Setting Up a Legacy Protection Trust in 2021 | Weekly Wednesday Wisdom Webinars

Weekly Wednesday Wisdom Webinars Feb. 17, 2021

Certified Elder Law Attorney and Financial Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm.

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Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

On this week’s webinar, attorney and advisor Chris Berry of answers the below questions.

  • I’ve read about ILITs(Irrevocable Life Insurance Trust), but I don’t fully understand them or know if they are appropriate for our circumstance?
  • A number of years ago, we set up a Retirement Benefit Trust to protect our IRA’s and 3 kids. With the Secure Act, the benefit of this type of Trust has been eliminated. Can I amend the trust to say 1/10 per year? I want to protect the kids from future potential divorce.
  • Any merit to retaining funds in tax-differed IRA (vs Roth conversions) for future medical, long-term care, or charitable living?
  • (pop-in question) If we set up a Legacy Protection Trust in 2021, can it be tweaked in response to changes such as capital gains rate, stepped-up in basis, estate tax, or do the trust need to be fully drafted with every change?
  • How to protect IRA/401k from long-term care and the 5-year look-back period?
  • (pop-in question) Is there any way to get my very large Roth IRA out of my estate for estate tax purposes while still keeping the funds available as an Inherited IRA account for my non-spouse beneficiary?
  • How are beds allotted in Nursing Homes?
  • Spousal IRA if one spouse is working?
  • (pop-in question) Given the change in administration, what is your opinion on dropping money into bitcoin or something similar?
  • (pop-in question) When is tax paid when contributing to a Roth?


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Episode Transcript


… live on the call. Let me make sure I’m getting everything going here in just a moment.

All right. So, we have a good number of people. We’ll go ahead and get started. Hello, everyone. My name is Chris Berry. We do these Wisdom Workshops every week where I answer your questions live. I have a good number of questions submitted already, but if something is unclear and you want me to address it or you have a question that I don’t address, feel free to put it in the question and answer section. And with that, I’ll go ahead and share my screen, so I hit that button, and there we go. All right.

So, Wisdom Webinars. I just like to start these with a positive focus, something positive that happened the previous week. We had Valentine’s Day, and one of the things that I did was I ordered some… because you can’t really go out to dinner, ordered from Katz’s Deli in New York, which is a famous deli. If you’ve ever seen Harry Met Sally, the restaurant scene, the deli scene, without getting into too much of it, was filmed in Katz’s Deli. So, it’s pretty famous deli, been around for over 100 years, and had them ship in some sandwiches to make it home and they were delicious. So, that’s my positive focus.

All right. Dan asked a question. I’ll get to that. All right, good. And if you do have a question based on something that I mentioned and you want to see how this applies to your specific situation, feel free to, at any time, book some time on my calendar. And you can do so by going to… let me read it out. You can at any time by going to, and that’ll book a quick little 15 minute phone call on my calendar. So, if you want to see how this information applies to you, feel free to go there. But with that, we’ll go ahead and get into the questions.

And Dan, I see your question come across, so I’ll make sure to get to that. So first, I’ve read about ILITs but I don’t fully understand them or know if they’re appropriate for our circumstances. So, always, as attorneys, we like our acronyms, that’s for sure. So, what is an ILIT. ILIT stands for Irrevocable Life Insurance Trust. And whenever we get into irrevocable trusts, especially any type of irrevocable trust where you have to give up control, which you do for a ILIT, I always look to why would we be doing this? And really, the benefit of an ILIT is protection from estate taxes.

So, with estate taxes, currently, estate taxes are at 11 million dollars for a single individual. If you’re married, it’s 22 million, 23 million with inflation, basically, we double that exemption. So, if you have less than 23 million dollars as a married couple right now, you don’t even have to worry about an ILIT. Now, that said, the estate tax exemption, whenever the Tax Cuts and Jobs Act ends, is dropping down to five million dollars for an individual, or 10 million if you’re married, 11 million with inflation. So, the Tax Cuts and Jobs Act is scheduled to end in 2026, or if Biden were to repeal it, it could end sooner. And so that 11 million dollar exemption will then drop down to five million.

Now, Biden has ran on the proposal of lowering the estate tax exemption even further down to three and a half million dollars. So, if you were to have more than three and a half million dollars, then maybe we want to consider an ILIT, Irrevocable Life Insurance Trust, because what we can do is we can move money out of your estate for estate tax purposes, specifically life insurance, move it into an irrevocable trust, and now it’s removed from your estate for estate tax purposes.

Now, is a ILIT right for you? It really focuses entirely on that estate tax question. If you’re just looking at protecting your kids, avoiding probate, maybe asset protection, you don’t necessarily need an ILIT, because again, an ILIT, you’re giving up control. But this does get into a good question of, if we have a trust or we’re looking at a trust as part of an estate plan, what is the right trust for me or you? I know the right trust for me. The question is, what is the right trust for you? And this also gets into our second question.

Basically, we have three different types of trusts that we’re typically doing on a regular basis. And first, we have what we call a basic revocable living trust. A basic revocable living trust, what it does is it avoids probate. So, that’s a good thing. So, it does avoid probate. What it does not do is it doesn’t protect your beneficiaries. Okay?

Because typically, with your basic revocable living trust, it just provides outright distributions to your kids at a specific age. So, if they were to go through divorce, a lawsuit, creditor action bankruptcy, if you have a basic revocable living trust, even though it says per stirpes, if it says it goes right to the kids at 25, 30, 35, then you’re really not protecting the beneficiaries, because if they’re over that age, then what they receive from you is not protected, it would be outright distribution. Now, they inherit that money, and then if they get divorced, guess what? Half that money is gone. Or if they pass away, all that money might go to the spouse who might remarry versus going down to the kids.

Also, what a basic revocable trust does not do is it does not offer you any asset protection. So, it does not protect you from lawsuits nor does your basic revocable trust protect you from long term care costs. Okay? What it does do is it does avoid probate. So, that’s a good thing. And there’s a lot of firms that do basic revocable trust. I’d say 90% of time when we sit down with a client and they have an existing trust, they have a basic revocable trust that avoids probate and says, “outright to the kids at a specific age.” And what I’ll tell you is a lot of the people that have basic revocable living trust don’t even need them because you can accomplish similar things with beneficiary designations and a ladybird deed.

So, that takes me to our second type of trust. This is also a revocable living trust, but we call this a legacy trust, where now what we’re doing is we’re protecting the legacy. So, what this type of trust does is it avoids probate, which is important, most people want to avoid probate, and then also what this does is this protects the beneficiaries. So, this protects the kids from divorces, creditors, bankruptcies, it protects the bloodline, it makes sure that if you were to pass away, that that money will stay in the family, it’s not going to go to the in laws who we call the outlaws, but instead, it’s going to remain protected. Very different than your basic revocable trust that says outright distributions.

But what this revocable or legacy inheritance trust does not do, it doesn’t offer you any asset protection. So, it doesn’t protect you from creditors, lawsuits, or long term care costs.

Third type of trust is what we call a Castle Trust. Now, the Castle Trust, what it does is it avoids probate, it protects the kids, protects the beneficiaries, and then most importantly, protects you. And what it does is it protects you from lawsuits. So, if you were to get in a car accident and sued, whatever’s in the trust would be protected, and then it also protects you from the devastating cost of long term care costs once you’ve made it five years, because Medicaid has this five year look back period. So, any assets that are moved into a Castle Trust, once they make it five years, they’re protected from that nursing home or Medicaid spend down.

And then with estate taxes falling and dropping, think of this as like an additional trust. So, those first three are what we would call your foundational estate plan, but we might also want to have additional trust for different reasons. If we’re concerned about estate taxes, maybe we’re looking at an ILIT, maybe we’re looking at a charitable remainder trust, if you have special needs children, maybe we have a standalone supplemental or special needs trust, if you want to start making gifts, maybe we look at a family inheritance trust. So, there’s different types of trusts, but typically, our foundation is going to be one of these first three trusts, either a basic revocable trust, if we just want to avoid probate, maybe we do a revocable trust that includes that legacy provisions to protect our kids from divorces, creditors, etc, or maybe we want to do a Castle Trust.

And like I said, I would say a majority of the clients, when they have an old estate plan, I would say about 90%, if not more, are walking in with just a basic revocable trust that avoids probate but does not protect the kids, beneficiaries, does not protect yourself against lawsuits, creditors, or long term care costs. So, typically, when we’re working with clients on the legal side, what we’re doing is we’re taking them from either here, from a basic revocable trust to a legacy trust, or we’re taking them to an asset protection trust, or we’re adding in these additional trusts, maybe an ILIT, depending on what your goals are. Sometimes we even have mini Castle Trusts, if we have additional pieces of real estate, sometimes we’re setting up LLC to protect against like rental properties, liability coverage. But it all starts with that foundational estate plan.

And there’s more than just a trust, we have to have the pour-over will, the financial power of attorney, etc. So, is an ILIT right for you? It really depends on what your circumstances are. We would typically only look at ILIT, Irrevocable Life Insurance Trust, if we’re looking at removing life insurance from your estate for estate tax purposes. Instead, what we’ll do is typically look at either a basic revocable trust, which, to be honest, we don’t do a lot of those because a lot of our families value this protection for the kids, or protection for themselves. So, hopefully, that was helpful. Let me see if there’s any chat comments real quick. We do have a question. All right. And let me get back to sharing my screen again, as we get into question two.

All right. So, question two, kind of along the same lines here. Number of years ago, we set up a retirement benefit trust. We call these standalone retirement trusts. And really, the purpose of these was to protect these IRAs. And what we’ll do with these retirement plan trusts or standalone retirement plan trust, the purpose of this was to stretch the IRAs and 401(k)s, those pre tax accounts, for a lifetime. And then what happened was that in 2020, we had the Secure Act pass, and what the Secure Act said is that, well guess what? You can’t stretch for a lifetime anymore regardless if you name a trust or if you were to name a child individual outright, Instead, now we can only stretch any type of retirement accounts pre tax or Roth up to 10 years. So, what this means is all the tax has to be paid within 10 years.

So, the question, and I kind of abbreviate it, here’s the question. Can we now change the trust so one-tenth of the IRA comes out every year for 10 years? We can. So, to answer the question, yes, but you don’t have to do one-tenth every year. What you actually could do is you could stretch it. So, if we have like year one, two, three, four, five, six, seven, eight, nine, 10, if you’re really looking to stretch it, understand, we could wait until you’re 10.

All the Secure Act says is that all the taxes have to be paid before year 10. So, we don’t have to pay money out annually, we could stretch it until year 10, and then in year 10, pay all the taxes. Or better yet, what we could do is create this second level of planning, create a revocable living trust that’s a legacy trust where we could have the taxes paid within 10 years. So, we could pay all the tax within 10 years, but the principal or everything left over could be protected for a lifetime.

So, this is the way typically we’re setting it up, is yeah, we have to pay the taxes over 10 years, but all the principal could be protected for a lifetime versus distributing it outright over the 10 years. So, again, what we’re talking about here is maybe we want to do this legacy estate plan now that we can’t do the full stretch out with the IRAs. So, yes, we can update that retirement plan trust. What we’ve done in the past is if you had a basic trust and then the standalone retirement plan trust, we just combined them into one trust to achieve your goals, where, yes, the taxes have to be paid within 10 years, but we still can offer that lifetime of asset protection. So, it’s simplifying things, it’s taking two trusts or three trusts, sometimes, simplifying to one trust and still meeting your goals, just understanding that with the Secure Act, we have to pay all the taxes within 10 years. Right.

So, continuing on. Any merit to retaining funds in tax deferred IRA versus Roth conversions for future medical, long term care, or charitable giving? So, again, I think the biggest risk right now, and we’ve talked about this for a variety of reasons, is that the biggest risk and biggest concern is with regards to taxes. So, a lot of people think taxes have to go up in the future. And so if that’s the case, anything inside of these tax deferred or pre tax accounts, if taxes go up, understand the value of those accounts go down.

So, what we’ve been stressing, really, since probably 2016 when we saw the deficit starting to get out of control, is moving money from these tax deferred accounts, not just doing Roth conversions, but moving it to a tax free account, which could be a Roth, could be cash value life insurance, could be 529s, could be a health savings account, or to, at least, a taxable account, like a brokerage account. So, moving money out of these tax deferred accounts, where these are always taxed, and we know that taxes are going up, moving it to a never taxed, meaning it’s not going to be taxed again, or sometimes taxed account.

I think this is still a strategy that makes a ton of sense, and given the election and the pandemic, this makes even more sense right now. But the question is, does it make sense to retain funds in a tax deferred account with the idea that you could offset it in the future for maybe medical or long term care costs? The problem with this is that, first of all, it has to be greater than 7.5% of your adjusted gross income before you can write anything off for medical or long term care costs, and then second, you can’t take the standard deduction, you have to itemize.

So, I understand the thought, but I wouldn’t leave money in pre tax accounts with the idea that you’re going to have medical long term care costs that will offset that in the future, because typically, you’re always going to have income, because you’re going to have social security, you’re going to have pension, so let’s use those medical deductions, if you are going to take them, or long term care costs deductions, if you’re going to take them, let’s use them in a different manner, maybe offsetting like your Social Security income or other forms of income.

Now, that said, what about charitable giving? So, depending on what your goals are, this may be a reason why not to do conversions, because you can do things like right now, at least, you can do what’s called qualified charitable distributions where your RMDs could go out directly to a charity, and then if at the end of the day you’re looking at leaving a lot of money to charities as part of your estate, maybe you’ll leave those pre tax accounts to the charities so that they don’t have to worry about the taxes, and you can leave the post tax money, the Roth, the cash value life insurance, that could go to your family members. So, if you do have a very charitable bent and interest, then maybe you don’t need to think about pulling money out of those tax deferred accounts, because you can leave it to charity while you’re alive through qualified charitable distributions, and then upon death, you could leave it to charity either outright, we could look at charitable remainder trusts. There’s some different options there.

But as a rule, I would still look at aggressively right now, pulling money out of those tax deferred accounts, unless you have a very strong charitable interest. Okay, so that answers number three.

Here’s a question that came in with regards to the legacy trust. If we set up a legacy protection trust in 2021, can it be tweaked in response to changes such as capital gains rates step-up in basis, estate tax, or will the trust need to be fully redrafted with every change?

To answer your question… so the question is, if we set up a legacy protection trust, what happens if there’s changing capital gains? Really, it’s not going to have any effect on the trust nor will it have any change on step-up in basis because it still gets step-up in basis. With regards to estate taxes, if your state taxes changes, yeah. Long story short, if you do set up, say, that second level, that legacy inheritance trust and any of the rules change, we can always make changes. But there’s a lot of tax changes that may happen but it wouldn’t necessarily warrant a change to the trust. Like step-up in basis, we wouldn’t have to make any changes to the trust, or capital gains, we wouldn’t have to make any changes to the trust. If there are changes in estate taxes, then maybe we want to look at some of these advanced planning ideas. Whoops, I didn’t mean to do that. We’ll just leave it. But yeah, if you set up a legacy trust, you can always make changes in the future.

All right. Continuing on. Sorry for the double T here. Bad me. I was typing this on the fly as the questions came in right before the webinar. How to protect IRA 401(k) money from long term care costs and the five year look back period? This is a common issue. I have a lot of clients that they get to retirement, they bought into the mainstream approach to defer, defer, defer paying taxes as long as possible, then they get to retirement age, they realize they have more income coming in than they thought, they realize they lose a lot of the common deductions, and now all of a sudden, they’re paying the same or similar tax rate as they were while they’re working. And so now they have a lot of, say, pre tax dollars inside of these IRAs.

Now, what are the problems with this? First of all, the biggest problem, I think, is that this money still has to be taxed, and if taxes go up in the future, the value of this account goes down. Second problem with this, it’s not asset protected, so it’s not protected from long term care costs. So, if you were to need a nursing home or long term care, all this money would have to be spent down.

So, what are options with regards to IRA money? The first thing… and this is really what a lot of our clients are doing right now, is they’re paying the tax. And this is something that we can work with you on, is to put together a tax plan. I’m not saying liquidate all the IRA money in one year, but pay that tax over time.

And trust me, if you have any type of objection to this or if this seems counterintuitive, when we sit down and run the numbers, nine times out of 10, it makes sense to have some type of tax plan to pay the tax sooner rather than later. I’ve sat down with a lot of smart people, a lot of engineers, a lot of even CPAs, and CFPs, and they look at it from a micro lens of minimizing taxes in any specific year, but you need to look at taxes through a macro lens of minimizing taxes through your retirement and through your legacy. So, nine times out of 10, I’m going to tell you that it’s going to make sense to explore paying the tax sooner rather than later, just strictly from a tax saving standpoint.

We can show that we can potentially save you thousands upon thousands of dollars by paying the taxes sooner rather than later and coming up with a tax strategy. Again, this is the biggest risk and biggest opportunity right now. And if you’re scratching your head and saying, “That doesn’t make sense,” or “I disagree with that,” feel free to put a comment into the chat or set up a time to sit down individually and I’ll go over it with you. But really, the number one strategy is pay the tax on the IRA, and then if you set up a Castle Trust, like we talked about here, move the money into the trust. So, we have a lot of clients that are doing this. They’re paying the tax, and then once they pay the tax, they move it into the trust, and now they can invest it however they want, and now it’s invested and protected from that nursing home or Medicaid spend down.

So, it answers the two big problems of, first of all, the tax, well, we pay the tax now, so we’re going to get tax savings overall, and then by moving it into the trust, now it’s asset protected. So, really, our number one strategy right now is pay the tax, move it into the trust, and then invest it.

Now, our second option, and this is a more complicated approach, is we can insure that IRA money. And this was something we were doing a lot of before the deficit got out of control and before we had the Tax Cuts and Jobs Act. Let’s say you have a million dollars pre tax, what we could do is we could carve out a portion of this, keep it pre tax, let’s say 300,000, all we’re doing is moving it from one IRA to another, it’s still pre tax at this point, but now that $300,000 could potentially… and I’m just making up numbers… pay out $10,000 a month if you’re to need long term care, and could be a bucket of money if say $750,000 of long term care benefits, and that long term care benefit, which is tax free, could also be a tax free death benefit.

So, this is something that could be done inside of your IRA. All we’re doing is moving it from one pocket to another pocket. Instead of the having a geared towards accumulation or growth or income in the future, now that pre tax IRA money is geared towards long term care costs and death benefit, where we’re leveraging your money, where now your $300,000 has become 750,000 worth of long term care or death benefit. So, that’d be another option with regards to protecting those IRAs.

Now, third option, third option would be procrastinate. And a lot of times people chuckle on this one, they’re like, “This is what I’ve been doing the whole time, is procrastinating.” But understand that, let’s say that we don’t do number one or two, or we have money that’s left outside of that asset protection trust for whatever reason, we can always do what we call a Medicaid crisis planning.

So, if you have a loved one in nursing home right now and they don’t have assets in a Castle Trust, they have money in an IRA, we can still, at the last minute, utilizing crisis planning strategies, potentially protect at least 50% of the assets. So, it’s not great, because if we do pay the tax and move it in a trust, we can protect 100%, but at the very least, if we do nothing, at the very least, we can protect 50% by procrastinating on the IRAs.

So, those are three options with regards to what to do with the IRA 401(k) money. And again, the number one approach right now is pay the tax, because it makes sense from a tax perspective, it makes sense from an asset protection perspective. And if you have any questions on this, we can run the numbers. This is something I’m really passionate about right now.

Here’s a question. Is there any way to get my very large Roth IRA out of my estate for estate tax purposes while still keeping the funds available as an inherited IRA account for my non spouse beneficiary? So, let me just kind of write this one out and we’ll step down here with this. So, we have a large Roth and we’re concerned about estate taxes for kids. All right?

And if you want to email me, I can send you a report that talks about different tax buckets. So, if you go to, I can send you a white paper that talks about different tax buckets, and it talks about… Just email, in the subject line put, tax buckets, and I’ll email it directly to you. But it talks about the four different types of tax buckets, and how even though we might have something tax free, like a Roth, this is still countable for estate tax purposes.

So, even if you’ve been doing the right thing and considering a Roth IRA… and again, this is why I say a Roth isn’t the end all be all. A lot of people assume that to get tax free, they should be doing Roth conversions. That’s not the only option. So, if you’re concerned about estate taxes and you do have a Roth or you’re concerned about estate taxes and you haven’t done Roth conversions, then what we should be doing is, instead of moving money… we have these different tax brackets, right? We have taxable, we have tax deferred, that’s your IRA money, we have tax free, that’s your Roth, then we have tax free plus.

And this means it’s… I’m sorry, my handwriting is horrible… Tax free plus, but this is where your ILIT comes into play, Irrevocable Life Insurance Trust. And again, a lot of people, when they hear the word life insurance, they’re thinking about term life insurance. Understand that, if you do have more wealth, a lot of people look at life insurance as a legacy. It’s not just, “Well, I can self insure, I don’t need life insurance to pay off a mortgage or my debts,” a lot of… especially as we get more wealth, look at life insurance as a way, A, to leverage what they’re leaving to the next generation, because there can leave $2 for every dollar to the next generation, plus, if we put it into an ILIT, now it goes to them tax free.

So, if you do have a Roth, what we might want to do is take money on an annual basis out of the Roth, and again, it’s tax free for you to take money out, but now that could move into the Irrevocable Life Insurance Trust to fund life insurance. So, now if let’s say you have a million dollar Roth, that could be with the life insurance two million dollars of tax free death benefit, and because it’s inside of the Irrevocable Life Insurance Trust, now it can pass to the next generation tax free, completely estate tax free. Not only income tax free, which is the Roth, but now if it moves into Irrevocable Life Insurance Trust, it’s estate tax free, and income tax free. With the Roth, the Roth cannot be owned by a trust, it has to be owned by you.

So, you cannot pass Roth money to the next generation estate tax free. So, as estate tax exemptions come down, the Roth, while it’s income tax free, it’s not estate tax. And we’ve been talking about this a lot of times. The end all be all is not a Roth conversion. That’s the tool. First, we need to figure out what is your goal and develop the best strategies. And if you’re considering income tax and estate taxes, a Roth is not the right tool, or if you’re considering asset protection, a Roth is not a tool. And this is answering someone’s question that just came in. Can a Roth be protected from Long Term Care calculation or is it just an IRA?

What we’ll do with a Roth, and I have a lot of clients doing this, is they’re moving the Roth money directly into the trust. So, they’re taking it out of the Roth, which they can do depending on when they got that Roth, tax free, now they’re moving it into the trust and now it can be protected. So, a Roth by itself cannot be protected from long term care costs. If we move the Roth into the trust, no taxable consequence, then it can be protected, then it can be invested. And if we leave it in the trust, it might end up being tax free in the end anyways just like the Roth, because you might get step-up in basis, plus you might not have capital gains. So, the Roth is not asset protected nor is it estate tax protected.

And again, there are downsides or cons to a Roth, which a lot of people don’t take into account. They just say, “Oh, it’s tax free. That’s, of course, what I should be doing.” That’s not always the answer. And I’m not trying to say the Roth is a bad idea, I’m just trying to push back against the idea that the Roth is always the answer, because again, our approach is figure out what are your goals, figure out the best strategies, and then pick the right tool. Too often I see everyone say a Roth is the only tool, and so if that’s the case, if your only tool is a hammer, everything looks like a nail, just do a Roth conversion. Well, sorry, if you’re concerned about long term care costs, a Roth is not an answer. If you’re concerned about estate taxes, a Roth is not an answer.

So, that was a long rant on Roths. Let me answer these questions.

Does the stream of income from an IRA insurance need to be dedicated to long term care or can it be used too for other expenses?

So, the income coming from an IRA doesn’t have to be used for long term care. If you’re taking out RMDs, you can use it for whatever, but the RMD, required minimum distribution, from that IRA is not protected. If you were to do option two that I talked about here, and you’re pulling out whatever is in this leveraged account, it does have to be used for long term care. So, hopefully, that answered your question. This is also on question four.

If you put money into insurance to help with long term care costs, how are taxes paid and who pays them? And then, do you take the rest of the IRA and pay the taxes on the amount or do you pay the taxes on all the IRA and put it in a long term care insurance policy? Okay. So, there’s a lot going into this. If you are interested in number two here, let’s set up a time to talk about it. But what happens is, the taxes are typically paid over a 10 year period, if you’re to do this, with the rest of your IRA that doesn’t move into that asset based long term care, you can choose to keep it as an IRA or you can put it into the trust.

I have a lot of clients that are actually doing a combination of one and two, where they take… Oops. I’m sorry. Not three. Let me step that back. They’re doing one and two, where they’re using asset based long term care for a portion of the IRA money, because they want this asset based long term care, plus they want a tax free death benefit for the kids, and then the rest of it, maybe they’re paying the tax to invest it inside of the trust. So hopefully, that helps, and we can dive into it in more detail in your specific situation.

[inaudible 00:35:02] Okay. Someone asked about a question regarding a referral. Yeah, if you want to refer someone either to these webinars or to set up a time to talk to us, just use our email here. And that’s our email. Okay.

So, getting question five. How are beds allocated in nursing homes? So, here’s the thing. Basically, any nursing home that accepts Medicare also typically accepts Medicaid. I think the last time I looked, about 97% of nursing homes that have Medicare beds also they are dual certified for Medicaid beds. Now, here’s the thing, nursing homes play a little bit of a game that I would say is not legal or accurate but it is part of the game, is that if you were to try to find a nice nursing home for a loved one right now and you try to get them in on a Medicaid bed, they’re going to say, “Oh, I’m sorry, we don’t have any Medicaid beds available,” because they do get paid more through private pay than they do reimburse through Medicaid.

Now, it’s a little bit different with a pandemic, and a lot of these nursing homes have more space, so they’re maybe we’re more willing to take someone on as a Medicaid recipient right off the bat. But here’s the thing. So, the nursing homes play that game, well, guess what? We can play a game ourselves. So, a lot of times, what we’re doing is we’re setting up…

Again, I hate to keep going back to this. Let’s say we set up a Castle Trust, we move our assets into the trust, we suffer a stroke after five years, we need nursing home care. What we can do at this point is now we can private pay to get into that nice nursing home, so maybe we private pay for two months to get in the nice nursing home, and then we could flip a switch, if we played our cards, right, and now we can have Medicaid pay that base level of care, receive the same level of care is everyone else in the nursing home, but now everything inside of the trust is protected from that nursing home or Medicaid spend down, because nursing homes, there’s a federal rule that say they cannot discriminate based on source of payments. Okay?

So, once you get in that nice nursing home, you’re going to receive the same level of care as everyone else in a nursing home and that’s going to be covered by Medicaid, that base level of care, and then you could have a pot of resources available to pay for additional services to improve your quality of life, or if you’re married, ensure that one spouse isn’t completely impoverished because they have to pay for your care.

Think of it like this. Back when you could travel… so let’s say you’re booking an airplane flight. This is me drawing an airplane. That’s not too bad, right? That’s pretty bad actually. Hopefully, my kids don’t see my horrible drawings. But let’s say you’re booking a flight to Hawaii, right? And depending on when you booked that flight, let’s say you’re flying first class, you might pay, say $1,000 for that seat, right? Well, someone else who maybe has frequent flyer miles, or booked it through Expedia, or waited at the right time, maybe they only pay $200 for that ticket and they’re sitting right next to you. They’re receiving the same level of service, basically sitting in the same exact seat as you, it’s just they had a different approach or a more strategic approach on how they paid for that trip.

Similar with nursing home care, okay? If you’re in a room, you’re going to receive the same care whether you’re in a Medicaid room or a private pay room, typically, you’re going to receive the same level of care, it’s just how do you want to go about paying for that? Do you want Medicaid to pay that base level of care, if you play your cards up correctly, or you could private pay? So, again, nursing homes can’t discriminate based on source of payment. So, hopefully, that was helpful.

And then the last… or we have two more questions, one that I have here, and then one that was submitted right off the bat. Spousal IRA if one spouse is working. So, situation was, we are retired, and then one spouse works part-time now, so they have earned income. So, they do have earned income, and as long as we have earned income, then you can contribute to a Roth or a traditional IRA. And with [inaudible 00:39:44] provisions, if you’re over a certain age, you could contribute $7,000.

Hold on, I just hit some buttons. Whoop, I didn’t mean to go to Disney+. All right. I just did it again. Look at that. My kids love Disney+. We’ve been watching a Marvel show on Disney. So, with the spouse, if the spouse is not working, then the spouse can contribute to the IRA. There are a couple exceptions there, but yeah, typically, if one spouse is working, the other spouse is not working, the non working spouse can also contribute to a IRA, whether a traditional or Roth IRA. And again, with where taxes are going, I would recommend contributing to the Roth IRA, depending on where your income brackets are.

All right. So, that is all for the submitted questions ahead of time. I did have one question come in that I didn’t get to. So, the question is, “Given the change in administration, what is your opinion on dropping money into bitcoin or something similar?” So, there’s been two things that really have been going crazy the last couple of weeks. I don’t know if you follow them. A, the stock market’s been on a run until basically today. We’ve had a dip, things like GameStop, that type of thing. And then Bitcoin has rocketed up.

That said, if we’re concerned about where taxes are going and the administration, I’m not sure if Bitcoin is the answer. I think the answer to that is going to be looking at moving money from either taxable or tax deferred to tax free buckets. Some people are concerned about, “Well, what happens if they come after the Roth IRAs?” I don’t see them coming after existing Roth, I do see them putting limits on future contributions to Roth. But if you are concerned about them coming after that tax deferred bucket, then we might want to look at cash value life insurance, because that’s more advanced, more complex. Less people have that than a Roth. So, I think that they would go after the Roth IRAs before they would go after the tax free nature of the cash value life insurance, which is part of tax code 7702.

And here’s the interesting thing. So, the name 401(k), and 403(b), and 529 comes from where they get their tax free status in the tax code. Life insurance, if it’s set up properly, also is in the tax code. It’s 7702. So, we could call a cash value life insurance plan a 7702, if we wanted to. But I think they’re going to come after the Roth before they’d come after your cash value life insurance, and then taking it one step further, if we were really concerned about estate taxes as well as income taxes, we could look at moving that irrevocable life insurance into an ILIT, Irrevocable Life Insurance Trust. So, I don’t see Bitcoin being the way to put money if we’re concerned about where the administration and taxes are going, because already, we’ve had some rulings about cryptocurrencies and they are taxable.

Now, here’s a conspiracy thing. I was talking to an individual and his thought is that the US is going to kind of create their own cryptocurrency because of the crazy inflation with the deficit and them having to print money. But that’s me kind of putting on my tinfoil hat, and we’re not going to get into that today.

Does the stream of income… I already talked about that one. When is tax paid when contributing to a Roth? So, the answer to that is, it is after tax dollars. So, if you have money sitting in a taxable account, you’ve already paid a tax on it, and if you contribute that over to a Roth, that’s not a taxable event, but if you’re doing a Roth conversion, or really any time you’re taking money out of the IRAs, any time you’re taking money out of pre tax or tax deferred account, whether you’re going here, or here, or over here, you have to pay tax, and that’s tax to your ordinary income.

So, IRAs, 401(k)s, 403(b)s, we call that always tax. You always have to pay the tax when you move the money out. But if you’re contributing to a Roth from post tax dollars, meaning you had income or you inherited money or something, you have money sitting in your checking savings, you move that money over to a Roth or move it over the tax free bucket, there’s no taxable consequence, and then all the growth you get over there is now tax free.

Okay. So, any other questions? If you do have any other questions, please put it into the question to answer right now because we’re running out of time and I’m about to log off. Beneficiaries on a Roth? Typically, we would name a spouse as the primary beneficiary, and then if you have a trust, we would name the trust as the contingent beneficiary, depending on the type of trusts that we have. So, almost always, we name a spouse as the primary beneficiary so they can do a spousal rollover, and then we would name the trust as the contingent beneficiary if we have a trust.

Any other questions? And we’re going to do a rapid fire, so if you have a question, please put it in. Otherwise, I want to thank everyone for participating today. We had over 40 people on the webinar today, so I appreciate that. [Alan 00:45:43], Barry, Beth, Bill, Bob, Brad, Brian, [Carolyn 00:45:46], always good to see you, Connie. You’re welcome. [Dan 00:45:52], great to see you, Dan, three Dans in a row. Drew, good to see you. Ed, Fred, Gary, always great to see you. [Nikio 00:45:59], great to see you, Kathleen, Laura, Linda, Mark, Emmanuel, Phil, everyone else that I didn’t mention, I certainly appreciate you coming on, asking these questions. I really appreciate. I enjoy it.

We used to do workshops in one of our offices once a week and I really enjoyed that. It really energized me each week, and so this is our approach to continue that education. Make sure to join us next week. I did sign up a reminder email, so if you’ve already registered… I think this was a request from Dan. If you’re already registered, you’ll get a reminder notification now.

Another question comes in. Roth, five year hold still? Yeah. So, when you open a Roth, the idea is that you wait five years before you pull any of the money out, so it comes out tax free. When you do a Roth conversion, same concept. Worst case, if you do pull the money out, you just have to pay taxes on it. But usually, it’s not a big deal because the Roth money would typically be the last money you would touch because you want it to grow in this tax free environment. And again, Roths aren’t always the end all be all.

So, with that, I want to thank everyone. Please make sure to join us next week. If you haven’t, please make sure to check out our YouTube channel. We have the old webinars right there. You can just google Castle Wealth Legal YouTube, it should show up. We have all of our old webinars there. And then if you think there’s anyone else who’d benefit from this webinar, again, please feel free to share the login, and it’s just And with that, I…


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