What Are Some Ways to Provide For My Grandchildren as Part of My Estate Plan? |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.

  • What are some ways to provide for my grandchildren as part of my estate plan?
  • What should I do to protect my rental properties? Do I need a trust or an LLC?
  • Is it safe to gift assets?
  • Should a Lady Bird Real Estate be in a Trust?
  • What is the probability of the feds raising interest rates this year as it applies towards taking a pension lump sum, am I locked into current rates until the end of the calendar year or does it change effect as soon as a change occurs ford motors adjusts each August?
  • I have a Living Trust but I’d also like to protect my assets from Medicaid should be necessary for long-term care in the future, would a ladybird protect my two homes and other investments?


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Episode Transcript

All right and we are live, all right, so my name is Chris Berry we do these webinars every week at one o’clock every Wednesday, we call them Wisdom Wednesday Webinars a lot of W’s alliteration. It’s kind of fun and really it’s all about just answering your questions so there’s a reminder email that goes out if you have questions you can submit them. Submit them ahead of time or if you’re listening right now you can log in to the q & a section just hit that button or in the chat and you can put in whatever questions you have into the chat or a question-answer section. 

These are unscripted there are no Powerpoints  I’m not covering any specific topics it’s really just geared towards providing education answering questions talking about kind of what’s going on in the world. Each week and really enjoy them and let me start by sharing my screen and always when we do this, I like to start with a positive focus just something positive that happened over the past week or so or since we’ve had our last event and my iPad is not sharing very well right now. Let me try doing it another way anyways my positive focus  I’m going to turn off video for seconds and try to find a chord to hook this up my positive focus is that my mother-in-law actually went into the hospital a little bit of a medical issue at stage two cancer, but she’s doing pretty darn well and hopefully will be coming home within the next day or so. 

So always concerning when you have a loved one needing care but she appears to be doing about as well as she can, and so we’re happy that she might be coming home soon. All right let me see if I can share my screen now Zoom’s making me install another plugin which is always fun there we go and there we go now we should be seeing my screen there we go all right now we’re going all right. So again if you do have any questions please put them into the chat.  I’ve had a couple of people or the q & a section I’ve had a couple of people submit some questions ahead of time as well as as we’re logging on this is general information. So if you want to see how this applies to your own specific situation as always book some time on the calendar to and then we will see how this applies to your situation. 

And again just like last week if you haven’t I’m going to put a link right into the chat so everyone can see if you like this webinar and you’re happy with it you found it valuable could just leave us some feedback and especially if you’re on a computer and just flip on your camera a little video would be great as well. All right so with that we’ll go ahead and get started so we had two questions submitted ahead of time plus a couple of questions that came in so I’ll make sure to answer those questions that just came in, but first, the questions that were submitted ahead of time so what are some ways to provide for my grandchildren as part of my estate plan. So this is a question that was submitted and it’s a question that I get asked kind of quite often so a lot of times around retirement age our kids will be adults and now we have grandchildren coming into the picture, and the question is do I provide for my kids or my grandchildren.

How do I incorporate them, I don’t want them to feel left out there are different ways to do it and so one way is we can just do like a specific gift of a dollar amount so let’s say you have three kids you say everything goes to my three kids but right off the top you want maybe I’m just making up numbers like ten thousand dollars to go to each grandchild right. So it’s nice because you’re picking the dollar amount you know exactly what’s going there one concern I have whenever we say specific dollar amounts is we don’t know how much money is going to be leftover at the end of the day so you might be maybe giving too much to the grandkids versus your children another option is we give a percentage so it’s not uncommon to say all right you know what I want 90 of whatever is leftover upon my death to go to the kids. 

And then maybe 10 to then go to we call it living grandchildren just the idea that we look to the number of grandchildren, we have at the time of death and then we can split it up evenly amongst the named grandchildren and typically we build in language to say that we have this underage language that we typically build into our estate plans and trusts to say that if they’re less than 25 it’s going to be held in trust. And the trustee would manage it to pay for their school or college or braces or support whatever it may be and then once they reach 25 then maybe they can inherit that money outright so those are kind of the two standard ways we either carve out a percentage or we make specific gifts. 

I was having this conversation with a client recently and here’s kind of an outside the box approach with the idea of leaving a legacy and making sure that you’re remembered so it’s nice to kind of leave a chunk of change to the grandkids but this is kind of a cool idea all right so let’s say we have Jim and let’s say Jim is 70. All right and let’s say there’s a grandchild we want to provide for. Let’s say I’ll just take my daughter’s name my dad’s name’s Jim actually, so maybe I’m making this recommendation to my dad and we’ll take my daughter Maddie and let’s say Maddie is eight which she is she has a soccer game tonight that I’m coaching so wish us luck on our soccer game. We only have two left it’s been a great season coaching but what we could do is Jim could set up and we’re going to talk about, like an insurance product. Jim let’s say he has a chunk of money that he doesn’t necessarily need right now and I’m just making up numbers so let’s say he has a hundred thousand dollars. Well, what he could do is turn that into a fixed index annuity that offers income for the rest of his life but it could be tied to Maddie’s life as well and so now that hundred thousand dollars could be and I’m just making up numbers here. 

I really have no idea just off top of my head what the numbers would look like, but it could be a two thousand dollar check per year for the rest of Jim’s life but then also it could be tied to Maddie’s life as well and so when Jim passes away Maddie will continue to get this two thousand dollar check that could arrive every year say on our birthday and it could be coming from grandpa Jim. And so it’s kind of a cool way to stay in front of or make sure that they remember you so every year for the rest of Maddie’s life she could get a check coming from grandpa Jim and I just thought it was it’s kind of a cool way to to be remembered so it’s a little of an outside the box idea and all you do is we attach a lot of times when we’re talking about income planning we think of husband and wife but we could also think of income planning as like adding a grandchild now granted the income coming to the gym it’s going to be a lot less because of the young age of Maddie but still, it’s a way to create every year on Maddie’s birthday she’s going to get a check from her grandfather who passed away. 

So just kind of like an outside-the-box idea to make sure that you’ve remembered that you’re not forgotten and that’s that was really the genesis of this question is they wanted to make sure that the grandchildren didn’t feel left out god forbid our clients passed away. So with regards to estate planning a lot of times we’re looking at either leaving a specific dollar amount as part of the estate plan which typically I’m not huge in huge favor of just because unless it’s a small or nominal amount just because we don’t know the overall value like right now we might have a million dollars and okay we say leave ten thousand, but if we spend on this money and now there’s only say a hundred thousand dollars left upon death that ten thousand dollars are a bigger percentage. 

I would say more of my clients pick some type of percentage that they leave to the grandkids as part of the estate plan it’s not uncommon for 10 split up amongst the living beneficiaries but this is also an outside the box idea someone just kind of wrote in what about education savings plans yeah that’s another good idea like contributing to things like 529s which have to be used for education. That’s a good idea as well but yeah so there are different ways to do it depending on kind of what your goals are. A couple more questions coming in I answered that all right this next one what should I do to protect my rental properties and really not just rental properties but any seconds or more pieces of real estate so your primary residence you would never look at putting your primary residence in an LLC because that’s uncapped it for business purposes or uncaps it for property tax purposes. And that’s just a huge mistake we don’t want to put our primary residence into an LLC but rental properties or any other second piece of real estate it probably makes sense to look at some type of legal structure to protect it because we consider second pieces of real estate. 

We consider them like hot assets like you never know when you might have a slip and fall especially if it’s a rental or if you own property up north someone might go hunting on that property and then they’re injured and now they could potentially sue you I’m not saying that’s right or wrong but those things happen so the concern is you have your money and your stuff and your primary residence here but if you have this kind of hot asset you don’t want all of this because someone sues you because they had to slip and fall on that second piece of property you don’t want that to spill over to your other assets so that’s why a lot of times what we’re doing is we want to wrap this hot asset into like put it in its own little box limit the liability so that’s what an LLC is a limited liability company. So now if there is a slip and fall or you get sued because of the second piece of property, all they can take is what’s inside the LLC because you built this box around it you’ve limited the liability hence the LLC so a lot of times whenever we have rental properties or second pieces of real estate we’ll do at least one LLC. Now let’s say you have multiple rentals or multiple properties you’re going to have a choice to make you could put all of this inside of one LLC. Now that limits liability so now they can’t come after you individually but the problem is if something happens to one of these properties, it could spill over to the other properties right? 

And so that’s where maybe depending on the situation and the value of the different accounts we might have a series of LLC’s where each property is now wrapped inside of its own protective wrapper so that’s why a lot of times we’ll do real estate LLC’s when we have second pieces of the property again. You can’t do this with your primary residence because they would uncap it for property tax purposes you’d lose the homestead exemption etc now that’s not the whole story because the concern is what happens if you were sued because you get, like in a car accident right so it’s your own issues this isn’t you’re not sued because of this hot asset you’re sued because kind of life threw you individually a curveball, or what happens if you need long-term care which could run eight to twelve thousand dollars per month right? Well, if you’re the owner of these LLC’s they can come after that LLC it’s not protected so LLCs protect whatever’s inside of the LLC from spilling over to your personal assets. 

But LLC does not protect that asset from your own issues whether it’s the devastating cost of nursing home care or if you were in a car accident or you hit someone with your car they can come after that LLC they can come after you like LLC. It’s no different than owning like Coca-Cola stock or for my business owners if they own the LLC in their name or the S Corp or the C Corp or they have shares of stock in their name and you wouldn’t need nursing home care or you were to get in a car accident and you’re sued they can come after not only you individually but also the LLC and everything that you own. So that’s why a lot of times what we’re doing is not only are we wrapping these hot assets inside of the box of the LLC but then we want to remove them from your name, and that’s where we take things like your primary residence some of your assets we put these LLC’s and then we put it into an asset protection trust like a Castle Trust so now we have your money we have your primary residence. 

We have your LLC’s your business interests all within the trust so now if you were to need any of these things and they try to come after you well whatever’s inside of the trust would be shielded from creditors shielded from long-term care costs. So if these catastrophes of saying a lawsuit long-term care costs were to come after you individually, it would be stopped because it’s not in your name but inside instead it’s in the asset protection trust so it’s kind of a complicated concept. Understand there are two forms or two directions of liability one we want to protect against the liability of those hot assets like a business of a rental property of the second piece of property. We don’t want that to spill over onto you and likewise, we don’t want your issues to spill over onto your assets so that’s why a lot of times we’re not only doing an LLC, but we’re also doing an asset protection trust and again that would be only if you’re concerned about things like creditors lawsuits or potential long-term care costs so I’m not saying everyone needs an asset protection trust or LLC, I’m just saying if those are your concerns or if you have second pieces of property. 

You need to think about how do you manage or hold those assets okay so yeah hopefully that was helpful talking about rental properties second pieces of property properties LLC’s and trusts. All right so we had a couple of questions, so that was all for the questions submitted via email ahead of time now we had a couple of questions come in here let me go through these so our third question here. Is it’s safe to gift assets? So we’re gifting assets I guess specifically stocks looks like we want to gift these to an LLC so kind of timely that I was talking about LLCs without risking having the entire LLC value included in your estate so we’re talking about estate taxes so otherwise known as your death tax and with this LLC, we have split ownership of 10 percent and I’ve gifted 90 to two beneficiaries and I’m saying I’m a much better attorney advisor than I am an artist, especially as I’m doing this on the fly. So don’t judge my artwork my daughter’s artwork and son’s artwork is much better than mine.

So the question is it’s still safe to gift assets to an LLC without risking having the entire LLC value later included in your estate even though you maintain a 10 interest and have gifted 90 to two beneficiaries? Okay, so first we need to talk about the estate taxes, and then we need to talk about the situation so the way estate taxes work, right now you have an 11 million dollar estate tax exemption meaning as long as you die with less than 11 million dollars you owe zero in estate taxes now you might still have an income tax or capital gains like if you have a lot of pre-tax IRAs, that’s another conversation and we’ve been really banging the door on moving money out of these IRAs paying the taxes because we know taxes are going up but that’s another conversation what we’re talking about is this death tax is that when you pass away right now they give you 11 million think of it as a coupon meaning as long as you die with less than 11 million dollars you owe zero in estate taxes so and we’ve talked about this a little bit and this is one of the I guess you have a window of opportunity to take advantage of this strategy. Right now so let’s say we have nine million dollars of assets, okay so right now that’s under that 11 million dollar cap and you’d say hey right now I don’t have an estate tax issue but what’s happening is that when the Tax Cuts and Jobs Act expires so the Tax Cuts and Jobs Act runs from 2018 and the way it’s scheduled to run is that it is sunsets or is over in 2025. What happens is this is dropping down to 5 million dollars and then we have the Biden proposal president Biden has proposed lowering it even further to now three and a half million dollars okay we don’t know if this will go through it might just be a bargaining chip but we know as of right now at least the way that tax laws work we know that either 2025 if not sooner the state tax exemption is dropping to 5 million so one of the strategies. 

Is to say okay you know what and we actually got a private not me personally we got a private letter ruling from the IRS to say that this is available is what we can do is we can move or gift because of what’s called the unified credit and what the unified credit says is that this is a death plus lifetime gift tax exemption so you can get 15 000 a year without filling out a gift tax form to as many people as you want but if you give more than that, then you cut into your unified credit which is right now 11 million dollars so the issue or the question was if we were to gift say and I’m just making up numbers right now but say 4 million dollars out of our estate right now and then the estate tax exemption drops to 5 million is this 4 million protected and the answer is yes so we’ve gifted it out of our estate now it’s a state tax-free and there are different mechanisms that we can utilize to do this. 

We could do an outright gift we could but then you’re losing control there’s no asset protection really there’s kind of three strategies one is an outright gift so you could just gift stock outright to the kids second option would be through an LLC we could still maintain some control and the third option is through the trust so just like when we’re talking about income tax planning it’s kind of a two-step process first step is how much to move and the second step is where do we move it so we could gift if we have a nine million dollar estate, we could move four million out of the estate now via gifts and then it’s just done we want to do an outright gift do we want to gift it to an LLC or do we want to gift it to a trust so that’s kind of an overview of one estate tax planning strategy that we have to utilize before these estate taxes drop down. 

Okay, so the question is can I gift this stock to an LLC and in terms of my estate now? I just have 10 and they maybe have 90, yeah if you structure it correctly then this is certainly a viable strategy so a little bit complicated doesn’t affect everyone because it only affects people who might have estate tax issues but hopefully, that was helpful and more than happy to sit down and kind of dig into that a little more all right other questions should a ladybird real estate be in a trust so with regards to real estate so whenever we’re talking about like homes and second pieces of property really we’re only doing two things like 95 percent of the time so one is we do what we call a ladybird deed really. 

What this is is just a beneficiary designation for the home to say that if you or you and your spouse were to pass away it goes to whoever we’ve listed as a beneficiary on that deed. The technical term of this a lot of people call it a ladybird deed named after Ladybird Johnson there was a law professor that wrote a book on different types of deeds and named each type of deed after a celebrity that’s where the ladybird came from really what this is called is a technical term is an enhanced life estate deep so you can sell it you can refinance you can do whatever you want and typically and then upon death then it flows into the trust or goes to whoever the beneficiary is. 

So typically we’re doing this when we do a revocable living trust or a will-based estate plan. Okay, now the second option would be deeding it directly to an asset protection trust okay so if we do set up an asset protection trust a Castle Trust, we will deed the property directly to the trust and so now the home is owned by the trust instead of you the advantage here is that it’s protected from that nursing home or Medicaid spend down it’s protected from predators and you can sell the property and all the proceeds would remain in the trust and would remain protected.

So should a ladybird deed be in a Castle Trust the answer is no, instead we would deed the property directly to the trust if you have a Castle Trust you would not do a ladybird deed you would need the property directly to the trust you would do a ladybird deed. If you have a basic revocable trust or no trust at all right what is the probability of the feds raising interest rates this year as it applies towards taking a pension lump sum, am I locked into current rates until the end of the calendar year, or does it change effect as soon as a change occurs. Ford motor adjusts each august so we’re talking about pensions and I’ll take one step back I’ll tell you probably 95 of people these days do not take the pension they take the lump sum bio there’s a variety of reasons why that is but most people will take the lump sum whoops lump-sum buyouts rather than leaving it as a pension. 

At the employer, they’re concerned about the viability of the employer they’re concerned about the lack of flexibility they’re concerned about if I pass away or I and my spouse passed away that it could be like eight hundred thousand dollars, that’s part of that pension is just gone. They’re concerned if I were to need nursing home care that money that’s coming in is just going straight to the nursing home they’re concerned that if I take the pension from the employer they’re missing out on a better monthly or annual income by going to the private marketplace. So I would say 90 and I’m not saying that everyone should do this everyone’s situation is a little bit different we always try to figure out what are your goals. Let’s develop the best strategy and then pick the right tools but I would say typically we’re most clients and most people take the lump sum on bio at the end of the day. 

But that said the question is what is the probability of feds raising interest rates well they’re going to have to raise interest rates at some point they can’t get much lower so with that I wouldn’t recommend anyone really getting locked into any type of fixed things. Like CDS right now like it’s really nice for mortgages and refinancing but on the flip side looking at what your CDS are offering it’s pretty pitiful bonds are really underperforming right now and so that’s why we’re looking at things like bond alternatives and getting away from CDS for your safe money. But yeah typically once you flip on that switch, you’re going to be locked in so and again that’s another reason why you might not want to just take the pension is that once you make that choice you’re stuck with it versus you roll it over to an IRA if you want lifetime income you can do that you have a lot more flexibility so yeah especially right now I wouldn’t, I wouldn’t be locked into I wouldn’t want to be locked into something like that and this is the last question I have submitted so if you do have any more questions please make sure to submit those right now. I have a living trust but I’d also like to protect my assets from Medicaid should be necessary for long-term care in the future would a ladybird protect my two homes and other investments? Lance all right so quite a bit to unpack here so we did that so the question is I have a living trust all right so and all right so let me talk about the difference between what a revocable living trust does or living trust does versus some other options. 

So let’s say we’re here, this is us a woman wearing a dress it’s not me wearing a dress we have a home we have a second piece of property we have our investments so most people when they’re talking about kind of just basic estate planning sitting down with just your basic estate planning attorney they’ll talk to you about, okay you want to avoid probate so that’s why you set up a revocable living trust with the idea that if you were to pass away we make sure that the trust gets funded properly meaning we change ownership or beneficiary to list the trust everything flows into the trust. 

And then upon death, it avoids probate now the concern with this is two things one is protected from lawsuits so a revocable living trust or living trust does not protect you from lawsuits, creditors, bankruptcies and then the big one and this is what you’re getting at is the long-term care costs which could run you eight to twelve thousand dollars per month. Okay, both of these can wipe out a revocable living trust as well as any assets in your name, now we do have something for your home and a ladybird deed or your primary residence is exempt from a nursing home or Medicaid spend out so we can protect your primary residence, however, your second piece of property any other investments would have to be sold if you needed nursing home care. So what can we do instead well this is where we look to a different type of trust this is where our asset protection trusts our Castle Trust comes into play we move assets into the trust so your home your second piece of property any other investment properties any other investments. 

And immediately they’re protected from lawsuits and then what it does is starts a five-year race where if we can make it five years from the time we open up this trust and move the assets into the trust then everything is protected from that nursing home or Medicaid spend down because Medicaid looks back five years to see if you moved any money around and if you have they’re going to penalize you so if you’re looking at protecting more than just your primary residence then lady bird deeds are only going to protect your primary residents and also understand that a ladybird deed will only protect your primary residence if you keep it as a primary residence. If you were to try to sell that now that becomes cash and it’s not protected versus if we were to move your primary residence, so this is your primary if we remove it into the trust and we decide to turn that into cash that would remain protected inside of the trust if you were to try to turn this into cash.

Well, guess what now, that cash is going to be eaten up so really if you’re looking at protecting assets a ladybird deed can avoid probate and it can protect the primary residents as long as you for sure plan on keeping it as a home until you pass away. Also as long as the home is not valued at more than five hundred thousand dollars because they put a cap on what that primary residence could be valued at so if you are concerned about nursing home and Medicaid and nursing home spend down that’s really where a lot of people look to an asset protection trust, not the revocable living trust avoids probate you can control the distribution upon death a Castle Trust does that but then builds in protection. So hopefully that was helpful, all right, any other questions I have a few minutes left so if you do have any questions please make sure to submit them otherwise if you could just follow that link I just posted may be put in a nice review.

Let us know how we did on these because really these are just for you just providing education talking about different strategies. So all right looks like no other, well thanks for a very good education. My pleasure! All right well with that make it a great week thank you, everyone if you want to see how any of this applies to your situation feel free to reach out then again if you could follow that link and you’re feeling generous feel free to record just like a short little one minute video saying “Hey this has been great you enjoy these you find them educational because a lot of things are moving to the digital world so we want to make sure we have a good footprint and people are aware of these types of webinars in this education so with that thank you so much if this was your first time please share this with friends the more the merrier. We had about 30 people on today so that’s really good I appreciate all the questions thank you so much and wish my daughter luck on her soccer game tonight and coaching my son tomorrow night and his last game of the season so cross your fingers for another win so thank you so much take care bye-bye good luck. Thank you.

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