Ask Todd: What is a nominee realty trust?

Speaker 1 (00:01):
This is Ask Todd on the Financial Exchange Radio network.
If you have an existing estate plan or in the
market for one, Todd Lutsky is here to answer your
questions and help you plan for a later life. Ask
Todd is presented by Cushing and Dolan, serving Massachusetts and
New England for more than thirty five years, helping families
with estate and tax planning, medicaid planning, and probate law.

(00:22):
Visit Cushingdolan dot com. Now here's Todd Lutsky.

Speaker 2 (00:27):
Todd Lotsky from Cushing and Dolan does now join us
live in studio and he's here to answer your estate
planning questions. Phone lines are wide open at eight eight
eight to zero five two two sixty three. That is
eight eight eight two zero five two two six three.
So if you've got questions about your estate plan, if

(00:48):
you don't have an estate planet, or I wanted to
ask some questions about where do you get started? This
is the number to call to Ask Todd your questions
live on air again eight eight eight to zero five
two two six three. We can usually get through two
to three year calls, so get calling early, get calling
often again. That number is eight eight eight two zero

(01:09):
five two two six three. Mister w Lootsky, how are
you doing today?

Speaker 3 (01:14):
I'm doing wonderful. How about yourself? Good?

Speaker 2 (01:16):
I was on Instagram the other day, Yeah, and I
saw did you see this thing about the the green
stripe dog that was just invented?

Speaker 3 (01:25):
Green stripe dog.

Speaker 2 (01:26):
Scientists put this thing together. It's it's part dog, part watermelon.
They calling it a melancholy.

Speaker 4 (01:33):
Oh my gosh. Yeah, I'm gonna give you a Collie Todd.

Speaker 2 (01:37):
I want to talk to you a little bit about
different types of trust today, specifically nomine realty trust. What
is it and what does it actually do?

Speaker 4 (01:48):
You know, this is probably the best trust to ask
about because it's one that is not a trust.

Speaker 2 (01:57):
How So, what you're saying is when is a trust
not actually a trust?

Speaker 4 (02:04):
I think, and this would be the answer when it's
a nominee realty trust because through so they shouldn't and
it is. It's just that confusing, Chuck, You're right on
the money here. It's it's called a trust, but it's
really not. Remember the word nominee in there is what
changes everything. So a nominee realty trust is often used
too frequently and oftentimes by real estate lawyers that just

(02:26):
want to say, oh, you just bought a house, let's
put your house in a trust and they and they
create this Nominee realty trust for you. They don't mean
to not be doing anything for you, but it really
doesn't do anything for you, but it could cause problems. Example,
a Nominee realty trust is different than what we'll call
a true trust because in a true trust, the trustee
of the trust is the one that controls and does
things for the trust, buy sales, invests, you name it.

(02:51):
A Nominee realty trust is not controlled by the trustee.
In fact, there's language in the trust that says the
trustee can't do anything unless they're to directed to do
so by the beneficiaries. And unlike a true trust, there's
actually a schedule of beneficiaries in a Nominee realty trust
that is generally attached to the Nominee realty trust, which

(03:12):
oftentimes gets lost, so nobody ever knows who really is
the beneficiary.

Speaker 3 (03:16):
But set that aside.

Speaker 4 (03:17):
If you put this asset into a trust, and you
name let's say mom and dad put the house in
a trust. They just bought it, and they throw it
into a Nominee realty trust and the schedule of beneficiaries
is mom and Dad. Well, they technically still own it
because the beneficiary is really the owner because they're the
ones that control the trust. They're the ones that tell
the trustee what to do. And I guess there's no harm,

(03:39):
no foul there, But you haven't done anything. The worst
part is, or the problem is when they throw it
into a nominee realty trust and they name the kids
as the beneficiaries. Uh uh oh, Now you didn't realize
that you made a completed gift to your children of
what's in that trust. You don't own it anymore, the
kids own it.

Speaker 1 (04:00):
Do that? If that?

Speaker 2 (04:00):
If that happens, like, is there just a reset button
that you can use?

Speaker 5 (04:04):
There?

Speaker 4 (04:04):
Can It's called getting along with your children. If you
get along with your children, then the reset button is
we're gonna change the schedule of beneficiaries and put it
back to mom and dad, and then we're gonna take
the house out of this trust and we're gonna do
real estate planning for mom and dad and do true trusts.
So so yeah, But like I was saying, the biggest
problem is when you stick the kids on as trustee,

(04:26):
as beneficiaries. Now you're like, oh, oh, I gave away
my house. I didn't mean to, but you did. And
they might not even know it, but boy, if they
get a divorce, they're gonna know it.

Speaker 2 (04:37):
Talk with Todd Lotsky from the law firm of Cushing
and Dole. And we've got space on the phone line
still at eight eight Sorry, that's eight eight eight two
zero five two two six three. That is the number
to call to ask Todd your estate planning questions again
eight eight eight to zero five two two six three.
We've got a quick break right now, but when we return,

(04:59):
it's gonna be right to your questions with Todd. That
phone number again is eight eight eight two zero five
two two sixty three.

Speaker 1 (05:08):
Ask Todd with Todd Lutsky every Wednesday at ten thirty
only here on the Financial Exchange Radio Network. Don't miss
Ask Todd with Todd Lutsky every Wednesday at ten thirty
only here on the Financial Exchange Radio Network.

Speaker 2 (05:33):
All right, let's get right to your calls with Todd Lutsky.
First up, we got Joe in Ellington. Joe, you're on
with Todd.

Speaker 1 (05:42):
How you doing good?

Speaker 3 (05:43):
What's up?

Speaker 5 (05:45):
All right?

Speaker 1 (05:45):
Donna?

Speaker 2 (05:46):
Much question.

Speaker 5 (05:47):
Boy, I'm getting a little older on my fifty seven.

Speaker 3 (05:51):
Our house is paid off. We don't really we don't
really have any debt.

Speaker 4 (05:55):
Okay, I'm trying to figure out the best way to
protect my property if I get in bad health.

Speaker 3 (06:01):
We don't want to lose the property. How old your wife?
My wife is fifty two, okay, so a little on
the even younger side.

Speaker 5 (06:10):
Younger side, yeah.

Speaker 4 (06:11):
Generally sixty and over. But there's no magic depending on
your family situation. I mean, you're fifty seven. We always
plan for the older person, not that that's old, but
but you know, it does take five years to get started.
So you know, a house that's paid off is a
perfect asset for one of these Medicaid irrevocable trusts. I
think depending on where you are and your whole family kids,

(06:32):
how old they are, and how independent or still on
the you know, payroll they are, it might might make
a difference for you. And of course the size of
your estate might matter. So like if you had to guess,
are you under the four million dollar Massachusetts exemption amount
all in?

Speaker 5 (06:48):
Oh yeah, definitely yep.

Speaker 3 (06:49):
And I'm actually from Connecticut as well. Oh that's no problem.

Speaker 4 (06:52):
So Connecticut even has a much higher exemption, so you're
definitely no tax worries for you. So it's more about protection,
and so yeah, I would say it's very possible. I
would think about the irrevocable medicaid type trust that we
speak a lot about. It's also in the guide we're
giving away this month, so that might be good to get.
But I say, yes, you probably putting your house into

(07:13):
an irrevocable medicaid trust would probably be the way to
go as the best way to protect these assets not
only from just a nursing home and creditors, but probate
and it'll ensure a nice easy flow in a bloodline
plan to your family. So hopefully that helps. I would
definitely get on the horn with an estate planning lawyer
and see if you can't get that going, and your

(07:35):
call is timely, because that's one of the got one
in our guide this month, the top seven estate planning trusts.
That's one of the trusts that are in here, not
only revocable trusts, irrevocable medicaid trusts, irrevocable life insurance trusts.
First to die, second to die. You know, there's a
pool trust if you have a special needs child. There's

(07:56):
a special needs trust in here explained, and of course, Chuck,
they not many realty trust which is the most misunderstood trust.
It sort of leads the pack in this planning guide. So, folks,
if you've never done your planning and you want to
figure out what is right for you, how to get
started in your plan this guide is for you. If
you've done your planning and you'd think, me, you know what,

(08:16):
I haven't looked at it in ten years. Maybe I
should see if I need an update or a different
trust might be better for me.

Speaker 3 (08:23):
This guide's for you.

Speaker 4 (08:24):
Call and get the guide eight six six eight four
eight five six nine nine or Legal Exchange Show dot com.
It also gives you all the tax advice that goes
with them eight six six eight four eight five six
nine nine or Legal Exchange Show dot com.

Speaker 2 (08:42):
Todd, we've got another four hero. Let's go to Chris
in Wittensville. Chris, you are on with Tom Lutsky.

Speaker 5 (08:48):
Hey, their guide.

Speaker 3 (08:49):
How you doing? What's what's your question?

Speaker 5 (08:52):
Sure? Well? My uh, I wish my wife had listened
to the show as much as I do. Unfortunately, her
mom is very, very old and you know, probably very
close to the the nursing home retired. Yeah, nursing home
at this point, and so, uh they what they she

(09:14):
did is she put the kids on the name on
the house, the ownership of the house.

Speaker 3 (09:21):
And all the kids.

Speaker 4 (09:23):
Yeah, so she she transferred the home too. I'm just
gonna put this to the kids. Did she retain any
kind of an interest like a life estate? Do you
remember that word?

Speaker 2 (09:36):
Uh?

Speaker 5 (09:36):
No, I don't, And unfortunately I wasn't involved at the time.
I think all that they all that they did is
the husband, excuse me, the mom and the dad were
listed and they listed the kids as owners of the
home as well. And I think that's how they structured
that as best as I can tell from what when
I'm told. And then and then the rest of the assets,

(10:00):
you know, the money that's available, was it they just
she just has you know, they still own it, you know,
the mom because the husband has passed away now, so
the money.

Speaker 4 (10:14):
The money, these accounts you think are just in mom's
name alone.

Speaker 5 (10:17):
I do, yep, I really believe that. And so I
didn't know if there was any advice at this point
to say, you know what, what is there anything at all?

Speaker 4 (10:26):
Well, let me do let me ask you this, how
long ago did she transfer the house to the kids? Completely?

Speaker 5 (10:33):
That was that was more than five years. I do
know that that was probably ten years ago.

Speaker 3 (10:38):
Okay. So and how much money would you say is
kicking around?

Speaker 5 (10:41):
If you had to guess, oh, I don't know, eighty
thousand bucks.

Speaker 4 (10:45):
Okay, So the money is not really the issue. It's
this house that's the big prize. I assume that's the
that's the most valuable asset in her estate. So I
say that the problem is it's not in her estate anymore, which,
for your call and your question, is not a problem
because one of the things you're asking about is Todd.
You know she's going to a nursing home, and if

(11:07):
she goes to a nursing home, is the house going
to be protected from the nursing home. The answer is
it will be. I mean, it's done more than five
years ago. She made a transfer of an asset for
less than fair market value in return, so that's considered
a disqualifying transfer, so she doesn't own it. If she

(11:29):
stays out of a nursing home for five years, it
will be protected from the nursing home. Now I don't
love this. I would never offer this as advice to somebody.
But and there's a lot of negatives that go with it,
but I think we've got beyond those at this point.
So the good news is, at least that's not on
the table. You only have eighty thousand dollars to deal with.

(11:50):
So if she needed nursing home care tomorrow, we would
simply apply. We would, you know, we would you know,
prepay a funeral and any other miscellaneous expenses that we
needed to get out of the way. We would pay
and then just either buy an annuity for the difference
that's left. Remember we got to get her down to
two thousand bucks, you know, or we simply private pay

(12:10):
the nursing home a few months so you know, spend
what you can get on Medicaid. She would be eligible
for medicaid, you know right away. The downside is you
kids got to carry over basis in that property, and
so there could be a built in gain when you
guys go to sell the property. You follow me on that,
I do, yeah, yeah, so you know it's not horrible

(12:32):
and if you at least it'll be protected from the
nursing home. Now, my question is when she gave it away,
did she continue to live there and sort of pay
all the bills for all these years. Yep, certainly, so
the upside on that score would be And a lot
of people don't know this, but there's something out there
called the Estate of Gwen. It's a case that came

(12:54):
down in the mid seventies that says, if you give
something away like he did, but retain I'm sorry, give
something away and retain nothing legally, which she didn't, but
continue to live there and pay the bills and enjoy
what you gave away. Well, then the government came back

(13:16):
and said, well, that's like giving it away but retaining
the right to live there even though you didn't. Actually
you're going to get an implied life estate. Why because
you actually did live there and you actually did pay
all the bills. So therefore, in that case, the government
said that whole value like retaining a life estate, has

(13:39):
to be included in her estate for estate tax purposes.
What that means is it will be subject to a
state tax. But it got a step up in basis
to eliminate the built in gain. Okay, And so the
good news here is it's protected from the nursing home,
and the bad news until we talk about the estate

(14:00):
of Gwen, was you kids would have a carryover basis
with a large capital gain built in. Now we can
probably claim the estate of Gwen to get a step
up in basis when she dies. And like you said,
if you included that in the nineteen seventy six case
that resulted in an estate tax liability or a win
for the irs, well we can turn that around on

(14:24):
them today and have this same rule apply cause the
house to be included get the step up in basis,
So you kids don't have to pay any capital gains
tax when you go to sell it. But the inclusion
of the full value of the house coupled with her
eighty grand is not going to cause an estate tax liability.
So we win on the estate tax front and we

(14:46):
win on the capital gains tax front.

Speaker 3 (14:49):
So a little bit to think about.

Speaker 4 (14:51):
But I think overall you're probably gonna be okay here,
but you're going to need to see a lawyer to
get on Medicaid when the time comes.

Speaker 2 (14:58):
Mister Lutsky, thank you, thanks so much for joining us
again today.

Speaker 3 (15:02):
Always a pleasure. Thank you.

Speaker 1 (15:04):
This has been asked Todd on the Financial Exchange Radio Network.
Ask Todd with Todd Lutsky has been presented by Cushing
and Dolan, serving Massachusetts and New England for more than
thirty years, helping families with the state and tax planning,
Medicaid planning, and probate law. Call eight hundred and three
nine three four thousand and one or visit Cushingdolan dot com.
The views expressed in this segment are solely those of

(15:24):
Cushing and Dolan. Armstrong Advisory does not provide any legal
or tax advice. Please consult with your illegal or tax
advisor on such matters. Cushing and Armstrong do not endorse
each other and are not affiliated.