When Do We Need to File a Tax Return For Our Trust? | Weekly Wednesday Wisdom Webinars

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 www.castlewealthlegal.com answers the below questions.

  • I put my house into an Asset Protection Trust, what happens if/when I sell, will that affect any asset protection or governmental benefits?
  • Is guardianship necessary to protect one’s savings and life insurance before applying for Medicaid or MA waiver?
  •  When do we need to file a tax return for our trust?
  • Did the CARES act affect any IRA contributions? I’m 73 and my wife is 70? Also, will RMD’s be waived this year again?
  • (pop-in question) If you gift significant assets to your children, and you need the money later, can the children gift the assets back to you?
  • If someone suffers an event and needs assistance with daily living activities, how long will Medicare provide help?
  • (pop-in question) Can I gift items around my house to my kids, I’m trying to downsize my home, does that count as gifting?
  • (pop-in question) First monies out of IRA has to be RMD, not ROTH?
  • How will my family know where my estate documents are, should I share with them now? Should my kids get their affairs in order?
  • We have a Lady Bird Deed to our trust, we want the house to just go to one of the kids. The trust says all the kids, how do we change it?


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Episode Transcript

All right we’ll go ahead and get started looks like a little off-center that’ll be all right so welcome everyone my name is Chris Berry we do these weekly webinars once a week mark ba our retirement legacy planner took care of it last week while I was out with a full hip replacement so the positive focus I always like to start with a positive focus is something positive that happened is that I got my hip replaced and a week ago last Tuesday and  I’m doing pretty good and back to work and I’ll be back in the office starting next week.

Modern medicine it’s pretty amazing and I appreciate all the well wishes happy St Patrick’s Day. I did get those questions, so we’ll go ahead and address those and on these webinars. We answer the question growing the beard yeah so my kids wanted me to grow a beard while I was out of work for the week so see how much gray I have in the beared. Now have a few green undershirts to celebrate St Patrick’s Day. Thanks, Vicky yep  I’m doing well but what we do is just answer your questions live.

Anything legal financial tax planning we go ahead and set these up as a weekly time to answer those questions. And I had a lot of questions submitted so I appreciate that and if technology will work with me here. I will share my screen and we’ll dig into it hit this button and that button and this button do and I hit this over here. Now we should be good.

And as  I’m going through this I do have a lot of questions to cover this week but if something’s unclear you do have a question on it feel free to just put it into the chat and I’ll try to answer it on the fly. Then if you do have a question that pops up feel free to put in the question-answer section and I’ll try my best to get them answered. I do want to make sure I cover everything and if something you want to see how it applies to your situation always you can just reach out to our office just shoot us email or give us a call. Because this is kind of general advice but feel free to give us a call anytime at 844 8885 4200 or you can book some time on my calendar by going to 15chris.com which redirects you to our booking page.

So with that we’ll go ahead and get started. So first question “I put my house into an asset protection trust well not we actually did what happens if when I sell will that affect any asset protection or governmental benefits?” so I use the general term asset protection trust here because there’s different types of asset protection trusts depending on what we’re trying to do in this specific situation we were helping someone get qualified for va benefits as well as build in protection for Medicaid.

Now the nice thing about our trust as it relates to real estate so think of it as we have a home your primary residence right and you have certain like tax exemptions and things that go along with that. And the nice thing about our trust is that whenever we set up one of these asset protection trusts and we move the real estate into the trust to use a technical term this is an important kind of tax term these are what’s called even though they’re asset protection trusts they’re called grantor trusts. Meaning from a tax perspective they’re tax-neutral it doesn’t cap any of your property taxes or anything like that. And then the nice thing and we have these two different governmental benefits and both of them have look back periods where they look back now to see if you’ve made moved any money around the va benefits so if you’re a veteran or surviving spouse of a veteran we can bring an extra thousand two thousand dollars a month to help pay for the care.

Both of these programs and then we have Medicaid which can help pay for nursing home care but both of these programs have look back periods meaning they’re going to look back to see if you moved any money around and if you have they’re going these different governmental programs could potentially penalize you based on the fact that you’ve moved this money around. And so one of the questions we get quite often is that if I set up a asset protection trust move the house into the trust and then later I sell the property well the thing is all you’re doing is changing the nature of the assets inside of the trust you’re just going from real estate to cash.

But as long as it’s done all within the confines of the trust which in this situation it would be it does not restart that five-year clock so let’s say we set up the trust in 2017 let’s make it easy 2015 right so that’s when we set up the trust now we’ve gotten to 2021 which means we’ve passed the look-back period for va or Medicaid. So everything inside of the trust is now protected and then let’s say we sell the house well guess what it does not restart the five-year clock so all the proceeds of the sale would be protected because we move this piece of this asset into the trust in 2015.  so that’s one of the nice things about these asset protection trusts that we set up is that sure you might say the home might be exempt while you’re alive from Medicaid or even va but a lot of times our clients will want to sell their house either downsize or maybe they need to transition into assisted living.

Well if they sell the house and it’s inside of the trust then everything inside of the trust is going to be protected from that nursing home or Medicaid look back or or the va benefit look back so we don’t have to worry about losing our benefits. So yeah that’s the nice thing about setting up the trust is that it’s not going to have any type of negative effect on selling the house you can do that you don’t have to worry about any other time frames or keep it as cash or anything like that. Once you’ve made it past the look back period or once it’s inside the trust all you’re doing is changing the nature of the assets and the trust. So you can go from real estate to cash to another piece of real estate to different investments you can do that all within the trust.

Okay so hopefully that helps number two is a guardianship necessary to protect one’s savings and life insurance before applying for Medicaid or the Michigan waiver program? We kind of have two different governmental program two different Medicaid programs the main one we deal with is Medicaid more for nursing homes. A nd the reason for this is that a nursing home is gonna run you eight to twelve thousand dollars per month so we’re looking for any way we can to try to make it mitigate those costs then we also have what’s called the Michigan choice waiver program. This can be helpful for home care and it can be used for assisted living assisted living facilities.

But the problem with this is typically there’s a long wait period and it depends on how long that wait period is it’s been as long as like nine months to 13 14 a year and a half to qualify for the Michigan waiver program so  because there’s not enough federal funds that go to it it’s first come first serve this is administered through typically the agency on aging we don’t deal with the Michigan waiver program too much just because most people can’t qualify also there’s a income test for the Michigan choice waiver program as well so for a variety of reasons we don’t deal with the Michigan waiver program too often just because it’s not feasible for most clients.

But the question here was do I need a guardianship the answer I would say here is typically no. And really what we’re looking at is the difference between relying on powers of attorney or disability documents versus guardianships. The big things with guardianship is that now you’re having to go to court right so the problem here is you’re going to probate court while someone’s alive to be able to make decisions for them. And now it’s going to be the court deciding their fate versus this could all be handled through the proper financial powers of attorney or disability documents. So we would have a financial power of attorney to make financial decisions and a medical power of attorney to make medical decisions it’s the difference between creating your rule book versus relying on the government’s rulebook.

And really you’re going to only need either the powers of attorney or guardianship if you need to make decisions for someone. If you do need to make decisions for someone ideally we would go with well-drafted financial medical powers of attorney and a personal care plan that’ll give you the ability to make decisions for that person now what that does not do and this is where sometimes we do have to go the guardianship route, is that if that the financial powers of attorney do not take away the individual’s ability to make their own decisions.

So if they’re making decisions that are harmful to themselves or if they really have zero capacity whatsoever they can’t sign they don’t recognize you they’re not even having lucid moments then we might have to go the guardianship route I call that a nuclear bomb option it’s like the last resort because now you’re getting the courts involved and you’re taking away someone’s independence versus if you go to the financial power fraternity routes and medical power of attorney you’re keeping things private you’re not having to basically sue that loved one to say they’re incapacitated.

It can be handled privately and you can do everything basically that you could with a guardianship with financial powers of attorney. Much cheaper to set up you don’t have to worry about filing fees you don’t have to do annual accountings to the courts so again if possible always try to go the power of attorney route versus going the guardianship route. But either way they’re not required to get someone qualified for Medicaid but a lot of times you will want to have those disability documents in place because there’s a lot of work that has to be done you have to gather up a lot of information work with different financial institutions and especially if someone they don’t even have to necessarily be like incapacitated dementia alzheimer’s they just might not want to deal with all the paperwork and that’s where the powers of attorney can be used even if someone’s not really incapacitated.

Maybe they just don’t want to deal with all the paperwork we could put together a powers of attorney to get that taken care of. So I much prefer prefer the powers of attorney versus the guardianship. See if we have any questions no good all right “When do we need to file a tax return for a trust?”. Again,   I’m going to go back to this tax term that we used most of the trusts that we set up are what’s called grantor trusts and what a grantor trust versus and this is complicated I i have to go over this with  some of our trusts with cpas and financial advisors and other attorneys  I’ve done continued education on some of these trusts even nationally so understand it this is kind of deep level stuff even when we’re setting up asset protection trust the majority of our trust our grantor trust which means that they’re in the individual who sets it up in their social security number.

Which means it just shows up on their own social security or its own tax return most of our trust you don’t have to do separate taxes because we have a revocable living trust or even one of our castle trusts or asset protection trusts. There’s a handful of times where we do non-grain tour trusts in this situation the tax or the trust would have its own tax id. These are called employee identification numbers or tax identification numbers and that’s where the trust would have its own tax return.

Now sometimes a grantor trust can later become a non-grain tour trust upon death so if the trust is going to operate for a period of time so my mom and dad set up a trust and then upon death it becomes an ongoing trust for the benefit of the kids or one of the children. Then that grantor trust may become a non-grantor trust and then upon death then we might have to get a separate tax id number and now that grantor trust becomes a non-grantor trust.

And now we might have to do a separate tax return for the beneficiaries. But typically when you set up a trust you’re not going to have to do any different anything different from a tax standpoint on your trust. It might work a little bit differently upon death depending on how the trust is set up. Okay?

Number four and these were two questions I got from separate people I kind of combined them into one did the cares act affect any ira contributions  I’m 73 and 70. so last year there’s some changes with regards to whether you had to take out rmds you did not have to required minim distributions you did not last year. Because of the cares act which passed in march so if you’re over 70 and a half actually 72 and typically you have pre-tax accounts that you had to take money out of because you had required minim distributions,

That was waived last year because of the cares act. Actually  we had something that happened prior to the cares act and it seems like a lifetime ago we had what’s called the secure act and the secure act pushed back rmds from 70 and a half to 72 but also it allowed you to make ira contributions post 70 and a half so prior to the secure act if you wanted to contribute to an ira you could you could not do that once you reached age seven and a half but now if working so if you still have employment income you or a non-working spouse.

Thanks to the secure act can contribute to your ira after 70 and a half so if you have employment income and you want to contribute to an ira after 70 and a half you can not thanks to the secure acts which are not thanks to the cares act which really only affected last year thanks to the secure act which will continue on until further changes will be made and then a question that came in will rmds be waived again this year not as of yet but it may be possible what they’re talking about is they’re talking about pushing back the filing from april 15th.

Like they did last year they might push it back this year just because of all the changes we’re have we’re having we did have a stimulus package that just came out. Even this past week there’s been a lot of news and chatter about Biden’s future tax proposals being pushed forward so what  I’ve been telling my clients with regards to rmds this year.

Because it was interesting the cares act passed in march of last year and that’s again what said that you did not have to take out rmds so if you took out an rmd in January or February. It’s kind of weird because they changed the rules mid-tax year and you did have the ability to put back the arm to eat but it is odd when  government changes the taxes during the actual tax year so what I would recommend is if you don’t need the rmd for income yet this year.

Let’s wait a little bit to see at least how Biden’s tax proposal what that looks like, because that seems to be what’s next on his agenda. So if you don’t already have regular scheduled rmds coming out and you take the rmd at some point throughout the year, I might hold off on taking out that rmd just because there might be some other options.

Maybe instead of taking out that rmd we do something like a roth conversion or something else so again if you don’t need the income yet we don’t know if rmds will be waived this year. But I would say just hold off on taking the rmd because you can take it at any point during the year so we might as well wait until we see what the Biden tax plan is going to be if someone suffers an event and needs assistance with daily living activities. How long before Medicare provides help  so typically what happens up here’s something question all right here’s a question if you gift significant assets to your children and you need the money later can the children gift the assets back to you so let’s say you gifted a significant amount that would be greater than fifteen thousand dollars?

Because that’s your annual gift tax exclusion could the children then gift the assets back to you. The answer is yes assuming they still have the money to give back to you okay the children might have to do a separate gift tax form back or  but yeah they could always get the money back if they do have the money still there that said  I’m not a huge fan of gifting to children unless there’s a specific reason why.

I don’t recommend gifting from an estate tax perspective out right to children nor do I recommend gifting for Medicaid reasons. But if you’re gifting because you want to gift the money to the kids because they’re going to put it to something. I’m not saying don’t do it but I’m just typically not a big fan of gifting as a planning strategy. 

All right number five, if someone suffers an event needs assistance with daily living activities how long before Medicare provides help? Typically it’s going to be right away so here’s the the typical time frame a lot of times there’s some type of event that happens a lot of times we see it mom or dad fall break their hip ironically,  I’m sitting here with a hip replacement from last week but let’s say mom or dad falls breaks their hip they go into the hospital and here’s the key for Medicare.  They need to be going to the hospital and they need to be admitted not under observation but admitted for three days. Okay that is so key I was giving a workshop in person back when you could do in-person workshops  and an individual came up to me and said their mom was in the hospital for two and a half days and then she was discharged to rehab, and because she wasn’t admitted for the full three days the family was walking away with a 20 000 bill from the rehab. 

Had mom just been in that hospital admitted for another 12 hours to get to the three three day mark then all of that would have been waived and that all would have been covered by Medicare. So we need to be admitted for three days to the hospital and then we can be discharged and a lot of times we’ll be discharged to rehab. 

And typically what’s going to happen is Medicare will cover the first one to 20 days with zero out of pocket 21 to 100 you’re going to have a copay unless you have supplemental Medicare insurance and this is why you’re a big fan of getting a supplemental Medicare policy if you have supplemental policy then you still have zero out of pocket typically otherwise it might be about 172 dollars per day and then after 100 days Medicare runs out and then also Medicare  can cover things like home care during for rehab it’s not going to cover like 24/7 care. 

But you can do some rehab at home now, the key for Medicare to continue to cover things one is there’s going to be a time frame at most 100 days second you need to be rehabbing you need to be participating in your rehab. So don’t just assume you’re going to have the full 100 days I see a lot of families that are surprised when the nurse the social worker says all right Medicare is running out we need to have a discharge plan for mom for a rehab so don’t just assume that you’re going to have the full 100 days. 

But typically Medicare is going to kick in right away assuming you do have that life event another gifting question coming in “Can I gift items around my house to my kids  I’m trying to downsize my home does that count as gifting well?  I’m going to give you the legal tax answer and then I’ll give you a real world answer the legal tax answer is that you can gift up to 15 000 per year without having to fill out a gift tax form or even worrying about it. 

So you’d have to figure out am I gifting more than fifteen thousand dollars worth of personal items around my kid or around my house as  I’m downsizing to my kids is that amount greater than fifteen thousand  if it’s less don’t even worry about it if it’s more technically you should be filling out a gift tax form to notify the irs you’re cutting into your lifetime gift tax exclusion now the real world answer is that if it’s personal items how do you know you own it like a couch you just kind of do so it’s not going to show up anywhere so I wouldn’t really worry about gifting personal items around the house. 

I’ll tell you one thing about it though is make sure maybe in terms of your overall estate planning make sure everyone’s on understands what you’re doing maybe put like a a letter of instruction in your estate plan because  I’ve seen families come back and seen after mom passes away or dad passes away some disagreements of like well all of a sudden like this watch or this piece of jewelry showed up in so-and-so’s house did they take it or was it was it gifted so  that can create some family dynamic issues. 

But I wouldn’t worry about it from a tax perspective another question first monies out of ira has to be rmd not roth conversion  correct yeah so if you do rmd you can’t later re-characterize that as a roth conversion that’s why  I’m recommending that you wait on taking out any rmds this year. 

All right how will my family know where my estate documents are should I share them now should my kids get their should my kids get their affairs and orders  so this is always a big question is is how do I make sure that my family’s on board with everything  and I kind of leave it up to the family in terms of how much you want to share if you’re everyone’s on good terms and you’re open with your kids they all have good heads on their shoulders and you really have no concerns then I would say kind of open up the books give them electronic copies of everything make sure they know where your originals are. 

One of the things that we’re exploring as a firm is the ability to create basically an online estate plan for clients where everything will be housed online and you can so that god forbid something happened to you we could have it trigger once we’re notified so that then maybe your successor trustee can get online access to everything that we’ve put together so that everything’s organized. 

Because we see this as a common issue it’s something that we’re exploring as a firm especially as more and more clients become more familiar more comfortable with the online experience because things are moving more digital like you’re doing online banking and everything these days  so we’re looking at kind of creating an online portfolio, where all this information could be housed in a secure portal for successors. 

But for right now if you’re open with them at the very least tell them where these important documents are and then also if you are open with them you can send them electronic copies with provided electronic copies of all of the signed documents. So, God forbid something happened to you they would be able to work with the financial institutions make medical decisions etc. also back when we’re doing more in-person things we always offered we would do it twice a year a successor trustee workshop where we’d invite your family members trustees to attend a workshop where we go over everything generally and then if you’re one of our ongoing client care program where we’re meeting an annual basis or one of our financial clients we can always do what we call a family meeting where you bring your family in whether it’s a zoom or a big 20 person conference room and we go over a big picture of what needs to happen we open up the documents and we don’t get into assets like mom and dad have x amount of dollars unless you want to. 

But we kind of do a fire drill of god forbid something happened how would we what are the stops how are things handled so if you’re open with family I would share as much as you can because even though if everything is organized it is a stressful situation and we even have checklists to help people should my kids get their affairs in orders yes I know someone that can help them with that but yeah anyone really over the age of 18 needs to have at least what we call disability documents they at least need to have a financial and medical power of attorney  because once you turn 18 legally you’re an adult. 

So even if you’re a parent and you have like adult age kids that are away at college god forbid something happens to them you can’t get access to their medical records you can’t make medical decisions for them it has to be in writing and look just look at the terri schiavo situation she was a woman down in florida she was in her mid-20s she was incapacitated in a vegetative state her husband wanted to remove her from life support her family wanted her to remain on life support became a big core battle lasted over eight years all because she didn’t have just the basics like a financial medical of attorney so should my kids get their affairs in order yes and then if you’re are interested again we’re working with an online kind of option for this so that all of these documents all of your where all your accounts could be housed could be shared with your successor trustee. 

So that’s something we’re kind of working out right now all right number seven we have a lady and I saw a question come in oh this will fit nicely in the question so we have a ladybird deed to our trust we want our house to go to just one of the kids the trust says to all the the trust says all of the kids how do we change it real easy all we have to do is amend the trust okay so typically what we do is let’s say you have a home and really there’s two ways we handle things so first would be back up here if we have an asset protection trust we almost always deed the house directly to the trust. 

We put the real estate directly in the trust for the reason I described in our very first question we want to be able to sell it etc so whenever we do a castle trust whenever we’re doing an asset protection trust we deed the house directly we deed the real estate directly to the trust now if we’re doing a revocable living trust oops so this will be our second way to handle things if we’re doing a revocable living trust then typically what we’re doing revocable living trust is we do what’s called a ladybird deed and so what the ladybird deed says is a home is in your name while you’re in your lifetime and then upon death that’s when it transfers into the trust. 

Okay so basically a ladybird deed is like a beneficiary designation for your home okay so the home is in your name you can refinance it you can do whatever you want you can sell it and then upon death it goes into the trust it’s like a beneficiary designation upon death flowing into the trust and in this situation I think we had the home going to four individuals.  

If I’m not mistaken, two kids two grandkids right so that’s how the trust says and so and so the question that came in here what are the benefits of having a house and a ladybird deed versus a trust  well the big thing is ladybird deed is you’re just giving it outright to a individual and that’s it’s kind of the pillowcase of money approach and especially like in this situation you would have four people named on that deed and now all four people have to agree for what it’s sold for etc it becomes a hassle like if you’re if you only have an only child and you’re comfortable giving an hour to them you can do maybe just a ladybird deed but if you have multiple people you’d want just like one trustee to hand it to handle the closing and everything so the deeding it  ladybird deed to the trust makes a lot more sense plus with the trust we can build in the asset protection for the lifetime of the beneficiaries protecting the kids from creditors protecting the kids from divorces. 

Making sure the money stays in the bloodline that’s only available in a trust that’s not available in a ladybird deed ladybird deed avoids probate which is important but it doesn’t build in the protections doesn’t make it as easy to sell does the lady bird d protect against long-term care the law short answer to that is no  you can protect your primary residence if it’s voted up to five hundred thousand dollars assuming you keep it as a lady bird deed but typically if you’re concerned about long-term care you’re still going to want to deed it directly to an asset protection trust so the trust says all the kids how do we change it so all we do is we just do an amend that we amend the trust to say now I want the house to go to that one specific kid and then everything else split up evenly so real simple to amend the trust all right ah let me see how we’re doing on time we’re doing good doing good on questions. 

And okay what is the difference between a castle trust and adaps so adap stands for domestic assets protection trust a big thing here is with the asset adapt it’s created by statute and it’s really only valid in the state of Michigan versus a common trust common law gives it its powers meaning it works throughout the whole us so a big question I have is what happens if I move if you set up a domestic asset protection trust it’s localized in Michigan and if you were to move to Florida or South Carolina or Georgia you’re probably not going to want a domestic asset protection trust that is only valid by statute in Michigan. 

Also with adapts so I’d say this is a negative you have to give up control you cannot be the trustee cannot make changes and oh non-grand tour trust so it screws up your taxes  and I was kind of part of the group of attorneys working on  the asset protection the dapps for the state of Michigan and the  the state bar of Michigan so it serves its purpose but again a castle trust typically is going to be the route that you want to go because the castle trust you can make changes grantor trust big one for a lot of my clients you can move out of states you can be the trustee. 

So really I cannot foresee any reason why you would want to choose a domestic asset protection trust versus a castle trust now I might be asking well where did they come from domestic asset protection trust or why did the state buyer Michigan and the legislature put that together because they wanted a paint by numbers approach for maybe less sophisticated attorneys where if you follow like step by step all of these rules then you’ll know the state of Michigan is going to protect versus the castle trust which is valid in Michigan as well as other states  more complicated you need to know the ins and outs when you set it up you have to have a deeper net level of knowledge that’s why  I’m a certified outlaw attorney and elder law is like asset protection a code word for asset protection. 

In addition, be an investment advisor and there’s I think maybe 18 of us in the state of Michigan maybe 500 across the whole nation so if you know how to set these up right you don’t have to rely on this kind of paint by numbers approach that you’re really boxed in so that’s where the castle trust I think is much better than a domestic asset protection trust question I get often is has it been tested castle trusts have been tested yes they’ve been tested in courts and divorce court for Medicaid for our trust being challenged by the va so yeah  they’ve been tested and they’re valid so again I i can’t see a reason why I would for any of my clients because I understand how to do this ever recommend a domestic asset protection trust and I think state Michigan it was probably five years ago I could be wrong it’s just off top of my head comment come in thanks so much chris have ducks to have to duck out now great information oh thank you when should someone consider alert versus roth for tax free income what are the pros and cons of lerp what is the best structure for alert if there is one is feasible in retirement?  

So in my world we have so many different acronyms  but a larp is I like I like it  and  I’ve talked about these before I just haven’t used I don’t often use the term lerp  what it is is life insurance retirement plan and I think the term was coins by someone  I’ve worked with actually and  I’m a big fan of david mcknight he wrote a book called the power of zero and then he wrote a book kind of follow a book called look be was it look before you look before you lerp  big fan of david mcknight now understand really david mcknight all he does is sell life insurance  which is not necessarily what we do not at all actually what we do  I’m a fan of life insurance and life insurance is a tool but really all alerp is is cash value life insurance typically what we’re doing is we’re using index universal life. 

So whenever I use the term index let me s hold on  I’m not sure if my screen is showing as  I’m writing so let me just whoops can I re-share my screen real quick hit that button and that button no all right yeah good all right so what is alerp really it’s a cash value life insurance  and typically what we’re using is what’s called index universal life now why you might want there’s different benefits of using a lerp or cash value life insurance IUL first of all tax-free income so I have a cash value life insurance a lot of my clients we put together kind of alert plans or cash value or IUL life insurance for tax free income.  

I’m younger most my clients are older but this is a one option when you like this might be good for maybe your children if you have children that are say age 30 to 40 and they’re accumulating wealth  I’m still accumulating wealth  I’m putting money annually into this and I’ll do so until retirement I can create pull money out of this lurper IUL tax-free so  I’m using it as one of the ways to pay for my kids college education in 10 years so  I’m putting money into this for 10 years I’ll be pulling some some money out in 10 years because it grows tax free so that money can be used to pay for my kids college tax free  I’m going to keep contributing to it because  I’m going to use it in retirement. 

And this is where a lot of my clients utilize this is they use it for tax-free retirement income most my clients who do these types of policies are I say I would say 55 to 70. so that would be where most my clients are so there’s one strategy for those within that age bracket where it’s about protecting what you have then we kind of have accumulation strategies as well and we have set up the policies different  and it’s a multi-faceted tool I could do a whole hour on planning strategy so one would be tax-free income and where a lot of my 55 to 70s year olds and even older are utilizing these are just understanding like tax buckets so you have your taxable buckets you have your tax deferred so this is like your iras 401ks money that’s pre-tax and then tax-free this would be things like roth lerp or IUL I use IUL it’s less letters so most what a lot of my clients are doing because they think taxes are going up in the future is they’re moving money from the pre-tax account over to the tax-free account. 

Granted you have to pay the tax and we’re doing things like roth conversions we’re doing things like IUL or some combination of both so tax-free income is nice now would you recommend converting non-roth money into a lerp into a roth ira would you recommend converting non-roth ira money into alert versus intro well  so doug you cannot convert non-roth money let me rephrase that you cannot convert tax deferred money  I’m sorry let me try this again you cannot do a rough conversion from a taxable account so you cannot do a roth conversion from a taxable account roth conversions have to happen here okay but  what you can do is you can move money to an IUL from a taxable account or you can move money from your tax deferred to the IUL.  

So why do I why do I ul or alert you get tax-free income your you can get a death benefit that can double as a long-term care benefit so this is something that appealed to me  let’s say I have a 500 000 death benefit well when  I’m older maybe I don’t  I’m not concerned about a death benefit but that 500 000 death benefit doubles as a long-term care benefit for home care assisted living nursing home care it can create legacy so I have a lot of clients that are looking at this as a legacy play to leave more money tax-free based on their health and their age to their kids because maybe it’s a hundred thousand dollars if they do roth conversions which are tax-free to the kids or it might be 200 000 of tax-free death benefit to the kids depending on your age and health.  

But a big difference and  I’m not saying it’s better it’s just different and so one of the things  I’m always looking for is diversification that’s how you protect against risk different types of risk right you wouldn’t have all your money in a in a specific stock right because if that stock went down you just lost your whole retirement so we have like diversifying against market risk right you don’t want to have everything in one stock right well you also want to defer diversify against tax risk you don’t want everything sitting in tax deferred a bucket because if taxes go up then the value of your accounts go down but also we can have diversification of index like one of the advantages of IUL is you have downside protection okay so this is why you might want to look at just from an investment standpoint if we have the raw and again. 

I’m not saying not to do a roth and really our process with this and I apologize for jumping around but first is we figure out how much to convert or how much to move looking at your taxes and then second where to put it and the where to put it so the how much it’s a numbers game and we can run the numbers for you it’s super easy where to put it that’s where we get into actual planning what are your goals what do you want to accomplish but with the roth understand it’s typically invested in the market so you’re going to see it go like that okay  similarly as  I’m saving for the five for my case college.  

I’m saving in a 529 it’s going to go up and down as a market right but if we have a 2008 right before we need the money then we’re subject to market risk versus like a IUL because it has the power of indexing it’s going to go up like this if the markets go up you’re going to collect the upside of the market markets go down you’re going to remain where you’re at so that’s why we might just ballpark if you’re looking at like diversification as you’re moving money into this tax-free bucket maybe you put 50 percent into the roth 50 percent into the IUL because you have indexing diversification. 

Plus maybe more more of a legacy benefit if you pass away you can build in long-term care as well so  I’m not saying everyone needs a IUL or a lerp there are downsides to it it’s time consuming to set up it’s complicated but that’s where we go nice and slow and one of the reasons we want to provide education so again our approach is figure out what are your goals what are the best strategies and then pick the right tool  I i really like the IUL or lerp is a tool  I’m not saying it’s right for everyone I myself have one I also have roth money I also have 529 money I have money in the market so  I’m not saying it’s the end-all be-all  but it is an interesting tool that’s a little complicated but it might fit into overall planning so doug hopefully that answered your questions on that and more than happy to dig into what is the cost of IUL  there’s no like cost per se you do have what’s called a mortality expense so understand that there is going to be something that goes to funding the death benefit or long-term care benefit. 

But there’s no actual cost to IUL this is different than like term life insurance so you might be thinking well I don’t need life insurance we’re not really looking at this specifically for the life insurance component like if you had a need for life insurance first we’d look to like term life insurance especially when you’re younger you’re working you want to cover a mortgage it runs for a term that has a cost this is more of an investment and typically the best way if you want to learn about it is let’s set up a call to figure out what you want to accomplish because depending on what your goals are if you want tax-free income then we’re going to set up the policy differently than if you’re looking at strictly a death benefit or long-term gear benefit versus if you’re looking at it strictly as a legacy play. 

Like the policy would be set up differently because think of it think of this as like a pie there’s different ways that we can break up this IUL like what are its different purposes we could have it all to legacy or maybe you want income and legacy it’s kind of a interesting tool it’s like a swiss army knife that can be really good at specific things depending on how you set it up like we can have it we can have it where it could be could do all things or it could do just one of those things really well that’s where again these are complicated that’s why I spend more times on something like this than say a roth conversion roth conversion it’s pretty easy how much to convert and then what do you invested it versus a IUL it’s like first of all do I need one do I want one if so what one do I want to set up is it right for me there’s a lot more that goes into it all right number 10 IUL protects against downside but typically are not good growth vehicle but has side benefits of death. 

So Doug I’d put so  I’m sorry that’s a single someone out so someone writes in that the it’s not a good growth vehicle I would push back on that  because depending on how it’s set up like mine and a lot of my clients if we’re setting it up as tax-free income it can be an amazing growth vehicle because you have downside protection and you have tax free income  you can see rates of return of  like I can’t make guarantees and talk about I need to make sure that past performance doesn’t equal future performance but my quarterly policy just came in and it had over 8 rate of return so that’s pretty good for something that has downside protection so depending on how you set it up it can be a very good growth vehicle it can be a very good accumulation vehicle how depending on how the io is set up. 

If you want to set it up for growth it can be an amazing growth vehicle and in fact if you email me I can show you a chart that shows that over the last 20 years depending on how the policy has been set up IUL has actually outperformed the market over the last 20 years because you’re taking out the downsides  so again I could you tur angelo writes in could you change term life to IUL typically no unless you originally took that as an option  and even then your term policies they might be able to be turned into permanent policies but you wouldn’t be you wouldn’t be able to turn it into an IUL what you could do and what some people do and  I’m not saying rush out and do this is you can stop paying on that term policy or stop paying on that long-term pure traditional long-term care insurance policy and instead invest that money into a permanent option. 

But again  I’m not saying do that we need to see kind of what we’d be giving up if we were to do that last couple questions here I want to make sure I get them done with the last 10 minutes. 

Our mom is in good physical condition but her alzheimer’s is nearing the point of her needing more care she hasn’t done any planning is there anything we can do to protect our assets from Medicaid nursing homes spend down at the last minute the answer is yes. We can always do what we call Medicaid crisis planning to be honest I could do a whole hour on how this works but really we have two main strategies one if we have a single individual one if we had married with one spouse needing care  but long story short even within that five-year look-back period that we talked about. 

The Medicaid had this five-year look-back period there’s things we can do if you have a loved one nursing home right now typically we can put together a Medicaid crisis plan to protect at least or right around about 50 of the assets. 

So if you had a loved one in nursing home right now paying 12 000 a month we could put together a strategy to protect roughly half of her assets or his assets it’s complicated how we do it it’s messy I much prefer planning ahead much easier much less costly to do that type of planning much less stressful much less work on your part to get us all the information  so again if there’s one thing to take away from these the earlier you start thinking about these ideas and start planning the more options you’re going to have on the table and the better those options will be last question that came in ahead of time. 

What is it about a trust that keeps it private while a will has to go through probate why simple letter that indicates where stuff should be treated as available or why shouldn’t that be as a valid document so with this my answer is don’t kill the messenger like I didn’t create the laws I didn’t create the rules what what happened is people did things and there weren’t rules around them people took advantage of them and then people created rules one of my goals this year is to read 52 books and I think  I’m 18 into it I have a stack of books I want to read versus a stack that  I’ve already read and I think  I’ve eighteen I have to double check  but a lot of the books.

I’m reading are like biographies on some of the great families and great men and finance so I read books on the rothschilds and  rockefeller and the house morgan and how the morgan bank started and and then now. Thanks to a referral from a client and I can’t remember who it was and if you’re on the webinar,  I’m sorry I forgot your name or forgot who recommended. 

But as  I’ve been laid up with this hip replacement  I’ve been watching on amazon prime a series that was done in 2012 called the Men That Created America that might be butchering the title, but it’s on amazon prime and it’s basically a documentary where they hire actors to play some of the roles. 

But it traces the Vanderbilt family to the Rockefellers to the Carnegies to the Morgan family to Henry Ford. But one thing I take away from that is just how ruthless business used to be back then and we look at like unbridled capitalism and not to get into a political discussion but some of the some of their activities were were pretty ruthless hiring pinkertons and and everything like that. 

So the reason I share that is the reason we have these laws is because people have done things and 90 of the time you would think that okay just a handshake deal should work but there is the the 10 or even less the people that screw things up like if you look at the common thing is look at the mattress. 

Right, your bed bed mattress has that thing that don’t rip this off it’s illegal to rip off this tag like someone had to rip that tag off and like done something or the Mcdonald’s cup where or you look at the silly warnings on different things like batteries don’t need a battery it has to now we have to have a legal warning on it  so I don’t know why it has to be so difficult. 

But yeah the way that our laws work wills go through probate court  and probably the reason why that we have the rules is because of family dynamics people are fighting over different things when mom or dad passes away so they had to codify how to create your rule book so things have to be witnessed a certain way things have to be notarized and so a will give instructions to the probate court certain formalities have to be followed at will unless it’s written in your own handwriting. 

Has to be notarized you can have two witnesses with it a trust and this is one of the reasons I got into reading about the Rockefellers and the Morgans and the Rothschilds is looking back at these early trusts. Which was kind of interesting and how trusts have evolved since then  but yeah trusts are private documents trusts are basically a legal contract so it follows different rules than a will  but my job is to take the stuff that’s super complicated whether it’s legal or investment strategies. 

And my job is to kind of nerd out it’s my kid’s favorite word right now is they’re reading my eight-year-old daughter’s reading a 400 page book and my son got some books on like the holocaust he’s 10 from the book fair he that and so common word they’re throwing around as they’re watching me read these kind of bigger books they’re kind of a word for them as nerd and we’re trying to tell them there’s a good thing nerds kind of run the world. 

But it’s my job to nerd out on these complicated things and try to make them as simple as easy to understand as possible so but that said I don’t create the rules the Medicaid rules why life insurance falls into code 7702 of the tax code to be tax-free. 

I don’t create the rules it just kind of happens so with that that was all of the questions that were submitted ahead of time anyone have any last questions great series thanks vicki my pleasure it’s great to be back in the saddle  now here’s a question just came in if I put the lady bird deed in the trust now versus waiting to my death would I still be a lady bird deed or owned by the trust  so again typically what we’re doing with the what a lady bird deed is basically a beneficiary designation for your home. 

So the home is titled in your name you’re the owner of it and then upon death then it flows into the trust the lady bird deed is recorded right away so we take it to the registered deeds so they know that it’s in your name for your lifetime and then upon that that goes to who we’ve listed as a beneficiary typically that’ll be the trust  so let me re-read that re-read that question if I put the lady bird deed and trust now versus waiting to my death. Would it still be a ladybird deed or owned by the trust? Yeah, so if you do the lady bird d now because it’s a beneficiary designation it’s owned by you while you’re live and then only upon death does it flow into the trust so versus if we were to set up an asset protection trust. 

We would deed it directly to the trust and the trust would be the owner and typically we would have you as the owner of the trust and then you could sell the house and do whatever you want refinance it within the trust. 

But you do it as trustee of the trust thanks thanks chris great job as always glad to hear you’re feeling okay thank you elaine joe thanks again this is a great review glad to have you have you back thank you so much Joe great to be back so with that thank you everyone thank you so much I appreciate it, make it a great week and I look forward to seeing you next week make sure to share this the more people we have on I love these questions and I really appreciate everyone logging on and and submitting their questions I love the interaction especially as we’re still a little bit locked down.

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