Ever wondered how a trust can serve as more than just a vessel for your assets? Ever pondered, how it can protect your wealth that isn't even there yet? My law partner, Britton Begley, an estate planning expert with an LLM in taxation, and I, Greg McIntyre, bring you a lively discussion unraveling these intricate concepts. We shine a light on the trust, not just as a holder, but as a receiver of assets, exploring its role in safeguarding your wealth and shielding your spouse from potential liabilities.
We’re talking about everything from IRAs to life insurance, and how you can use a trust to ensure they serve your best interests. Beyond just a holder and receiver, we delve into how a trust can also act as a 'conduit', aligning with the IRS code and effectively controlling the distribution of pre-taxed money to your beneficiaries. Discover how the trust can protect special needs individuals, help manage potential liabilities, and even influence how a young, inexperienced beneficiary spends their inheritance. So tune in today, and let us help you understand how you can maximize your estate, minimize taxation, and use trusts to your advantage.
Speaker 1:
Hi, this is Greg McIntyre with the Elder Law Report, with my law partner, britton Begley, who has an LLM in tax and a focus on estate planning and certainly trust drafting, and today's focus is in topic is using a trust not just to hold assets while you're alive, but as a receiver. So trust is a receiver of assets, and let me tell you what we mean by that. Yeah, Britton, what does using trust as a receiver mean?
Speaker 2:
Yeah. So you traditionally think of a trust as a pot that you can put assets in right now during your life. So you know, whenever you create the trust, there's assets that you put in there and the trust facilitates the distribution of those assets upon your death or facilitates the protection of those assets during your life If somewhere happened to you, you become incompetent and capacitated or need long-term care or something like that. But a trust can serve many, many purposes. Another thing that a trust can do is protect assets that aren't yet in it. So let me give you an example. Let's say I have an IRA and IRA is one of those things that you know nine times out of ten is going to be a traditional IRA. That means I haven't paid the tax on that money yet. I've been chipping in money before it even gets taxed on my paycheck during my life and that builds up in an account and the tax hasn't been paid. That's why you have to take a required minimum distribution. That's the IRS saying you have to take some money out of this account so you can pay some tax on the money that you've been stuffing away in this account. Okay, so a lot of times if you have an IRA, you haven't paid the tax on it. So you can't just take that account and stick it into a trust, because to do that you would have to pay all the tax, right. So we don't want that to happen. So if you can't put an IRA in a trust, can you still use a trust to protect it? And absolutely you can if the trust is a receiver of that.
Speaker 2:
That means, let's say, I'm married, I have an IRA, and an IRA has a good amount of money in it because I've been chipping into it. This is, you know, majority of my retirement. Maybe majority of my wealth is in this, and I want my spouse to be able to receive this, but I also want it to be protected upon my death. So let's say I die first and my spouse is the beneficiary. Well, what if my spouse is receiving some type of long-term care at that time? What if she's incapacitated? What if she needs nursing home care, assisted living care, memory care, something like that?
Speaker 2:
Well, if that's the case, then I really actually put her in a position where all of that money I'm leaving her as an inheritance is subject to her liability, her medical debt, and that could be a tough situation to be in, especially if she's not competent, or causing it to be able to manage that money that I'm leaving to her. As you know, conversely, if I were to leave it to a trust as a receiver, the trust is literally that it receives the money on her behalf, right? So if she's healthy, she's good to go Right. The money can just come straight out to her. But if she's not, if she needs some type of long-term care, if she's incompetent or incapacitated, the money could then stay in trust for her benefit and be protected from her liability. And that's really one of the main ways that we're able to protect some of these retirement accounts that can't be put in trust during the life of the person who makes the trust of the grantor.
Speaker 1:
I would add that not only can the trust be a receiver, but the trust can also be a conduit and my array conduit language in a trust.
Speaker 1:
Oftentimes we will make the trust maybe a spouse is the primary beneficiary if that spouse predeceses the children or secondary beneficiaries. But we want to use the conduit that we create through language that is going to be consistent with IRS code or in line with IRS code that allows for the money pre-taxed to pass through the trust and not incur trust taxation through the beneficiaries so you could split that IRA out as you wanted to benefit beneficiaries over time the maximum time allowed by the IRS for IRA tax qualified fund distributions to non-spouse beneficiaries and you know to distribute those out over time. So there's many scenarios where we will work with clients, financial planners to not necessarily put those assets in trust but use the trust as a receiver and sometimes a conduit to direct the passage of assets. And the trust is not. You know, just because you're using that the trust is a beneficiary and a receiver or a conduit doesn't mean it can't also hold your home or other real estate. I mean it can that personal assets.
Speaker 1:
It can multitask. It can do more than one thing at a time. So trust are great tools to be able to not only hold assets while you're alive, but also to receive assets when you pass. Then protect those assets, as in your scenario where you have a spouse that has a lot of medical debt or you know some other issues going on but also to control the distribution of those assets to children, grandchildren, over time. Qualified and non-qualified funds, so retirement or non-retirement assets.
Speaker 2:
Sure, yeah, another. Another good scenario is if you're leaving something to a trust, like life insurance for example, you know that might be meant for an individual for a certain reason. Number one if you want to leave it to a beneficiary, you know having the trust acting as a receiver and as a filter for that money, you can do a few things. It can, number one, ensure that if that person becomes a special needs individual whether they need SSI, medicaid, which is a lifetime benefit that they should receive for the rest of their life you don't want to kick them off of it, giving them an inheritance the trust could put that into a special trust for them where they still benefit from it and get their means tested government benefit.
Speaker 2:
The other thing is that you might want to leave life insurance to an individual. But what if that individual is young? You know they're not experienced, they maybe don't aren't used to managing money, maybe it's a kid who's a little bit of a knucklehead, right, and you want to make sure that they spend the money on what you think is in their best interest, so they don't blow all the money. So you can leave it to a trust and then the trust can have terms of distribution where the trustee whoever you pick to manage that whenever you pass away can dole out that money on a set schedule or for set reasons to make sure that they're held, education, maintenance support is paid for, but they don't have direct access to the money where they, you know, would make bad decisions with it. That can be really helpful to ensure that the money you leave behind for particular individuals is used in their best interest.
Speaker 1:
Trust are amazing tools to help special needs individuals, to help children, grandchildren, to help you. Trust can help protect from liability for assets you place there. There's so many different benefits from trust. Trust can maximize the amount of money that flows through your estate in addition to minimizing the taxation on the estate. That's right. There's so many ways that we can structure estate plans using trust. You know, I know, that for our firm, we'd be glad to help you plan to maximize your estate, minimize taxation, use the trust to hold assets and as a receiver, as we're talking about today, and have that discussion and I would offer, and we would offer, a free consult to do that. You can take advantage of that free consult by dialing 1-888-999-6600 or by going online to mclderlawcom. Slash scheduling to schedule right on our attorney's calendars. Thank you and stay tuned next week for the Elder Law Report.