October 23, 2018
Moving IRA Money into an Asset Protection Trust | Berry’s Bites
Michigan Attorney Chris Berry describes how now might be a great time to look at moving IRA money into an Asset Protection Trust like a Castle Trust. With the downturn in the market, raising taxes in the future and the end of the year—now might be the best time. Learn more at www.MichiganEstatePlanning.com.
With today’s downturn in markets, it might be time to look at moving money from tax-deferred accounts, like IRA’s or 401ks and into an asset protection trust, like The Castle Trust ™.
In this short video, attorney Chris Berry walks through why intelligent exploration of paying tax now on tax-deferred qualified money, could make sense.
Moving IRA Money Into an Asset Protection Trust | Berry’s Bites Transcript
Chris Berry here. We’re going to be talking about Berry’s Bites, so bite size knowledge as it comes to wealth and estate tax planning, for a safe, secure retirement. So today I just got off the phone with one of our clients, and we were talking about our Castle Trust, which is a form of asset protection trust.
You might be familiar with the revocable living trust, which can avoid probate, control the distributions upon death, but what a Castle Trust can do is avoid probate, control the distributions upon death, but now build in asset protection, where we can protect against longterm care costs, where if we make it five years, then everything inside the trust is protected from that nursing home or Medicaid spend down. Then also, we can protect against lawsuits.
So we were talking about this Castle Trust, and we’re talking about how to fund the trust, how to get assets titled in the trust, and they have about $600,000 of IRA money. So what we were talking about was how were we going to move that money into the trust? And what we did is we had a conversation, talking about the current state of the markets right now, plus the current tax situation, the fact that we’re near the end of the year.
They had some of their money invested in stocks, and as of today, the stock market took a little bit of a downturn. Some of their stocks took a little bit of a beating. So what we talked about is that, well, you couple this with the fact that a lot of people think taxes are going to go up in the future, and that’s just the way that the current tax structure is now.
So, 2025 marginal tax rates are supposed to go back up to what they were previous. Right now we’re in a unique tax situation, where marginal tax rates are some of the lowest levels of ever. A lot of people think in the future, taxes will go up.
So given that, it’s a unique opportunity from a tax and financial planning standpoint to maybe look at paying the tax now on these pretax accounts, your 401k’s your IRAs, get out of that partnership with the Internal Revenue Service, so that when taxes do go up in the future, you’ve moved money out of these tax deferred accounts.
So we were talking about that. Then also, because they had some of their money invested in these stocks that just took a dive, their IRA money just dropped. What we’re talking about is this a kind of a unique window now, with, well if they have these stocks that just took a dive, lowered the amount of IRA money, let’s move it out of the IRAs now, because they are at this artificially lower amount, and they’re going to come back up, because whatever comes goes down, comes back up.
Well, let’s pay the income tax now while it’s at a lower marginal tax rate, because of that’s the tax rules now, and it’s at a lower value because the stock market just went down. Pay the tax now. Get it out of that partnership with the Internal Revenue Service, move it into the Castle Trust, and invest back into that stock so that as the market rebounds, or that stock rebounds, all of this growth, all this value is now protected inside of the asset protection trust, with the goal that once we’ve made it five years, everything inside of the trust is protected from that nursing home or a Medicaid spend down.
So what we’ve done is from a tax planning standpoint, we’ve made a great decision to diffuse that, taking a retirement savings tax time bomb, because marginal tax rates are scheduled to go back up. We’ve paid the tax now, gotten out of the partnership with the Internal Revenue Service. We’ve taken care of a tax issue, done it at time when the markets went down, so the IRA is valued at less than what it normally would be, and now we’ve moved it into the Castle Trust. and we started the five year clock ticking for that nursing home or Medicaid spend down. It’s just a great strategy that’s available and especially, you couple that with being near the end of the year.
Oh, this is a middle of a or near the end of October here. You have an opportunity to look at doing one of these moves, moving money from the tax deferred accounts into an asset protection trust. You can do one part at the end of the year now, and then come January, maybe you look at doing another movement, of paying the income tax on some of that IRA money, pretax money, move it into the trust and then protect it.
So it was just a great conversation. I wanted to share that. And this has been Chris Berry with Berry’s Bites, bite-sized knowledge, talking about wealth, estate tax planning for a safe, secure retirements.
Hopefully, you enjoyed that and hopefully enjoy our next upcoming episodes.