the payments were alone by her to the trust. Trial
court said no, Lisa, you breached her forduce share duty right.
Well she didn't agree, so she got caught. Yeah, so
she appealed and she says, oh no, no, no, no,

(05:57):
there was no harm done to the trust. So it's okay.

Speaker 2 (06:01):
What about the two million bucks?

Speaker 3 (06:02):
Oh, she put it back, so there was no harm done.
The court affirms the lower court decision, stating that, no,
you took the money for your own personal account and
to the detriment of the kids, and you did so
wilfully without telling them or getting their consent or anything.
So I'm pretty sure you breach your for your sheary

(06:24):
duty and you lose. Yep, which is clear. She did
more than that.

Speaker 2 (06:28):
She stole the money.

Speaker 3 (06:29):
She was divorced, she stole the money, and she put
it back. She's in jail, so as she put it back. Okay,
So apparently it's not only because she got caught. I
totally agree with this case decision. Yes, but that's not
what we're learning from this. No, it's not what we're
learning from this, folks, is when you get divorced, update

(06:51):
your document. Why was the ex wife left on as
trustee of the trust? Number one? Number two? You need
to revise your entire estate plan after you're divorced. Right,
in fact, you know the trust it was it was
a married couple trust, and so when you get divorced,
you really need to do a whole new trust. As

(07:14):
a single person. You need to remove you know, all
references to a spouse, please update your health care proxy,
power of attorney, living will hipA right. Remember those primary
fiduciaries on those documents were likely you're now ex wife,

(07:36):
so you would want to update all of those things.
Never mind, get a new trust for a single person,
and you want to make sure that that you change
the beneficiaries on things like four oh one k's iras,
life insurance policies. Things you don't think about all of
the things accounts.

Speaker 2 (07:56):
You know you need employ your life insurance plans that.

Speaker 3 (07:59):
Yeah, and here you know it's okay, I guess that
the policy was owned by the trust, but you know,
get rid of this trust. Wife is trustee, ex wife
is trustee. Now if if in fact you're concerned about
this at all, with the person being with the trust

(08:19):
being the owner of your life insurance, just make the
trustee the beneficiary of your life insurance policy and not
the owner.

Speaker 2 (08:26):
Then they don't have control over anything, right.

Speaker 3 (08:28):
Right, So, as as long as it's a revocable trust
and the money gets there when you die, it avoids probate,
it's going to be sheltered first aid taxes, it's going
to go to the family the way you want it. Again,
with a revocable trust, that's okay, just name the beneficiary
because if the beneficiary was the only that means the
owner still would have been a meed. If the owner

(08:51):
was a med and the beneficiary was the trust, the
trustee would have had no ability to terminate the policy.
Only the owner can do that. MM see. So very
important do you understand these things when you're doing this folks. Now,
remember if you have an irrevocable life insurance trust because
you want to get the policy out of your estate

(09:11):
because it's causing a taxable problem, well then yeah, you
wouldn't be using this revocable trust arrangement at all. And
if you want the policy to be out of the estate,
then it needs to be an irrevocable life insurance trust.
And then it is important that you change both the
owner and the beneficiary to be the trust. So I

(09:34):
just don't want to confuse my saying what to do
with a revocable trust situation with an irrevocable life insurance trust,
because once it's in there, it's now not only income
tax free, but it's estate tax free because it's now
not owned by your estate. So very important to make
that distinction and Most importantly, folks, just when you get

(09:54):
a divorce. The lesson here is please go update your
estate plan. Every ap aspect of your estate plan needs
to be changed and then Ahmed, you wouldn't be in
this situation, nor would any of you so do that. Meanwhile,
this is again just one part of an estate plan.
Iras and life insurance are a big part. Get the

(10:15):
guide learn how to treat them in your state eight six, six,
eight four, eight five, six, nine to nine.

Speaker 2 (10:22):
You've been listening to Todd Lutsky, a partner with the
law firm of Cushing and Dolan. I'm Susan Powers, a
financial advisor of the Armstrong Advisory Group. We've got much
more to come when we return on the legal exchange
with Todd Lutsky.

Speaker 1 (10:36):
Every dollar you've saved in retirement accounts and life insurance
tells a story, a story of hard work, smart choices,
and the future you envisioned for your family. One way
to help that story end well is to make a
beneficiary choice that does more. This month's free guide from
Cushing and Dolan IRA and Life Insurance, Planning, estate tax Strategies,
and Nursing home Protection explains how naming your estate is

(10:58):
the beneficiary of your IRA or life insurance can add
a layer of tax efficiency in nursing home protection while
still allowing your spouse access When it matters. It's about
keeping more of what you've built, working for your loved
ones now and in the years to come. Get you
a free copy today by calling eight sixty six eight
four eight five six ninety nine. That's eight six six

(11:18):
eight four eight five six nine nine, or you can
request it online from our website legal exchainshow dot com.
The proceeding was paid for and the us expressed are
solely those of Cushing and Dolan. Cushing and Dolan and
orm Strong Advisory may contact you offering legal or investment services.
Cushing and Dolin and Armstrong Advisory do not endorse each
other and are not affiliated.

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Speaker 1 (12:23):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide to 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 (13:37):
You're listening to the Legal Exchange with Todd Lunsky, an
expert in elder life planning and taxation. Need help with
your estate plan? COMTID right now and make an appointment.
Eight sixty six eight four eight five six ninety nine.
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Speaker 2 (13:54):
Welcome back into the Legal exchange with Todd Lutsky. I'm
Susan Powers of financial advice with the Armstrong Advisory Group,
and I'm joined by Todd Letsky, a partner with a
law firm of Cushing and Dolan with a masters in taxation.
Where are we headed now, Todd?

Speaker 3 (14:09):
So we're going to go to Pennsylvania Supreme Court. It's
like Super Bowl. Yeah. So you think you have a
joint tendancy with right of survivorship and you think you
broke it? Maybe not. What does all this mean? Ruth M?
Important because she's got a daughter, will find Ruth. A later,
Ruth M conveyed her property to herself and her son Lou,

(14:34):
as joint tenants with the right of survivorship. Hard stop.
Nothing good can come from that now, having gave away
half her house exactly. So, having said that, let's continue
on to see if the hard stop was a good call.
So later on the relationship with the Sun deteriorated. Shocker.
By twenty twenty, Ruth sued to petition to partition the property. Okay,

(15:00):
what does that mean. It means that you've got to
force the sale of the property and either Lou buys
out Mom or they sell it on the open market
or Mom buys out Lou yep. Ruth simultaneously prepared a
deed conveying her interest back to herself as a tenant
in common with Lou. Remember it was joint tenancy with

(15:23):
the right of survivorship, so she conveyed back her half
to herself as tenants in common with Lou. Well, can
you do that? I may stay tuned. Yeah, So May
twenty twenty Ruth dies. Apparently the petition to partition never
happened or never got resolved. May twenty twenty, Ruth dies.

(15:48):
Lou argues that the deed that Ruth prepared did not
change the tendency relationship because the deed was just back
to herself and not to a third party. Ruth A,
the daughter, argues, no, it did change the tenancy. So
they go to court. The trial court said, now the

(16:09):
deed did not change the joint tenancy because it did
not change the four unities of possession. Now what the
heck are those? What is that? The unities of possession are?
I mean the unities of title are possession, interest, time,
and title. Arguably, here Ruth still owned it, possessed it
had never lost it from a time standpoint and owned

(16:30):
the title, so it remained unchanged. So she really did
not change. Yeah, she didn't do anything. That's what the
trial court says.

Speaker 2 (16:40):
I would think that he would have had to sign
something too, we didn't do that in a vacuum.

Speaker 3 (16:44):
Well, no, he didn't have to sign something. You can
break it. She just did it, not the right way,
the appellate court. So she appeals. The appellate court says,
now we're going to affirm the lower court stating that
it can be done, but you need to do it
in a way that destroys the four unities of typle
and that didn't happen here. So she appeals to Supreme
Court and the Supreme Court of Arms. Transferring property back

(17:07):
to yourself just doesn't change title. So you are stuck.

Speaker 2 (17:10):
So she could have transferred her half to Ruth a
but she probably learned a lesson having already transferred half
of it.

Speaker 3 (17:17):
But Ruth died already, so we're.

Speaker 2 (17:19):
I mean before when she did the tenants in commons.

Speaker 3 (17:22):
Yeah, so, but she transferred to lou so she wanted
to undo what she did. So at the end of
the day, Ruth m you lose and it looks like
lou is going to get the entire property right, because
if you die with joint property, the property goes to
the surviving joint owner. Outside of probate, NonStop to not pass, go,

(17:46):
do not collect two hundred dollars.

Speaker 2 (17:47):
Don't give your stuff away people.

Speaker 3 (17:50):
So that's that's the result here. But I think we
have a lot to learn about giving stuff away. And
I can tell you there's one item that you really
can't give away. It's called your IRA. So you're stuck
with that thing, and let's do a state planning right
with something like that. Not only iras, but life insurance.
Those are two very important items in your estate plan
that are not always so easy to deal with. So

(18:12):
this guide will help you understand how to do it.
If you're interested in protecting assets from the nursing home
and reducing a state taxes and not having any adverse
income taxes, this guide is for you learn how to
name your estate the IRA beneficiary of your estate, and
it will help you understand how to protect an IRA

(18:35):
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any adverse tax problems. Lots to learn about, though, lots
of rules to follow with iras, get the Guide eight
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or Legal Exchange Show dot com again eight six six
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(18:58):
Show dot com.

Speaker 2 (19:00):
Let's earn some lessons, shall we?

Speaker 1 (19:02):
So?

Speaker 3 (19:03):
What do we do?

Speaker 6 (19:03):
What not to do?

Speaker 1 (19:04):
Well?

Speaker 3 (19:04):
How about we don't give away our property? We always
say it, Susan, you said it. Nothing good comes from
giving away your property, your home or I don't care
any real estate. First, what happens like here? Once you
give away even half of your property or all of
your property and retain a life estate interest, you have
lost control over the asset that was proven here, proved

(19:27):
out right.

Speaker 2 (19:28):
Even by throwing someone's name on it, you don't have
full control.

Speaker 3 (19:31):
You've lost control. You cannot get it back, as we
found out here if you wanted it, and you cannot
sell it if you want it without getting that kid.
In this case, Lou, permission and cooperation.

Speaker 2 (19:44):
No thanks, I'm not asking my kids permission to do anything. No.

Speaker 3 (19:48):
Let's say you get permission, then you've got tax problems. Right.
Even if you got the permission and you sell the property,
one half of the money would go to the child.
In this case, Lou, or whoever you gave it to,
who would likely have to pay higher income taxes on
the gain because unless they've lived there for two of
the last five years, they're not going to get a

(20:11):
capital gains exclusion.

Speaker 2 (20:12):
So even if they're willing to give the money back
to you, they get to pay the irs first out
of that money.

Speaker 3 (20:18):
You jumped ahead already, Susan, one step ahead of me.
I was just saying that they got to pay taxes.
But you're absolutely right. After they pay the taxes, mom
only got half the money.

Speaker 1 (20:30):
Right.

Speaker 3 (20:30):
If Mom only got half the money and wanted to
buy another house, I think we have a problem because
the kid Lou in this case, has an early inheritance
of half the money and now asking your kids, hopefully
you know, wait, please.

Speaker 2 (20:44):
Can I have my money back from my house I sold?

Speaker 3 (20:46):
No, thanks, you know. But to your point, Susan, what
if they say yes, now they're giving you back thirty
percent less. Yeah, because they had to pay capital gains tax.
That might not have happened if Mom could sell the
property herself and take advantage of either a two hundred
and fifty thousand dollars capital gains exclusion if she was

(21:07):
single or five hundred thousand if she was married. Wow. Right,
things that you just don't think about, that the control,
the taxes, everything that's.

Speaker 2 (21:18):
Got divorced through this whole thing. Now half your house
is part of their marital asset.

Speaker 3 (21:24):
That's right, Ruth M. You've got yourself in a pickle,
so you don't want that. Now, let's focus a little
bit on tenants in common versus joint tenancy. So tenants
in common why she was trying to transfer it back
even though she was petitioning to partition, was she was
going to say, at least I want to be able
to leave my half to someone other than this deadbeat kid, right,

(21:47):
and so for nothing else, I'm not going to wait around.
I'm just going to put my half back and make
it tenants in common. Because if you die with tenancies
in common, then the property goes to your side of
the family, to whoever you direct it to. It doesn't
go to the surviving joint owner, whereas if it's joint

(22:10):
like here, it's automatically going to go to the surviving
joint owner, and so lou gets it all. So that's
why it was so important for her to change it
to tenants in common. Could she have done it? She
clearly did it wrong. You were asking about you know,
how how do you do that right?

Speaker 1 (22:30):
Right?

Speaker 3 (22:31):
And could she? Yeah, she could have trusts. Come to mind, right,
I don't want to necessarily give it to some other kid.
I don't want to give it to another you know, I.

Speaker 2 (22:40):
Want to because you learn your lesson the first time.

Speaker 3 (22:42):
I want to protect it. So she could have simply said,
let me set up my own estate plan, let me
take the house, transfer my half to a trust. The
moment you transfer your half to a trust, you break
the joint ownership. And because you cannot have a joint
tendency with an entity, Okay. Interesting, So now it would

(23:05):
be a tenant in common interest between the newly created
trust by Ruth to direct where her half goes got
and Lou, and I don't need Lou's signature.

Speaker 1 (23:17):
To do that.

Speaker 2 (23:18):
Get some legal advice, so.

Speaker 3 (23:20):
Folks, there's always so much you can do. Just get
some planning advice. Learn what to do with your with
your estate in this case, get the guide and learn
how to deal with your IRA and your life insurance
as part of your overall estate plan. Eight six six
eight four eight five six nine to nine.

Speaker 2 (23:39):
You've been listening to Todd Lutsky, a partner with the
law firm of Cushing and Dolan. I'm Susan Powers, 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 (23:55):
Every dollar you've saved in retirement accounts and life insurance
tells a story, a story of hard work, smart choices
and the future you envision for your family. One way
to help that story end well is to make a
beneficiary choice that does more. This month's free guide from
Cushing and Dolan IRA and Life Insurance Planning Estate tax
Strategies in Nursing Home Protection explains how naming your estate

(24:17):
is the beneficiary of your IRA or life insurance can
add a layer of tax efficiency in nursing home protection
while still allowing your spouse access When it matters. It's
about keeping more of what you've built, working for your
loved ones now and in the years to come. Get
your free copy today by calling eight six six eight
four eight five six nine nine. That's eight six six

(24:37):
eight four eight five six nine nine, or you can
request it online from our website Legal exchange showed dot com.
The proceeding was paid for and the views expressed are
solely those of Cushing and Dolan. Cushing and Dolan and
Ormstrong Advisory may contact you offering legal or investment services.
Cushing and Dolan and Armstrong Advisory do not endorse each
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our website Armstrong Advisory dot com.

Speaker 1 (26:40):
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, and estate planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.

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Speaker 1 (27:27):
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 process.
Once again, here's Todd Lutsky and Susan Powers.

Speaker 2 (27:44):
Welcome back, Todd. We have a few questions from listeners
for you. First question comes from Mara on Cape Cod
and Mara writes, my husband recently went on hospice. Years ago,
we created two airyvocable trusts with you. Is there anything
that we should be doing now to prepare for his passing?
What do I need to do after he passes?

Speaker 3 (28:06):
Yeah? So I guess our first mistake was that they
prepared the to trust with me.

Speaker 2 (28:10):
No, No, just kidding years ago.

Speaker 3 (28:13):
So no, I mean, I think the good news is that,
you know, just take a look, you know, if there
is any good news in this case, and take a look,
and just make sure that a lot of your you know,
see what's owned where and how so check the boxes,
see what's owned in the trust already, and those are
now going to avoid probate. Those assets are going to

(28:35):
be protected from the nursing home yea, and are going
to move forward providing a bloodline plan for the family. Okay, Now,
check assets that are not in the trust, because.

Speaker 2 (28:47):
They don't move everything into the trust when they create those.

Speaker 3 (28:49):
It's exactly right, Susan. So assets that are not in
the trust, just make sure that they are you know,
put together as joint ownership between the healthy spouse and
the six spouse.

Speaker 2 (29:04):
So that there's nothing left in their name. The six
buses name.

Speaker 3 (29:07):
Nothing left in the six spouses name alone individually, yes, so,
or if there is, make sure there's a beneficiary on it.
So like an IRA likely isn't going to be in
anyone else's name except the individuals. Yeah, so in this case,
the individual needs to you know, you just got to

(29:28):
make sure that that beneficiary is on there so that
it avoids probate. If it avoids probate, you're fine. And
now the only other thing you might do is again
depending on the illness, is it something that they have
that's like cancer or well he's on.

Speaker 2 (29:45):
Hospice, So hospice typically is six months or lefts left
to live.

Speaker 3 (29:52):
So you could have like cancer, but you know, be competent,
Oh sure, And so if you're competent, there might be
time to set up a testamentary trust to take care
of an IRA. Because what this new rules we're dealing with,
which is in the guide today, you might be able
to have time to do a new will built into

(30:12):
it with a testamentary trust and name his IRA the
estate if he's over seventy three yep, because then it
will flow through there and be immediately protected from not
only a state taxes but nursing home in case Mara
gets sick in the future. Yep, that's helpful if they
have kids, so that could be it's a sizeable IRA. Yeah,

(30:34):
we did this for a couple of our clients.

Speaker 1 (30:36):
We did.

Speaker 2 (30:37):
We have a mutual client. He was in the process
of dying and he had an IRA that was well
over a million dollars, and you did this testimony trust
pretty close to end of life and it went through
and it went off like a hitch and now over
a million dollars is protected. He always had the larger IRA, Yeah,

(30:57):
protected from the nursing home for her and for.

Speaker 3 (31:00):
The kids more or less. Right, Remember it's still available.
Make sure you make sure we make it clear folks
that that surviving spouse is still allowed to use that money,
that IRA money, just like they could if it went
directly to them. But it's protected in case, let's say
the healthy spouse gets sick and dies or not dies,
gets sick and goes to a nursing home. You know,

(31:21):
six months later, Well that's a million dollars. It's off
the Medicaid table. So those are kind of the things
I would think about, just to get your ducks in
a row and make sure you can completely avoid probate.
Probably not a lot of other things to do at
this point.

Speaker 2 (31:36):
Just make sure there's nothing that's going to probate.

Speaker 3 (31:38):
Yeah, and just make sure things are funded the way
you want beneficiaries, things like that. But more importantly, folks,
that does bring us. It was an actual great question
because it led it right into the guide, which is
exactly what this guide does. We were talking about how
to name the estate the beneficiary and make the trust
the testamentary trust, which is a which is a trust

(31:59):
built into your will. So you have to redo your
will when you're naming the estate the beneficiary of your
IRA or your life insurance. Same thing. Name the estate
the beneficiary, and then you can shelter it from future
estate taxes and immediately protect it from the nursing home.
But don't just do it.

Speaker 2 (32:17):
Don't just do it and update your documents.

Speaker 3 (32:20):
You have to get that updated document. You have to
do a new will. Folks, call get the guide. Learn
about testamentary trusts and iras and life insurance eight six
six eight four eight five six nine to nine or
Legal Exchange Show dot com again eight six six eight
four eight five six nine nine or Legal Exchange Show

(32:41):
dot com and download it there.

Speaker 2 (32:42):
Our last question comes from Sonia in Boilston, mass and
Sonia writes, my husband and I have a revocable trust
that we created with you, excuse me, that we created
this year. This is not one of your clients. We
transferred our home and we moved our investments into the trust.
But I'm unsure what to do with a life insurance.
It is a paid up two million dollar whole life

(33:04):
insurance policy on my husband. Should I be the beneficiary
or should our trust be? If we name the trust,
will I have access to those funds when he passes
or do they need to stay in the trust?

Speaker 3 (33:18):
Yeah? So this is this is exactly what we talked
about a minute ago with the last example and with
the guide. Right, life insurance is a complicated asset like
an IRA is. So in this case, you would say,
look at the value of the overall estate, which is
really going to guide our decision.

Speaker 2 (33:38):
Right, Boylston, they probably have a home. Yeah that this
two million dollar whole life policy.

Speaker 3 (33:44):
I mean, they've got to be probably pushing north of
four million. I would think two millions just a life
insurance policy, right between a home and another million? Right then,
and other assets stuff. Yeah, So I mean I'm guessing
that they're probably well north of four million. And the
reason that's important is that deals with your state tax
liability in the state here in mass anyway, Yep, federally.

(34:06):
If we're talking just north to four five six million,
I ain't gonna matter, right, that's a whole nother ballgame.
But if you wanted to avoid paying taxes in Mass
and it justifies the expense, remember it always has to
justify the expense, you can say to you, to your
go to your life insurance agent and say, make the

(34:31):
owner and the beneficiary an irrevocable life insurance trust. Never
mind the trust that they did, right, they created what
are revocable, probably a joint revocable trust. So never mind
the revocable trust. Right now, remember, could you could you

(34:52):
name the beneficiary of your life insurance the revocable trust? Yes,
in the meantime, maybe yes, you certainly could. If you
hadn't done anything else, you certainly would want to do that.
I don't think you need to change the owner on
a life insurance policy to be the revocable trust. That
you don't only gain anything from that. And in fact,

(35:13):
earlier in the program, we showed how that could actually
cause a problem. So I would say, make the designated
beneficiary of the life insurance policy the revocable trust if
you're not concerned about the estate tax liability. The difference
here is that when you name the revocable trust the

(35:34):
beneficiary of the life insurance policy, yes, it avoids probate,
but it also causes the two million dollars to be
included in the estate for a state tax calculation purposes.
So maybe I don't want it a state taxable. So
let's say this two million dollar policy puts me at

(35:54):
the five million dollar level. Now I am a million over.

Speaker 2 (36:00):
It's making your estate taxable, right.

Speaker 3 (36:02):
I'm probably creating one hundred thousand dollars liability. We don't
enjoy that, right, and so I probably don't don't want that.
So if we don't want that, and again for larger estates,
absolutely this is the way to go. So here, if
you decide, yeah, you know, I'd rather not have that
taxable in my estate, then you need to change the
owner and the beneficiary a little different than what I

(36:25):
just said. What they're revocable. The owner and the beneficiary
needs to become the irrevocable life insurance trust and if
it's a first to die policy, it goes into a
first to die islet. If it's a second to die policy,
it needs to go into a second to die islet.
They're drafted just a little differently, but once they're in there,
it's now estate and income tax free. I enjoy it,

(36:48):
so you might want to do that. Folks, call and
get the guide. Learn how to treat iras and life
insurance as part of your estate most efficiently and protect
it six eight four eight five six nine to nine
or Legal Exchange Show dot com.

Speaker 2 (37:06):
If you have a question you would like to ask Todd,
visit his website Legal Exchange Show dot com and click
on the ask 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,

(37:27):
a financial advisor with the Armstrong Advisory Group. We'll be
back with more after this quick break on the Legal
Exchange with Todd Lutsky.

Speaker 1 (37:38):
Every dollar you've saved in retirement accounts and life insurance
tells a story, a story of hard work, smart choices,
and the future you envision for your family. One way
to help that story end well is to make a
beneficiary choice that does more. This month's free guide from
Cushing and Dolan IRA and Life Insurance, Planning, Estate tax
Strategies and Nursing Home Protection explains how naming your estate

(38:00):
is the beneficiary of your IRA or life insurance can
add a layer of tax efficiency in nursing home protection
while still allowing your spouse access when it matters. It's
about keeping more of what you've built working for your
loved ones now and in the years to come. Get
your free copy today by calling eight six six eight
four eight five six nine nine. That's eight six six

(38:20):
eight four eight five six nine nine, or you can
request it online from our 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 and
Ormstrong Advisory may contact you offering legal or investment services.
Cushing and Dolan and Armstrong Advisory do not endorse each
other and are not affiliated.

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(39:22):
on our website Armstrong Advisory dot com.

Speaker 1 (39:25):
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 may contact you to offer investment
advisory services.

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Speaker 1 (40:40):
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 six six eight four eight
five six ninety nine and let him make sure your
assets are protected. That's eight six six eight for eight
five six nine nine, or visit him online at Legal
Exchange show dot com.

Speaker 2 (41:00):
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 Todd, we're talking about naming your
estate the beneficiary, and last week we dove into who

(41:24):
should consider naming the estate there iory beneficiary and basically
come down to married folks concerned with protecting from the
nursing home kind of as a broad category.

Speaker 3 (41:35):
Yeah, I think that's a fair statement. Single people, and if.

Speaker 2 (41:40):
You're not concerned with the nursing home, not really a
need to do that.

Speaker 3 (41:44):
Probably you wouldn't need to do it if you're not
concerned about the nursing home. So I think people you know,
four million in under, maybe five million in under.

Speaker 2 (41:51):
Okay, So under normal circumstances, if you're not doing this
testamentary trust revision in your documents, your spouse dies, you
take the IRA, you roll it into yours, it gets
combined with your.

Speaker 3 (42:05):
Own and so it's surviving spouse always the primary beneficiary.
I agree.

Speaker 2 (42:10):
So yep, under this scenario where we've named the estate
the IRA beneficiary, And just to clarify, folks, you have
to have updated your legal documents in order to do this.

Speaker 3 (42:21):
Yes, please, you can't just run around. Don't just run
out now and do this no good point.

Speaker 2 (42:26):
I send yourself to probate for no good reason.

Speaker 3 (42:29):
Yeah, and you could be blowing the payout period. We'll
get to that.

Speaker 2 (42:33):
So you have you have noted that once this happens,
any money that's in the deceased spouses IRA protected immediately
from the nursing home.

Speaker 3 (42:44):
Yes, but before you get there that that is true.
But before you get there, let's stick with when to
name the designated beneficiary the estate, because you said you
would do it when you're married. If you're not, Mari,
if you're married and you don't care it, it's going
to go immediately to the spouse. But when if we
are married and we care about it, that's not enough. Yeah, okay,

(43:09):
there's another important piece. Right. You can't just say, okay,
I'm married and I do want to protect assets from
the nursing home. Therefore, right, good point. Name the IRA,
the beneficiary. Name the the IRA, beneficiary the estate of
like state of todd letsky, let's say if it's if
it's your IRA, it's the estate of your name. Okay,

(43:31):
you can't still just do it. One more box you
have to check is how old are you? Right? So
you need to be And I guess this is changing too,
but I think for most people in this area, the
required beginning date, or the RBD as they call it,
which is when you must start taking minimum distributions from

(43:55):
the IRA, is seventy three. Yep, for most people. I
think there's a new seventy five. There is, But you
have to be a certain age.

Speaker 2 (44:04):
Someone's super young like myself.

Speaker 3 (44:06):
Yeah, you might be seventy five, me not somewhere probably
seventy three seventy three. So you know, if you're older,
Let's say you're sixty and over now and you're thinking
of doing this, you still need to be seventy three
before you would name the estate the beneficiary. And the

(44:28):
reason for that is the minimum payouts, right, the required
minimum distributions following your death right. That's what we care about.
How quickly does the money have to come out.

Speaker 2 (44:42):
But if someone's doing their trust planning with you at
sixty five, you would still have the language in this trust.

Speaker 3 (44:48):
To do this.

Speaker 2 (44:49):
You just wouldn't advise them to update the beneficiary until
they are rmd ah correct, got it.

Speaker 3 (44:55):
We still would want to plan for it. Set the
stage if you will, and allow it to work. But
put the little trigger on your wallet and your watch
or something that rings that says it's time to change
the beneficiary at seventy three, which it's generally you know,
you know, when you reach seventy three someone tells you

(45:17):
you've got to start doing something money out, it's going
to remind you, right that you need to now change
the beneficiary on the IRA to be the estate of
And the real reason for that is so that the
payout over time will continue over your ghost life expectancy.
And we'll come back and I want to explain what

(45:38):
ghost life expectancy is as to a ten year payout
in a minute. But folks, that's just some of the
IRA stuff you have to think about when you're doing
your estate plan, and that's what this guide is all about.
It's explaining all of this. I naming your estate the
IRA beneficiary or life insurance naming it the estate the

(45:59):
beneficiary because it can be done now to protect these
items from nursing homes, reduce estate taxes and not have
adverse income taxes. But you've got to learn all the
rules on how to do that, including understanding testamentary trust,

(46:19):
which is all in the guide. Folks, call and get
it eight six six eight four eight five six ninety
nine or Legal Exchange show dot com. This techniqu's only
been around for a couple of years, so it's kind
of new eight six six eight four eight five six
ninety nine or Legal Exchange show dot com.

Speaker 2 (46:40):
So you said that the required minimum distributions after the
spouse dies and the testamentary trust is funded, that's based
on the deceased spouse's age, ghost life expectancy.

Speaker 3 (46:52):
Yeah, so let's run through required minimum distributions in general,
so we can get the whole lay of the land.
If you're married and you name your spouse the designated beneficiary.
The spouse is super beneficiary. The spouse can either wait
until the spouse is seventy three to start taking minimum
distributions over the spouse's lifetime surviving spouse, or if there

(47:17):
already seventy three, they get to take it out over
their lifetime. Better. Yes, if you name the estate the
beneficiary and you're not seventy three, you have not reached
the required beginning date, then the money has to come

(47:39):
out over five years. That could be a painful income
tax event, so be careful about that. However, if you
have reached the required beginning date, then the money comes
out over your You've died, so it's your decedents, your

(48:00):
ghost life expectancy. Example, if you die at seventy eight,
then it comes out over a seventy eight year old's
life expectancy. Now you might say, well, Todd, why, Well,
you know, isn't it always better to name the spouse then,
because the spouse can take it out over their life expectancy.

(48:20):
Most of the time, the spouse is within a few
years of the same age as the decedent, so if
they are, you're not really gaining anything.

Speaker 2 (48:31):
And the distributions are not the big thing here.

Speaker 3 (48:33):
It's the protection of those assets. The distributions could be
from a tax standpoint, So we like to have it.
But you're absolutely right, Susan.

Speaker 2 (48:41):
Let's not lose sight of that.

Speaker 3 (48:42):
So now I get it. Now, that's how we don't
I was saying when I was promoting the guide a
minute ago that I was saying, how there's no adverse
income tax consequence. And this is what I mean by that.
As long as that RBD you have met that and
it's coming out over the decedents ghost life expectancy pretty

(49:07):
much the same income tax hit as if it was
the spouse or no problem there.

Speaker 2 (49:12):
So let's say I'm the recipient of these funds through
the testamentary trust. What if I want to take more?
Are there restrictions on me taking out? Because the required
minimum it's just a minimum you have to take out.

Speaker 3 (49:27):
Yeah, And so that's another beautiful benefit of the IRA regula,
of the of the Medicaid regulations. Right, And this is
where you get into understanding the rules of Medicaid and
testamentary trusts. Remember, because this item is going to go
through probate, it's the only if there's a negative. That's

(49:47):
the only negative. But I think it's minor then because
it did that, and it's it's funding a trust through
a will. Distributions of both income and principle can come
out out of this trust to the surviving spouse. Remember,
as much as they want, mostly medicaid trust don't allow
payments of principle. Remember not this one. This one allows

(50:11):
the surviving spouse to have really unlimited access to the money,
same as if they got it on their own. Yeah,
we can spend more time on that as we go
through the month. But folks, these are just some of
the pieces of information that you're going to get from
the guide on Estate Beneficiaries of iras and life Insurance

(50:36):
how to treat them eight six six eight four eight
five six nine to nine or Legal Exchange show dot com.

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

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

Speaker 2 (50:49):
I'm Susan Powers, a financial advice 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.

Speaker 1 (51:00):
Every dollar you've saved in retirement accounts and life insurance
tells a story, a story of hard work, smart choices,
and the future you envision for your family. One way
to help that story end well is to make a
beneficiary choice that does more. This month's free guide from
Cushing and Dolan IRA and Life Insurance, Planning Estate tax
Strategies in Nursing Home Protection explains how naming your estate

(51:22):
is the beneficiary of your IRA or life insurance can
at a layer of tax efficiency in nursing home protection
while still allowing your spouse access when it matters. It's
about keeping more of what you've built, working for your
loved ones now and in the years to come. Get
you a free copy today by calling eight six six
eight four eight five six ninety nine. That's eight six
six eight four eight five six nine nine, or you

(51:45):
can request it online from our website Legal exchange showed
dot com. The proceeding was paid for and the views
expressed are solely those of Cushing and Dolan. Cushing and
Dolan and Ormstrong Advisory may contact you offering legal or
investment services. Cushing and Dolan and Armstrong Advisory do not
endorse each other and are not a feeling.

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Speaker 1 (52:48):
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
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