Is a Castle Trust What Other Companies Might Call a Hybrid Trust? |Weekly Wednesday Wisdom Webinars

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Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm to register or give our office a call at 844-885-4200.

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.

In this week’s webinar, Attorney and Advisor Chris Berry of answers the below questions.

  • 0:00 Introduction / Positive Focus
  • 1:30 Tax Risk
  • 6:29 We set up a Veterans Asset Protection Trust 5 years ago, now my mother may need nursing home care, what do we need to do?
  • 9:45 What are the qualifications for the veteran who already is in long-term care?
  • 12:07 Are there specific nursing homes for Medicaid?
  • 14:09 What else should be added to the home owner’s insurance policy?
  • 14:43 Is a family LLC manager required to charge a fee to the LLC owners?
  • 15:26 Please expand how someone can get to the zero percent tax bracket if you can expand on your comments having your social security income tax too?
  • 23:22 Can annuities be put into revocable, irrevocable, and or castle trust?
  • 25:31 If the LLC manager is a member of the LLC, could he/she charge a fee for the service?
  • 28:13 Is a Castle Trust what other companies might call a hybrid trust?
  • 30:40 Can two individuals living together create a trust to address joint property and individual life insurance policies?
  • 32:04 Since a Castle Trust is a grand tour trust will it be negatively affected when the pending house bill passes?

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Episode Transcript

My name is Chris Berry with Castle Wealth and we do these Weekly Wisdom Webinars every Wednesday at one o’clock and then it is saved to our Youtube channel. So these are really put on for you so if you do have any questions feel free to put it into the Q&A any legal financial and tax questions and we will go ahead and answer it and you can also always email us any questions ahead of time that’s always great too. And I always like to start with a positive focus just something positive that happened over the last week and I’m going to just reiterate what I think it was last time is just coaching my kids in soccer with my dad he’s my assistant coach and I’m coaching my 11 year old boy and eight-year-old girl and my 11 year olds they got smoked but they played the best team in the league who’s been beating some teams by eight goals and we lost 4-0. 

But it was a good effort and then my girls won and we’re undefeated this season so that’s pretty awesome so that is my positive focus and then with that what I’m going to do is share my screen. So before I get into questions and I only had one question what I want to do is just share this screen and this is something that we’ve been talking about a lot is tax risk so this was a report I just like the way that this was laid out where one of the biggest risks I think for anyone who saved money or is saving money is taxes going up in the future. If you want to copy this I can email it to you afterwards just reply to the email and I’ll send a copy to you but what this is showing most important. Look at that red line on that graph and hopefully you can see it let me see if I can zoom in hit that button yep all right so what that red line is is historical highest marginal tax rates. 

So right now the highest marginal tax rate is 37 percent and when the tax cuts and jobs act ends or president Biden’s tax proposal goes through that’s going up but we just assume it’s always going to be at this same what did that resume share we just assume that it’s always going to be at that same relatively low level when you look back historically what’s the largest or highest marginal tax bracket well it’s been as high as 94 percent and greater that was during world war II. But guess who was an actor during that time ronald reagan and so if he made two movies in one year he’d be paying 94 tax on anything further he earned and I have a joke but where do you think the other six percent went some people say Nancy but to the state of California. 

So essentially while he was an actor he made two movies a year 100 of what he earned would end up going to taxes and so that’s why interestingly enough in the 80s when he became president he dropped marginal tax rates so it’s been as high as 94 60 70 and yeah since the 80s we’ve been at a relatively low marginal tax break. So that’s the first thing that I want you to look at is looking at just historical marginal tax rates right now they’re the lowest they’ve really almost ever been and then the other thing I want you to look at is the national debt so that’s that dark blue line right and really this has been ramping up to now about 20 almost 30 trillion dollars and then what this piece is getting to is that debt to gdp has been a leading indicator of tax increases so just another reason why we need to be concerned about taxes a when we’re accumulating wealth and where we’re saving money but then b if you’ve already accumulated a fair amount of wealth and you have pre-tax IRAs or 401ks you need to have some type of tax strategy I was working with some wonderful clients earlier today and we’re doing a very aggressive tax planning strategy but what we’re doing is we’re going to get them to the zero percent tax bracket if they didn’t do it and they just maintained what they were doing privacy previously to joining our firm they’d be in the 22 to 24 or 22 to 25 tax bracket for the rest of their life but by just taking certain steps and having a proactive tax plan yeah they’re gonna pay some more taxes this year but over their lifetime they’re gonna save probably hundreds of thousands of dollars in taxes especially if taxes go up in the future plus we’re going to get them to a position where their social security will not be taxed anymore so a lot of people don’t realize that your social security does not have to be taxed that completely depends on your income we’re going to get it so that they’re not going to have required minimum distributions so and their medicare premiums are going to be at the lowest amount possible. It’s not available for everyone depending on your situation but in their situation we’re we’re gonna get them into a zero percent tax bracket for the rest of their life and what I just showed you is one of the reasons why they wanted to pursue that type of strategy so that was the first thing I just want to talk about I saw that graphic and I thought it was too too important not to share so now and again if you do have any questions feel free to type it into the q a section or the chat but now I will share my screen I really only had one question submitted so if we don’t have other questions. 

It’s gonna be a quick one this week all right so I’m gonna hit that button hit this button this button there we go I should be seeing my little white board, yeah and if you do have questions feel free to go to or just reply to the email or feel free to put in the q a so the one question so we set up a VAP that stands for veterans assets protection trust a number of years ago over five and why five is important is that’s the Medicaid look back so Medicaid if you didn’t need nursing home care looks back five years to see if you moved any money around and if you have they’re going to penalize you. 

And now the reason we did this was that we had a veteran or surviving spouse of a veteran also spouses or veterans can qualify and there’s an asset test but by moving assets into the trust we can bring in roughly extra 2 000 per month if we have a veteran who needs long-term care so this is available to veterans and surviving spouses we set up a asset protection trust move the assets into the trust and then we could turn on this VA benefit and this VA benefit’s great for things like home care. So typically when we’re using this VA benefit we’re looking at things like home care or assisted living if we were to need nursing home care then we typically look to a different governmental program called Medicaid. 

Medicaid will cover that nursing home care and a nursing home can easily be anywhere from eight to twelve thousand dollars per month versus assisted living maybe three to eight thousand per month home care depending on the number of hours you’re getting maybe one to three thousand dollars a month so if the VA benefit maxes out at about two thousand dollars a month it’s great for home care and assisted living but what we see is people go from needing home care to assisted living to then needing nursing home care going down what we call the elder care continuum. So if the VA benefit maxed it out at two thousand dollars then now we need to look to Medicaid as a way to pay for that care so now if mom is going into a nursing home then we’re going to switch over and have Medicaid pay that base level of care now to qualify for Medicaid a single individual can only have two thousand dollars worth of countable assets but in this situation the nice thing that we did is we set up that asset protection trust five years ago and majority of the wealth including the house is in that asset protection trust so now mom doesn’t need to spend down really all we have to do is that at the point that she needs care then we submit a Medicaid application and we’re good to go so a lot of times when we’re doing this planning we’re not just planning for the next step which is maybe VA benefits if we’re dealing with a veteran but we’re thinking long term of planning for down the line of continuing down that long-term care continuum and then now needing nursing home care. 

So the type of planning that we do for the VA benefit also covered the Medicaid planning so really there’s not much that needs to be done other than mom needs to be in the nursing home where there’s a Medicaid bed and we submit a Medicaid application here’s a question what are the qualifications for the veteran who already is in long-term care yeah so let’s say we have a veteran who is in home care assisted living to qualify for the VA benefit and these rules changed in 2018 so now the rules are accountable assets basically have to be less than 120 000 accountable assets are everything other than a home personal property automobile prepaid funeral so 401ks IRAs spouses assets it has to be less than 120 thousand dollars we need oops let’s get that wrong hold on 120 000 is greater than what you have the meaning you have less yeah.

There we go let’s get those two confused so yeah have to have less than 120 000 accountable assets 90 days active duty okay one of those has to be during a period of conflict cannot be dishonorably discharged. Okay, so honorable discharge works and then need to have long-term care costs that are greater than your income so if you’re paying three thousand dollars a month for long-term care and you have social security of two thousand dollars a month then you would qualify and surviving spouses would also qualify as well so depending on the situation you meet all these requirements it could be one to two thousand dollars per month via the VA. 

Now there is one other requirement or this is a big change that happened in 2018 there’s a look-back period now there’s a three-year look-back period for this VA benefit so if we have someone that has five hundred thousand dollars we can move the assets into a veterans asset protection trust but now they would have to wait three years before they could qualify for that VA benefit because of this change where the three-year look-back period happened in 2018. So hopefully that is helpful are there specific nursing homes for Medicaid I’ve heard that many are not the greatest yeah so this is a common question of okay let’s say we are looking at whoops let’s say we are looking at needing nursing home care okay and there’s two types there’s what’s called there’s two main ways to pay for it one is called private pay and the other is through Medicaid. So if you call around and ask for a nice nursing home and and you expect to go on Medicaid what they’re going to say is oh I’m sorry we don’t have any Medicaid beds available but here’s the magic thing if you private pay to get into that nice nursing home then you can switch over and have Medicaid pay that base level of care because nursing homes can’t discriminate based on source of payment. 

So the key is to get into that nice nursing home and then you could have Medicaid pay that base level of care so the way it typically works is let’s say we set up an asset protection trust Castle Trust we move our assets into the trust and then you make it five years okay so now we’ve made it the five years and then god forbid something happens we have a stroke that’s a checkered flag we’ve made it the five years we waived that checkered flag let’s say something happens and now you need long-term care. What you could choose to do is private pay to get in that nice nursing home and then you could flip over and have Medicaid pay that base care and now everything inside of the trust is protected could be used to pay for additional services for yourself or if you’re married and one spouse needs long-term care that healthy spouse isn’t completely impoverished so no just because you’re on Medicaid that doesn’t mean you’re in some run-down nursing home. 

All right what other questions do we have all right last week let me do another one last week question about lady bird adding trust to home insurance policy. What other property and casualty policies auto valuables so this question is just what else should be added to the homeowner’s insurance policy do you have different aspects of that the best bet is to talk to your property and casualty guy because there’ll be some things that maybe you want itemized but the point with I was making especially with the real estate is that yeah God-forbid something happens to you. You pass away you need to contact your property and casualty guy and figure out what’s the best way to do it should it be in the name of the trust now or are you gonna have a renter there yeah okay is a family LLC manager required to charge a fee to the LLC owners. 

So a question is a family LLC manager required to charge a fee to the LLC owners I would say there’s not a requirement unless that was part of the operating agreement so with a lot of these things I look to the documents that create a density whether it’s a trust or a LLC or operating agreement. Typically the operating agreement is going to control but if there isn’t something to that effect in the operating agreement there’s no like statute or requirement in Michigan that they need to charge a fee for that all right please expand on how someone can get to the zero percent tax bracket if you can expand on your comments having your social security income tax too okay yeah so there’s a a great book by David McKnight it’s called the power of zero whoops I can’t whoop nope power of zero and I’ve worked with david before he’s a really smart guy and he kind of lays out this idea and we’ve talked about this in terms of tax buckets like we need to think about a where we’re saving money or accumulating wealth. 

Or B. if you’ve already accumulated wealth how do we get money moved over into potentially the best tax bracket and this is even if you can’t get to a zero percent tax bracket this is this is just really what we’re talking about when we’re talking about tax planning being proactive with regards to taxes not just tax preparation and so we have your taxable accounts so this is money that you pay on gains so any gains are taxed then we have your tax free bucket or I’m sorry goodness chris lock it up we have your tax deferred bucket this is whenever you pull money out of here it’s tax or ordinary income tax rates. And then we have our tax free book and this money is grows tax-free it counts for estate taxes so taxable would be things like checking savings if you own real estate brokerage accounts tax deferred would be things like 401ks IRAs 457s for 3bs and then tax-free are things like Roths that’s the common one cash value life insurance. 

So the family I was working with today part of their plan involves cash value life insurance 529s they have to be used for education and then health savings accounts have to be used for healthcare so the idea is obviously save as much as you can in this bucket or if you’ve already saved figure out strategies to move money from here to here or here to here especially given that we know taxes are probably going up okay so evidence situation is a little different I’m not guaranteeing that we can do this but typically when people have. Well let’s talk about income so really when you’re there’s kind of two stages in life one is when you’re accumulating wealth so it’s all about accumulation saving as much as you can and then it’s all about preservation and distribution so how can we preserve my assets and what is my income plan in retirement and so what are basically what these things over in the tax-free bucket all of these can be turned into tax-free income sources in retirement so if you need a hundred thousand dollars of income in retirement and all of that is coming from either a Roth from cash value life insurance 529s you’re probably not going to have maybe you have health savings accounts if we’re turning on these different tax free all of these are can be tax-free income sources so if all of your income is coming from here instead of coming from taxable sources. 

What are taxable sources or taxed pensions okay that’s always taxed at income required minimum distributions so you’re forced to take money out at 72 drawing down from IRAs so even if you don’t need RMDs but you need that for income and then here’s the interesting one social security could be taxable or could not be taxable so in reality like even for my own planning I’m trying to set up my goal is to have these four sources of tax-free income in retirement. So the key with social security is if your taxable income is greater than 40 roughly 44 000 as a married couple per year then your social security will get taxed at 85 well if your only sources of income are not a pension you don’t have rmds because you’ve pulled money out of the IRAs already you’re not drawing down any pre-tax accounts if all of your income is coming from over here then guess what your adjusted gross income is zero and now your social security doesn’t even get taxed so that’s kind of the theory behind the power of xero because I also understand you have things like standard deduction too like standard deduction as a married couple about 24 000 adjusted for inflation so you factor in all these different things and the strategy even if you can’t get to necessarily zero is to get to the most tax efficient distribution plan as you can you can in retirement. 

And that’s you’re typically it’s not your cpa or tax preparer they’re not going to help you with this their job is to minimize taxes in any specific year like clients I was talking about they had a tax preparer accountant in town and last year they they were in the zero percent tax bracket and they thought they were doing good but when I showed them that hey once you turn 72 and you got to turn on these rmds you’re gonna get absolutely walloped in taxes you’re gonna be at the 22 or 24 tax bracket the rest of your life we develop a strategy so by the time we flip on social security age 70 by the time that we and if we deal with the IRAs prior to that then you’re not going to have any taxes for the rest of your life and again. If you have things like pensions that are already set up you can’t really get there but this is one of the reasons why we have a discussion of should we take the income from the pension or should we take a lump sum distribution so so if you’ve accumulated wealth you have this unique opportunity where taxes are low to move money around to try to make the rest of your retirement less or more tax efficient and then if you’re saving money think about where you’re saving money which bucket are you saving are you saving in all the buckets are you only saving all your money in the tax deferred because that’s what I’ve seen a lot is a lot of people on retirement they just kind of subscribe to save everything inside of that 401k or 403b and all their money’s sitting here and then all of a sudden they turn 70 or 72 and they’re like oh I’m going to get killed in taxes because it is a little bit of assumption that you can be a lower tax bracket retirement. 

That’s not always the case most of the time if you don’t do anything you’re going to be at the same tax bracket just on the lower end of that 22 tax bracket for the majority of people I see a couple more questions here whoops some in the chat thanks even the best private nursing homes are still terrible yeah I’d much rather be living at home independently than in a nursing home I’d much rather be in an assisted living than a nursing home people are only in a nursing home typically they have to be there thank you for the clarifications on veteran benefits you are welcome here’s another question can annuities put into revocable irrevocable and or Castle Trust the answer is yes so it’s asking about get rid of this so think of these different things as just like buckets so you have your asset protection trust that’s a bucket you have like your IRA that that’s like its own bucket you have money just kind of in your name because IRA you think you own it. 

But it’s like you and the US government in partnership with the government so they have certain rules but yeah you can have basically any investment tool so we can have a checking savings in your name you can have money just sitting in cash in an IRA you can have stocks you can have stocks over here you can have annuities fixed index annuities. In an IRA they could be in your name they could be in a trust a lot of people like them in a trust because they’re protected you can have index universal life cash value life insurance you can have a home in here you can have a home in your name so yeah so long story short you can have you can have annuities or really almost any other investment vehicle can be in a Castle Trust or a revocable trust Castle Trust builds in the asset protection revocable trust avoids probate controls of distribution Castle Trust does that but also builds a NASA protection hopefully that’s helpful all right I was just drawing and no one could see my screen I apologize for that let me share my screen again let me share my screen it’s not letting me share my screen now that’ll be good you didn’t miss that one great of a drawing all right another question here second if LLC manager is a member of LLC could he she charge a fee for the service so the fee is part of his or her income or could the LLC income be part of personal income and it depends on ownership charge a fee for services yeah. 

So you have the LLC and then you have the member of the LLC so yeah a member of the LLC can charge for their services so there’s the fee part of his or her income yes the fee would be his income or could LLC income be part of personal income yes LLC income could be part of personal income so the thing with LLCs and why people like LLCs is they’re very flexible a lot more flexible than a lot of other business structures and you can set it up so it’s taxed at the LLC level you could have it set up so it’s passed through you could have it taxed as a s corp so yeah you have a lot of different options with LLC and that’s where typically people look to two different routes to set up a LLC one is through an attorney and the other is through a cpa but really you want to have both of these things coming together to figure out which is the best structure should it be a LLC and how should it be taxed because there’s also liability like limited liability company different types of structures have different protections so I wouldn’t just rush out and have a CPA wouldn’t just rush out and set up your own LLC. 

I wouldn’t just rush out and have an attorney set it up without considering the tax implications nor would I have an accountant set it up without considering the legal ramifications so it really is kind of a legal tax and financial question and that’s really how we’re set up is we help clients put together legal plans financial plans and tax plans so hopefully that’s helpful but really that’s kind of almost it depends on you have a lot of flexibility with LLC let’s just leave it at that all right any other questions going once going twice all right sold all right and just one thing just starting from beginning that we start off with like tax planning we’re knee-deep in it right now because there’s certain things that need to happen before the end of the year. So it shows up on this tax year because things might be changing next year especially with president biden’s proposal that we’ll see what happens with that another question just came in is it Castle Trust what other companies might call a hybrid trust maybe it kind of is a hybrid you have like all the best qualities of a revocable trust where you can make changes to it you can change beneficiaries you have access to income you pay taxes the way you normally do it avoids probate you can control the distribution upon death but it just builds in the asset protection so basically what we did is a group of attorneys has looked at all right we used to do these irrevocable trusts for estate tax purposes. Where we had to protect against state taxes because estate taxes were at six hundred thousand dollars I mean if you had more than six hundred thousand dollars forty five percent of that when you died could go to the federal government now it’s at 11 million scheduled to come back down and then people are living longer than ever so people stopped coming to us attorneys to say hey I’m concerned about estate taxes and said they came to us saying hey I’m concerned about liability or creditors or the big one being long-term care costs and so what we did is we work we reworked these asset protection trusts that protect against state taxes. 

But now you’re not concerned about that as much maybe you are in the future or maybe you are now but now they’re structured to protect against like Medicaid look back and protect predators so really at the end of the day there’s only there’s think of it like like biology class like if you remember there’s like genus and species so you have trusts there’s tons of different trusts out there like some of the sometimes when I talk to other people and they they want to sound like super smart they’re like hey have you done a grant or a grit or a crt or this or that there’s lots of different types of trusts out there really there’s two types there’s revocable and irrevocable and then it’s just a matter of how are you setting those up so yeah the Castle Trust is a grand tour trust meaning you pay taxes the way you normally do but it doesn’t protect you against state taxes if we’re concerned about estate taxes then we’d be doing something else is it what another company might call a hybrid trust. 

Maybe but what one person calls one thing could be completely different and they could call it the same thing so it’s all about figuring out what your goals are figuring out what is the best strategy to help you choose the goals and then pick the right tools and just make sure that you’re using the right tool at the end of the day so maybe a Castle Trust is the right tool maybe not depending on your situation can two individuals living together create a trust to address joint property and individual life insurance policies. So we have two people let’s say they’re not married and could they create a trust together the answer is yes I have we have trust set up where it’s like mom dad and the son and they’re all trustees and they all created the trust because they’re all going in on some property together and they wanted the asset protection trust. 

With trusts just like LLCs they’re very flexible and I’m not saying everyone needs a trust I have plenty of people that don’t have a trust because they just want to avoid probate and they don’t really care where stuff goes but yeah so two individuals living together create a trust to address joint property and individuals life insurance policy yep we can certainly do a joint trust we could also do separate trusts too so sometimes we do separate trusts some but usually we would with married couples usually we do joint trusts two individuals living together let’s say usually we do separate trusts but we could certainly do a joint trust. Any other questions all right then with that I have three soccer games this weekend so we had one rescheduled and cancer can’t cancer cancelled whoop here’s another one thank you you’re welcome since the Castle Trust is a grand tour trust will it be negatively affected when the pending house bill passed nope the answer to that is no I’ve already taken a look at that so yeah there’s I don’t want to get too far in the weeds but yeah there’s a big pending tax bill that we don’t know if it’s going to go through talks about it has talked about removing step up a basis that was really eye opening but now it looks like they’re leaning against it and there’s some provisions that talk about different types of trusts but the Castle Trust it’s tax neutral so it’s not going to have any negative effects with the pending bill at least as it stands now and I can’t see any reason why it would really what they’re going after is trusts that our grand tour trust but are looking to evade estate taxes or kind of taking advantage of some of the gifting rules but that’s not going to be the Castle Trust so all right thank you excellent as always thank you for the feedback alright take care everyone bye-bye bye-bye make it a great week 

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