Moving Money From an IRA to a Brokerage in the Name of a Trust | Weekly Wednesday Wisdom Webinars

Weekly Wednesday Wisdom Webinars Feb. 24, 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.

  • Are IRA and Roth’s protected from creditors? Would taxable accounts be protected from creditors in a Revocable Living Trust?
  • (pop-in question) Do other estate attorneys recognize the term legacy and castle trust?
  •  When moving money from an IRA to a brokerage in the name of a Trust to avoid long-term care cost, does that money need to be in the trust for 5 years or does the Trust have to be 5 years old?
  • (pop-in question) Can the Castle Trust be jointly owned?
  • I just inherited 200k from my deceased mother, what should I do to protect that inheritance?
  •  (pop-in question) At what age on healthy clients need long-term care? I need a few years to convert my pre-tax IRA.
  • I have 17 and 21-year-old grandchildren, what investment advice do you have for people starting in the workforce?


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Episode Transcript


All right. Can you hear me now? If you can just put it in the chat that you can hear me. Now, we can. Thank you so much. Technology, it’s great. Yeah, we can hear you. Thanks, Barbara. Thanks, Phil. Good. All right. So, let me start again.

So, Chris Berry with Castle Wealth Group. We do these webinars every Wednesday at 1:00 without fail. There are some type of technology glitch. I think we’re all accustomed to that at this point. But if you do have questions, feel free to put them in the question and answer section or feel free to type them into the chat as well. And I do have a good number of questions that are submitted already ahead of time, so I’m about to dig into that.

What I always like to do is start with a positive focus. I think positivity is something we need more in our lives with the craziness of the world. It’s something that I do daily with my family as we sit down for dinner, what I’d like to do whenever I sit down with clients, what we do for our team meetings. Just sharing something positive that happens, just put more positivity in the world. And my positive focus [inaudible 00:02:47] revolves around my kids, who I just love to death.

My son Ryan, he’s getting older and he has now transitioned from… he’s transitioning from Cub Scouts to Boy Scouts. So, just last night, we met with what would be his Boy Scout troop and he was super excited. We talked about the camping trips, so it’s great to see that he’s been in Cub Scouts, I think, since second grade and now he’s in fifth grade, going into Boy Scout. So, seeing him stay with something for so long, seeing that it’s something that’s getting him outside and not that we watch a lot of TV or play a lot of tablets, but just, that he’s doing something with intention, and he’s continuing to move forward with that.

And then my daughter, Madison, I guess she’s a brownie going into Girl Scouts, she sold I think 120 or 160 boxes of Girl Scout cookies, which is just amazing. So, just my positive focus is seeing them continuing to be involved with something that’s improving their character for long term. So, that’s my positive focus and hopefully you have something positive that you can think of going on in your life right now.

So with that, we’ll go ahead and get started. I’m going to share my screen if technology allows me to do so. So, I’m going to hit that button, hit this button, hit this button over here, and then hit that and this and I hit this. And with the magic of technology, you should be seeing my screen in three, four, there we go. All right. So, if you do have questions and you want to see how any of the information applies to your specific situation, because what I’m talking about today is going to be very general, make sure to go to this website, 15, the number 15, and you can book 15 minutes on my calendar to talk about what’s going on, if you want individual advice on your situation.

And so with that, I’m going to start with the questions that were submitted ahead of time. I see a few more questions coming in, but I’m going to start with the questions that were submitted ahead of time. So, Ed, Ellen, I see those questions. I will make sure to get to them. And let me do one other thing to make sure I can see the chat. And no, Vicky, it wasn’t just you. My mic was off. It’s helpful if I turn my mic on.

All right, so the first question, are IRAs and Roths protected from creditors? The answer is it depends. And I’ll get into that. Would taxable accounts be protected from creditors in a revocable living trust? The answer to that is no. So, real quick, it depends on your qualified accounts. So, qualified accounts are, whoops, any type of account that has a tax qualification to it. And so, I’m talking about things like 401Ks, 403Bs, these are what’s called employer sponsored plans versus say IRAs, okay? And we can have Roth versions of all of these different types of things.

So, these are qualified accounts versus nonqualified accounts, so accounts that are nonqualified, meaning they don’t have a tax qualification would be things like brokerage accounts, checking, savings, as well as anything that is owned by a revocable living trust, typically, this would be like a brokerage account. So, the question is from an asset protection standpoint, if you have a creditor, are these protected? So nonqualified accounts, not protected. Okay? No, I mean, not asset protected, so there is no asset protection inside of qualified accounts. Okay? So, brokerage accounts are not protected. Inside of a revocable living trust, not protected. So, if you have a lawsuit creditor action bankruptcy, they can come after these accounts. All right?

Now, inside of a Castle Trust, which is an asset protection trust, these assets would be protected. So, if we have it inside of a Castle Trust, then it is protected. And we could have brokerage accounts, real estate, et cetera, it would be protected from any type of creditors. Okay? Now qualified accounts, I say it depends and as qualified accounts on this side, these are called ERISA accounts. These are employer sponsored plans. ERISA accounts are protected up to a million dollars and this is through the Feds, so a million dollars in this is federal rules. Okay? So, ERISA accounts like 401Ks, 403Bs, plans sponsored by your employers are protected up to a million dollars. Okay? So, a million dollars are protected. Anything over a million dollars would be available to creditors.

IRAs are protected at the state level and most states, including Michigan, do provide protection of up to a million dollars if you were to be sued for your IRAs. Okay? So, long story short, are IRAs and Roths protected from creditors? Really, the answer is yes because they’re both qualified accounts. It’s just that they get their protection if it’s a qualified account through an employer, it’s through the feds, if it’s a qualified, or if it’s a qualified account through an IRA or a Roth IRA, it’s going to be through the state. Either way, you have a million dollars protected, okay? Anything over a million would be countable. They could come after that.

And then also what is also protected would be any assets invested in a Castle Trust, which would be not protected would be brokerage accounts in your name, brokerage accounts in your typical revocable living trusts. Revocable trusts offer you no asset protection. If you want to protect assets inside of a trust, we need to look to an asset protection trust. If we’re protecting assets for you, we would use a Castle Trust. If we’re protecting assets for your loved ones, for your beneficiaries, for your kids, we would use a Legacy Trust.

Ed writes in, “One million per account or in total?” Total, okay? So, a million dollars of qualified money, it’s total, not per account is my understanding. I’ll have to double check that. But if I’m not mistaken, off the top of my head, it is a total of a million dollars would be protected. So, you can’t have three accounts with $900,000 and because each one’s below a million, all of them would be protected. You’re only able to protect a million dollars worth of qualified accounts. I’ll double check on that, but that’s my understanding off of the top of my head.

Ellen, “Do other estate attorneys recognize the terms Legacy and Castle Trust?” It depends. Some attorneys do. Not all attorneys are created equal, not all attorneys are certified elder law attorneys, but there are other attorneys using the term Legacy and Castle Trust as well. And I know another attorney even here in Michigan that is doing Castle Trust.

Someone wrote a question about annuities. If you could expand on that question, but annuities are a type of investment. And if it’s inside of a qualified account, whether it’s a brokerage account or annuity, it’s still going to be protected inside of that qualified account. So, annuities inside of qualified accounts, because annuity is a type of investment. An annuity can be inside of an IRA or an annuity could be in a brokerage account. Annuity could be qualified or annuity could be nonqualified. If the annuity is qualified, meaning you have like a fixed index annuity inside of your IRA, then it’s going to be protected up to a million dollars.

If it’s a fixed index annuity that is in a revocable trust or just in your name, and it’s a nonqualified annuity, meaning it’s not pre-tax dollars or not inside of a Roth, then it would not be protected. If the annuity is annuitized and it’s a straight income stream, that income may be protected, but if you’re looking at an annuity as an accumulation tool, it’s no different than having it inside of a brokerage account or investment account. And if that investment account or fixed indexed annuity is inside of an IRA, it’s protected up to a million dollars. If it’s nonqualified, it’s not protected.

And one thing I need to clarify when I’m talking about protected from creditors, I am not talking about protected from long-term care costs. So when we’re talking about asset protection, typically I make the distinction between protected from creditors, bankruptcies, lawsuits, that’s one form of protection, that’s the creditor protection versus protection from the nursing home or Medicaid spend down. IRAs are protected from creditors up to a million dollars, they are not, again, I repeat, they are not nor are Roths protected from that nursing home or Medicaid spend out. So if you need nursing home care to the tune of 8, 9, 10, 11, 12, 13, $14,000 a month, you’re going to have to spend down your traditional IRAs, you’re going to have to spend down your Roth IRAs to pay for that if you want to qualify for Medicaid.

So, that’s why even if IRAs are protected from creditors, if you’re concerned about long-term care costs, I have a lot of clients that have their IRAs, they’re paying the tax, because it makes sense from a tax perspective in investing inside of asset protection trust, like a Castle Trust. So, IRAs are protected from creditors, not protected from long-term care costs. Roth IRAs are protected from creditors, they’re not protected from long-term care costs. So, that’s something that we need to make a clear distinction on. All right. So, that is IRAs and Roths and asset protection.

Next question. So, when moving money from an IRA to brokerage in the name of the trust to avoid long-term care costs, or that set up the next question well. Does the money needs to be in the trust for five years or does the trust have to be five years old? So, what we’re talking about here is let’s say we set up a Castle Trust. Okay? So, we’re concerned about two big things. We’re concerned about creditors, lawsuits, and we’re concerned about long-term care costs to the tune of 8, 12, 13, $14,000 which is going rate for nursing home care.

So, what a Castle Trust does is protect against these things, right? Immediately protects from creditors. The protection from long-term care doesn’t start for five years because we have this five-year Medicaid look back period, whoops, where Medicaid is going to look back five years to see if we moved any money around. So, think of it like this. We set up the trust. When we move assets into the trust, we can wave that green flag to start the five-year race and then once we make it five years, we can wave a checkered flag, because now 100% of what we put into the trust is protected from that nursing home or Medicaid spend down.

So, the idea is if we have IRA money, and we’ve talked about this before, do you think taxes are going up or down? Most people think taxes are going up in the future, so I have a lot of clients where we’re pulling money out of the IRA paying the tax now, because we know taxes are going up and we’re moving it into the Castle Trust. So, we pay the tax and we do this on an annual basis, typically.

So the question here is, when does this five-year clock start? Is the five years from when we set up the trust or is the five years from when the asset moves into the trust? Unfortunately, it’s from when the asset moves into the trust, it is not from when the trust was set up. Okay? So let’s say we set up this trust in 2021 and we move, say, $500,000 into the trust, okay? That $500,000 now has a five-year clock where it will be protected in 2026, so that’s five years, right? And then let’s say in 2000… gosh, right? So, 2021, we move $500,000 in and then let’s say 2023, we move on another $100,000, that’s going to have its own five-year clock, so that’s not going to be protected in 2028.

So, the idea depending on your situation is we want to get as much into the trust as soon as possible because the process of moving the asset into the trust is what triggers the five-year look back period. Because really, what happens is they look from the time that you go into a nursing home, they’re going to look five years back to see if any money has moved. And so if you have, they’re going to penalize you.

So, a lot of times, we’ll set up the Castle Trust and maybe we’ll have 25% of the assets into the trust, 75% out, but then over the next say five years, more and more money gets under the trust, so it’s protected. And again, it’s immediately protected from creditors and then long-term care costs, we have this five-year look back period. Okay? So, again, the best time to do this was five years ago, sometimes. Second best time to get started is probably now.

All right. Number three, so “I just inherited…” Let me see if there’s any questions. Yeah. “Can I go over the tax part, again, please?” So, again, if we have IRA money, what we would do is we would pay the tax over it and what we do is we look at your tax brackets. So like, let’s say, let me do another. So, here’s a kind of a simple example. So, let’s say we have $100,000 of income. All right? That’s going to put us at the 22% tax bracket right now. Okay. And just roughly, to fill up that 22% tax bracket, we can pull off $70,000, pay the tax, and we’re still going to be at the 22% tax bracket. And now we could move that money, pay the tax. So, let’s say that leaves us with $50,000 that can now be invested inside of the Castle Trust, right?

Okay. But so, I know and then the 24% tax bracket if we wanted to fill that up, we could move roughly if we had $100,000, let me take a quick look, that’s going to be about 326, so that’s going to allow us to move roughly another $150,000 at the 24% tax bracket. Again, pay the tax, and now, that’s another let’s call it after tax 125,000. And the reason we want to do this is because we know when that tax cuts and jobs act expires, that 22% tax bracket is going to at least 25% or 28%.

And we know this is going to happen due to the tax cuts and jobs act expiring and it was supposed to run from 2018 to 2025. But we’ve had Biden that came in and he wants to repeal this as soon as possible. So, the idea is that we know taxes are going up, let’s pay the taxes sooner rather than later, just because that makes good sense from a tax perspective because I’d rather pay a 22% tax than a 25 or 28% tax and then on top of that, now, we get the protection of the Asset Protection Trust.

So that’s “Can you go over the tax part again, please? So, money in the Castle Trust should be after tax?” Yes, this is after tax money. Anything inside of the Castle Trust is after tax money. We cannot put pre-tax accounts like IRAs into the tax from creditors. Assets and IRAs are protected from creditors [inaudible 00:20:28] to an IRA. I just had Mark from my office, saying that the number has adjusted for inflation for the asset protection, it’s up to a million dollars. It’s a married couple. So, again, to get back to the asset protection for the IRAs, it’s going to be a million dollars total for a married couple. I’ll double check on that. And again, it’s adjusted for inflation, so now it’s about $1.3 million total of IRA or ERISA accounts.

And that is an answering Vicky’s comment question, yes. Anything inside of the Castle Trust has to be after tax. So, that’s why again, I’m not saying Roth conversions are the end all, be all because Roths, guess what? The Roth, if you were to need long-term care, they’re going to eat up your Roth. Roths are not protected against long-term care costs. Money inside of the Castle Trust would be. So, again, the Roth it makes a lot of sense, but the Roth isn’t always the correct option, depending on what your goals are.

Okay. Answered the questions. Here’s another question on the Castle Trust, “Can the Castle Trust be jointly owned?” Yes. So, a lot of times it is. With a married couple, we have both spouses as the owners of the Castle Trust. We’ve even set up Castle Trust with parents as well as kids as co-trustees on it, depending on what the situation is. I had a family… I’ve had this a couple times, but just off the top my head, family bought some property up north together. The son is going to be kind of helping manage the property. And so, the son’s going to be throwing in money along with the parents, so they did a joint Castle Trust with the married couples as well as one of the kids. So yes, a Castle Trust can be owned jointly.

All right, that brings me to question number three. Question number three, “I just inherited $200,000 from my mother, what should I do to protect the inheritance?” So, I hate to do this, but the answer is, it depends. Again, as an attorney and fiduciary advisor, I always, I can’t just tell you what to do. I need to see the whole picture and I always, I figure I start with “What are your goals?” So, in this situation, “What are you trying to protect against?” I need to know what we’re protecting against? Are we protecting against long-term care costs? Are we protecting against a spouse and divorce? Are we protecting against market volatility? Are we protecting against long-term care costs? Are we protecting against taxes going up? Are we protecting you against inflation?

And depending on what we want to protect against is going to tell me, understanding what your goals are is going to help me develop, “Okay, what is the strategy to help you protect those things?” And then figure out from there, “What are the tools that we’re going to use?” Because just off the top of my head if we’re protecting against like market risk, so we don’t want to lose this money. Maybe we look to fix index annuities that offer growth as well as downside protection. Maybe it’s indexed universal life. And I’m just throwing out tools. Maybe it’s something like you’re going to spend the money within the next year because you’re fixing up the house, then I’d say just keep the money in savings or checking.

If we’re maybe we look to a multi-year guaranteed annuity where you’re looking at using this money in three years, maybe CDs, we’re offering a better rate of return, we’d look at CD. And these are all based on like time horizons. Like if we think we’re going to not need the money for 10 years, maybe we look to a fixed indexed annuity if you’re protecting against market risk or IUL. Are we going to use the money within the year? Then the tool would be savings? Is it three to five years, maybe it’s a MIGA. With CDs, probably we wouldn’t do CDs because the rate of return right now is so awful.

Now, if we’re protecting against, say, taxes in the future, maybe we look to Roth contributions moving forward. Maybe we look to the Rich Man’s Roth, which would be like IUL, Indexed Universal Life, cash value life insurance which grows tax free. What if it is a long-term care costs, then maybe we look at asset based long-term care. Maybe we look at the tool of a Castle Trust. So, is it creditors or divorces? Maybe we look to Castle Trust.

So, I get kind of this type of comment like, “I want to protect my assets?” Well, I always have to ask, “What are we protecting against?” And then we develop strategy, and then we figure out which tools to help you with. So, it should be… can the rates change… Can the rates change again? So, Mike, what rates are we talking about? So, a question just came in, “Can the rates change?” If you could let me know what are we talking about in terms of rates and then I’ll answer that question. So, again, Mike, let me know what rates we’re talking about. Are we talking about like an annuity, CD or something like that? So, that is the third question.

Comments here, “At what age on healthy clients need long-term care? I need a few years to convert my pre-tax IRA.” So, when should you be thinking about long-term care? I would say on average, most of my clients start considering long-term care in their 50s. I’ve done some things in my late 30s, 40s. We can look at long-term care from a legal structure as well as from an investment and insurance structure. The big thing is that looking into a crystal ball, we never know what’s going to happen. You might have a stroke in your 50s or 60s, you might get in a car accident. I have to have my hip replaced, so given that there are certain things that might not work for me now, like pure traditional long-term care insurance.

So, typically, we say in your 50s, you should start exploring what your long-term care strategy is going to be. Now, that said, I have clients as late as their mid-70s, looking at strategies for long-term care. Whether it’s Castle Trust, whether it’s asset-based long-term care. Typically, after 80, a lot of the strategies just wouldn’t make sense, either from a time horizon standpoint or from a cost of insurance standpoint. So, I’d say typically, long-term care should be looked at between 50s to 70s, but think of it like this, the earlier you start thinking about these things, then the more options you’re going to have on the table.

The comment is, “The rates the President just changed.” So, if we’re talking about like tax rates or tax brackets, yeah, those can always change. President Biden has proposed some changes to the tax code. In fact, I just recorded a video on our YouTube channel talking about the five things to consider with regards to your finances based on President Biden’s tax proposals. So, these things can change in terms of tax rates.

“At what age,” I answered that. Okay. All right. So, the last question then I have a question from Ed that he submitted that I’ll make sure to get to before time runs out. And so, “I have a 17- and 21 year old…” or I have a… sorry for the bad… I kind of typed these real quick, so I apologize for the bad grammar here. “I have a 17- and 21-year-old grandchildren.” So, that’s bad grammar, I realize that. “I have 17- and 21-year-old grandchild, what investment advice do you have for people starting in the workforce?”

Again, it’s going to depend, but I’ll tell you what, the big and I’ve talked about this for a while, but the biggest risk and biggest opportunity to right now is with regards to taxes. And so, if I had a 17- and 20-year-old, who were entering the workforce, what I would teach them is what I call the order of money. And so, understanding what is the best type of money. The best type of money is free money. Okay? So, free money. What is free money? This is your employer match. So, if you have someone entering the workforce and their employer offers a match, tell them to take the full match. That’s free money, even if it goes into a qualified account, that is free money.

The second best type of money right now, if you think taxes are going up in the future, is money that’s tax-free. So this would be contributing to a Roth if you can. Maybe a Roth 401K if the employer offers Roth 401K. This would be if you’re saving for these people think of a 529, which has to be used for education. Things like health savings account that has to be used for health care and then things like cash value life insurance, which grows tax-free. Those are things that are tax-free.

Third best is taxable accounts. This would just be like your brokerage account. Fourth would be tax deferred money. So, money that you pay tax when you pull the money out. So, the important thing is to understand how these things are taxed. So, tax deferred, whenever you pull money out, it’s taxed or ordinary income tax rates, which right now are 37%. And we know based on the facts, that the tax cuts in Jobs Act is expiring. This money is going to… hold on. Let me… I’m not sure if my screen is sharing correctly. Give me just a second to redo the sharing because I’m drawing and it’s not showing up on the Zoom drawing board.

All right. So, yeah, so this order of money. Understand that the best type of money is free money. The worst type right now is tax deferred, because we know taxes are going up in the future. Taxable money right now is taxed at capital gains, which might grow at 20%. Tax free money is growing or is going to be taxed at 0%. So, one of the most important things or biggest problems I see with retirees these days is they’re diversified in terms of their investments. But I would stress to this upcoming generation of looking at tax diversification. Okay? Understand that we have these different tax buckets, right? We have tax free money, taxable, tax deferred.

A lot of the retirees I sit down with, if we put these into different buckets, like we have taxable, we have tax deferred, which is like your IRAs, 401Ks and then tax-free. A lot of the families I sit down with as we’re talking about retirement, they have all of their money, all of their savings in these tax-deferred accounts. So what I would say is that if someone is starting out, try to look at spreading out where we’re saving the money. And especially right now, I’m focusing, even myself. And for what I’m doing for the kids in money that’s tax free because not only do I think taxes are going to go up in the short-term, but I look at these checks that the government’s writing that we’re going to have to pay at some point, right?

I don’t want to get into political discussion, but the government doesn’t make money, they tax or they print money, which causes inflation, which doesn’t help us at all. But like even these stimulus packages, they’re just giving us our money back. The government doesn’t make money. So if we’re $30 trillion in debt, it’s not like the government’s going to invest money and make that back or come up with some plan. They’re going to have to tax us or they’re going to have to print more money. And so, I think, especially in the next generation, we look at where taxes have been, like we’re so used to really since the ’80s, we’re used to taxes being like roughly, the max amount is about 40%.

Well, guess what? Prior to the 80s, tax, marginal tax brackets were a lot higher as high as 60, 70% and then back. Previously, it’s been as high as like 94% was the highest marginal tax bracket. So, we’ve been in this lower tax environment for a while, but there’s nothing to say that in the future, we might not go much higher. So, for younger generation, think about where you’re saving money.

And then also another, what are some of the tax-free options? The tax-free options, so here are the tax-free options. Okay? So, Roths, both Roth IRA as well as 401K, more and more employers are offering Roth 401Ks at your employers. Health savings accounts have to be used for healthcare, 529s which have to be used for education, and then cash value life insurance. So, even in my own planning, I’m doing all of these. And in fact, with the pandemic, I’m doing less contributions to the 529 because this really, for me is just looking at college expenses. Well, my kids are pretty bright. Again, every parent says that, but there’s a chance maybe they get scholarship money, right? So, this money that I put to a 529, what’s the purpose of it if they get scholarship money?

The second thing is colleges with this pandemic, you see people using like, what’s college going to look like in the future? We’re a little bit unsure. Where more people are looking at like community colleges at least for the first couple years because you can’t even go on campus right now. And so, I’m using cash value life insurance is a way to pay college in 10 years. So the money I put to it is going to grow tax-free, plus this money I keep contributing is going to be part of my retirement funds. So, this is going to be tax-free retirement income for me. And then that death benefit as I get into retirement is going to double as a long-term care benefit.

So, this is something that’s complicated. That’s why I spend a lot of time talking about it. And it’s a little more complex than the other options, but right now, I think this is a great option in terms of tax-free savings where, especially if you’re accumulating wealth, that’s a good option. And then even if you’re retired, I have clients moving money on a regular basis from their pre-tax accounts, paying the tax moving it to a Roth or moving it to IUL because also the nice thing about IUL is that IUL can be asset protected. So, that’s a nice benefit of something that is tax-free.

Another question 529 versus an UTMA. 529 has to be used for education, completely different than an UTMA. UTMA is like a savings or checking account. I forget what UTMA stands for. There’s UTMA and UGMA, Under-Age Trust Management Account, Under-Age Trust Guardian Account, maybe. But those are basically checking or savings, where you manage it until the child reaches 18 or 21. I don’t really recommend those because once the child turns 18 or 21, they can do whatever they want.

And so, I’ve had clients that set those up in the past and then their kid reached that age. And they’re like, “Oh, shoot. I don’t want that child inheriting that money because they’re not going to manage that money properly, so what can we do at this last minute? Even though they’re supposed to get access to these funds? What can we do at this last minute to try to protect that money?” And so we’ve had to do things like move that money into LLCs or something like that.

UTMA stands for Uniform Transfers to Minor Act. Thanks Mark. UGMA stands for Universal Gifts to Minors Act. Again, both of those are similar in the sense that they’re checking savings accounts, basically, for minors, but once they reach that age, then they can manage that money. And I’m young enough to remember what I was doing 18 to 25, and if I inherited $5000, $50,000, or $500, I would have been the coolest kid on campus. But that would have been my only year on campus. That’s why if you did want to do something like that, there are certain types of trusts that you could still control it and then you could decide how the money is doled out to the kids. And you could also get it out of your estate potentially. So I would look to maybe trust versus UGMA or UTMA.

All right. And then that is that. Let me answer a couple of these last questions that just came in.

“My family had a trust that was written in Michigan. I’m buying a home in Florida. Does our trust needs to be revised to meet Florida laws?” So, this was from Ed. The answer to that is no. A trust, whether it’s in Michigan or created in Florida that can own property in any state. Likewise, you can move, you can transfer, or you can set up a trust in Michigan moved to Florida or moved to Georgia and that trust will still be effective in whichever state. I would recommend that if you do move states that you have your medical power-of-attorney reviewed, that’s something that’s very state specific. But your trust, LLCs, the focal point of that estate plan, excuse me, that does not have to be updated for any changes in state.

Phil wrote in, “It looks like the tax-free category includes from funds from after tax.” It can. So, I like to break it up. And so first, I call anything tax deferred, it’s always going to be taxed. It’s just a matter of when will it be taxed. And right now, the tax is artificially lower due to the Tax Cuts And Jobs Act plus the pandemic and the $30 trillion deficit we have, a lot of people think taxes have to go up in the future. So, if that’s the case and we know that these IRAs and 401Ks and 403Bs have to be taxed, we might as well pay the tax now, rip off the Band-Aid now at a lower tax rate, because we know taxes are going to go up in the future.

So again, I hate to keep banging the same drum, but almost every situation, it makes sense to explore the concept of paying the tax on these pre-tax accounts. Now, there are certain situations where it might not make sense, depending on your tax bracket, but I would say nine times out of 10, it’s going to make sense to pay at least some of the tax each year, if not all of it on those pre-tax accounts, just from a tax perspective. And then you factor in the other things like asset protection, more freedom and what you can invest in, a lot of times it makes sense to do that.

So, anything tax deferred IRA, traditional IRA, traditional 401K, I call that always taxed. You always have to pay the taxes. It’s just a matter of when are you going to pay it. And like Ed Slott says, “The goal is to pay the least amount of tax as possible.” Ed Slott, he’s a well-known CPA I’ve worked with and worked under. And he’s a really smart guy, you can look into Ed Slott. He’s written some really thick books, like if you’re one of those engineering types, I recommend the Ed Slott book that talks about taxes and the retirement tax timebomb sitting in your 401Ks or IRAs.

If you’re not an engineer, and you don’t like huge spreadsheets, and you want a simple version, I recommend a book by David McKnight called The Power of Zero. It is a little insurance heavy, but the concepts are still, I would say viable. Trying to get to the most efficient tax bracket as possible for your retirement and then what you leave for the next generation.

Michael writes in, “What are some insurance companies that have good tax free options?” The answer is it depends. It really depends because these insurance companies are changing the rates on a regular basis. And typically, once you get into a policy, you’re kind of locked into a certain extent. So, I’ll share, I have a Policy Pacific Life, that when I got into it, it had a cap. So, different policies will either have a cap on. It can only get so much in terms of returns, or typically, it will have what’s called a participation rate. With a cap, mine is capped, it has a, if I remember correctly, an 11% cap. So, if the market goes up, 20, I get 11. If the market goes up, seven, I get seven.

So, last year, my Indexed Universal Life had a rate of return of 7.8%, which is pretty good considering the ends downside protected versus participation rate. Participation rate might be, you get 50% of the upside. So, if the market goes up 15 points, you might get seven and a half of that. If the market goes down 15, you don’t lose anything. So, the insurance company is depending on how many people they have moving forward, because they want to balance out insurance and annuities, they’re kind of adjusting the rates prior to getting into that policy.

So typically, again, what we do, and I hate to go back to this as we figure out what is your goal? So, is that policy a death benefit? Is your policy a long-term care benefit? Is your policy tax free income? When do you plan on taking the tax-free income? Those are all factors to help us figure out which strategy and then which tool. And then we would figure out which company is offering the best rate, and which is the highest rated company at that time. We’re completely independent, so we’re using just the best A-rated companies available.

But typically, there’s a handful of companies that we are utilizing for Indexed Universal Life because they’re offering the best rates. They’re the best respected and best-rated companies, companies like Oleon, Specific Life, Symetra, Strategic Benefit, Minnesota. Yeah, so those are a couple of the big ones, just off top my head.

All right. And get in your questions as I’m wrapping up here. Here’s a question and this is from Phil, “Should ownership of a titled vehicle be transferred into a revocable living trust?” Typically, what I would say is no to that, because a revocable living trust offers you really no benefit while you’re alive. It just avoids probate and controls the distribution upon death. So, if a vehicle is less than $60,000, typically, we recommend not to do it so that you don’t have to worry about going to Secretary of State which is pain in the butt right now. And also, you don’t have to pay any transfer fees.

Because if it’s, say, less than $60,000, if your only goal is to avoid probate and have it pass to a beneficiary, upon death, they can do an affidavit with a death certificate to transfer it to next of kin. So, vehicles typically we would not title in a revocable living trust. I do have clients that have like classic vehicles that they think were valued at say $100,000 or $200,000 and we set up an asset protection trust. In that situation, we did move the title into that trust.

Phil wrote in, “What are the advantages of backdoor Roth IRA? Is it useful only when your modified AGI exceeds the income limits for a contribution?” So, backdoor IRAs or backdoor Roth IRAs, your contributions to a Roth IRA is limited based on your income. And so if you’re over the income limit for a Roth, you can do a backdoor Roth. And the income limit for a married couple is about $200,000, if I’m not mistaken, and it’s phased out. So, if jointly, your income is over that amount, you cannot contribute to a Roth, you can’t contribute the six or $7,000 to Roth because of your income. And so that’s where what’s called a Rich Man’s Roth, which is an Indexed Universal Life that has no contribution limits.

Another approach is to do what’s called backdoor Roths, where you move the money into like a 401K IRA, you roll it over to an IRA, and then you’d basically do a Roth conversion on the year that you do it. So, really what it is, is annual Roth conversions, but it has a catchy name of a backdoor Roth while you’re working, but really, it’s just a Roth conversion. So again, what we would do is we would look at your tax brackets to see where you’re at. And again, if you’re at the 22% tax bracket, it’s almost a no brainer to fill up the 22 as well as a 24% tax bracket. If you disagree with me, I’d be happy to have a conversation and go over the numbers with you. But in almost every situation, if you’re in the 22% tax bracket, you should be filling that up right now and then maybe even getting into the 24% tax bracket.

But Roth conversions whether it’s done through a backdoor Roth, that may make sense. You also might want to explore, again, I think people get hung up on looking at the Roth as the magic bullet, the silver bullet, that’s not always the right approach. Sometimes a Roth might not make sense. And you might want to look at other options like IUL or 529s or health savings, or even just pulling the money out and putting it into a brokerage account might make sense.

“Why use a Ladybird trust?” So, it’s a little bit of a misnomer. We have what’s called a ladybird deed. So, a ladybird deed is a type of deed that, and let me see if I can find this real quick while I’m on the call. But a ladybird deed is a type of deed and I just had a conversation with the client today. I can’t find it real quick. I’m sorry. I’m typing and writing at the same time because we have an article on ladybird deeds. I may find it. All right. So, and I’m going to put this into a chat, and it’s going to go out to all panelists and attendees. So, there’s our blog, if you haven’t checked it out. A lot of great information there.

But a ladybird deed is a type of deed that says it’s in your name while you’re alive and then upon death, it avoids probate and goes to whoever you’ve named as a beneficiary. And so, we do a ton of ladybird deeds, because it’s a great way to avoid probate. That’s how we fund real estate into your revocable living trusts and even if you don’t have a trust, and you have a will-based estate plan, it’s a great way for the home to avoid probate. So, if you’re looking at avoiding probate, and getting the real estate where you want it, then you want to look at a ladybird deed.

Now, if we were to do a Castle Trust or if you’re concerned about asset protection or selling the house in the future, we’d want to do a Castle Trust and move the house directly into the trust, that would be different than a ladybird deed. What you don’t want to do is what we call the deed in the drawer trick. Where you do a quitclaim deed, you sign it, but you never record it, we call that the deed in the drawer trick. There’s a lot of problems with that you’re violating the property tax transfer rules, plus, there’s questions of whether it’s asset protected.

Someone wrote in, “Will a ladybird deed apply to an $800,000 house?” So, the ladybird deed will avoid probate. Also, why some people do a ladybird deed is if the house is valued at less than $500,000, then your primary residence is exempt for Medicaid purposes as long as you keep it as a house. So, if you’re going to a nursing home and need Medicaid, your home as long as you don’t sell the home is exempt as long as it’s valued at less than $500,000. And then the State of Michigan can place a lien on the home after you pass away, but if it avoids probate with a ladybird deed, then the home remains exempt.

Now, if your home, the question is, will a ladybird deed apply for the $800,000 house? Well, the ladybird deed will avoid probate, but the home is not protected anymore for Medicaid purposes. So, if you’re concerned about long-term care costs, a ladybird deed will not protect the home from a state recovery, nor will it protect it from or nor will it be exempt while you’re alive. So, instead, what we’d want to do is deed the home directly to the asset protection trust to the Castle Trust, so that now the home would be protected. So, a ladybird deed is a great tool, but it’s not the tool that we always want to use and that’s the situation. If that home is valued at more than $500,000, you’re concerned about long-term care costs, we’d want to deed the home directly into the trust, the asset protection trust, not the revocable trust.

Here’s another question, “If a vehicle is owned by a revocable trust are other assets owned by the trust at risk if I’m in an accident or sued?” So, this is a big myth. A revocable living trust offers you zero benefit while you’re alive. In fact, a revocable living trust can also, in fact, hurt you from an asset protection standpoint. For example, and this is one of the reasons why we do a ladybird deed, if we have a home owned by a married couple, husband and wife or a married couple, I have to clarify that now. Owned by a married couple, now they deed that home into a revocable living trust, they’ve destroyed what’s called Tenancy By The Entireties. By moving that, so the home, if it’s less than $500,000 is exempt from Medicaid and protected from any creditors or lawsuits if one of the spouses gets sued.

If you were to deed that home directly into a real vocable living trust, you’ve destroyed that asset protection. But if we keep it as a ladybird deed, and say the home goes into the trust upon death, you maintain that asset protection. So typically, we put nothing, almost nothing directly into a revocable living trust as owners, because the revocable living trust really offers you zero benefit while you’re alive. There’s no asset protection in a revocable living trust.

That’s why so many of our clients are looking it at as Castle Trust, because they’re concerned about liability. They know driving around, there’s all these billboards for these personal injury attorneys, who are looking for any reason to sue someone that has any type of wealth. A revocable living trust is not going to protect you. Instead, we have to look to an asset protection trust like a Castle Trust. So, no, a vehicle inside of a revocable living trust is not asset protected.

All right. So I’m out of time. So, I appreciate all of these questions. I think I answered every question that came in ahead of time, all the questions that came in afterwards. Let me just run through the chat real quick.

Big thank you to Mark from our team. He’d shoot me some… he’s fact checking me as I go. I appreciate that. We should have had this more on the Presidential debates, just someone like [inaudible 00:52:49], like, “No, you’re off on that.” But all my facts check out and he helped me with some of the numbers. So, Mark, I appreciate that.

Everyone, I appreciate everyone that participated this week. We’re going to keep doing these every week. Today, we had 40 plus people, so I appreciate all the questions and comments. Robert, great to see you. Ray, Phil, Pete, Nickeil. Nabeel, Mike, lots of Mikes. Mark, lots of Marks. Kim, great to see you. John, Joe, Ed, Drew. Everyone, Don, great to see you. Danny, David, I appreciate it. Thank you so much.

Please try to share these if you get a chance. People can go to, if there’s someone that you know that you think should attend one of these, have them go to to get signed up. Again, if you have a specific question on anything we covered, feel free to go to, and we can schedule a time to chat.

So, with that, thank you everyone. Make it a great week. Look forward to touching base with you next week.


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