Unlock the secrets to safeguarding your financial future with the expert guidance of Greg McIntyre from McIntyre Elder Law. This episode is a deep dive into the world of revocable and irrevocable trusts, where Greg, with the help of his trusty coffee cup analogy, explains how a revocable living trust offers you control and flexibility over your assets. Whether you're looking to understand the ease of asset management or the nuances of trust succession, this discussion leaves no stone unturned. But it's not all about control; we also unveil the limitations when it comes to asset protection, especially in the realm of long-term care benefit planning.
The conversation takes a compelling turn as Greg's son, Tucker, steps in to role-play as a trustee, bringing the theoretical to life. They explore the sturdier, more impenetrable structure of an irrevocable trust, particularly the Medicaid Asset Protection Trust. Discover how this type of trust can protect your estate from long-term care costs without causing you headaches come tax time. By the end of our chat, you'll have a clear understanding of how these powerful legal instruments can be tailored to secure your legacy and ensure your loved ones are taken care of. Don't miss this episode packed with strategic insights for anyone interested in asset protection and estate planning.
Greg McIntyre:
Hi, this is Greg McIntyre McIntyre Elder Law. We're going to talk today about revocable trust versus irrevocable trust and the differences between them. Revocable trust irrevocable trust are great for specific purposes, so let's talk about the revocable living trust first. A revocable living trust, which will illustrate that using my coffee cup okay, it allows you to place any asset titled in the name of the trust. You are in control of that asset. You made the trust, so you're the trustmaker, also called the grand tour. You are the trustee. That means you are in charge of every asset that is entitled in the name of the trust. And funding the trust is quite simple. You simply title the bank account or real estate deed whatever it is in the name of the trust and that means it's in the trust and funded in the trust.
Greg McIntyre:
Trusts have beneficiaries that receive assets from them by distribution. The trustee is in charge of that. Obviously, if I die, I can't be the trustee, so I would have a successor trustee set in place to move into that position if I passed away or I became incompetent or incapacitated and couldn't manage the assets within the trust. The trust is relatively easy to administer. That could involve changing the title to assets from the trust to individual beneficiaries once you pass away. Or it could mean placing assets in sub trust, let's say for children or grandchildren to pay for their education, and then maybe let's say a 10 and 10, 10% of income and principal per year for the next 10 years after they graduate from college or after they're 25, for example, so that way they don't get cursed with a large amount of money at a very young age but that money actually goes to use to fund their education and then give them a head start in life. Now, because I'm the trustee, I'm in control of these assets. I can revoke, I can amend this trust because I'm the trustmaker In a benefits planning world. Let's say I was going after a long-term care benefit to pay for nursing home care. That benefits program would look at the assets that I have in this trust and they would count those as my assets. They're mine. It could count against me in that benefits application. Also because I retain what's got a power of appointment over these assets to divert wherever they go until I die. That means that they're also recoverable by a claimant or the benefits program. So a revocable living trust is not a good trust when we're planning for a long-term care benefit situation. A revocable living trust is a good trust when we're talking about doubling the estate and death tax attention and we want to maintain some liability separation but ultimate control for the rest of our life over these assets and a revocable living trust very good planning tool for specific reasons and purposes.
Greg McIntyre:
Now I'm going to switch and talk about an irrevocable trust and, tucker, if you could come up maybe stand over here and help me explain a revocable living trust. Okay, now I trust Tucker. He is one of my children and I know that he would do whatever I needed as the trustee of my trust. An irrevocable trust, let's say a specialized trust, like a Medicaid asset protection trust, which is really the best safe that I could build for someone in North Carolina to protect their assets, especially in a long-term care benefits planning scenario. I'm the trust maker, also known as the grantor. I make this trust, but I'm going to hand it to you as the trustee, tucker. I can place assets inside of the trust Anyone really can, okay, but you as the trustee are responsible for playing by the rules that I set up in the trust and you have a legal fiduciary duty to take care of those assets for me as the grantor, as the trust maker, for the rest of my life. My wife and I could set up a couple can set up an irrevocable trust like a Medicaid Asset Protection Trust, a joint trust, okay. So let's say I place my house in there, some other rental property, I'm going to remain the lifetime income beneficiary for the rest of my life. So any rents, dividends off investments that are within the trust, I want you to get those out to me during the year. Okay, before the end of the year. So the trust doesn't accumulate income and the trust doesn't have to file a separate tax return. You as the trustee would be responsible for doing that.
Greg McIntyre:
Okay, if I need a long-term care situation and we have to apply for a benefit, the assets in that trust are not going to be counted as my asset or as my assets. They're also not recoverable by a benefit program that pays for, say, my long-term care. So my house, my rental properties, other investments are safe in there Now at that time. Tucker, I do not want you to keep giving me the income off that trust every year. But I've made you and your siblings the other lifetime income beneficiaries so they can get that income. You can divert it to them. So it's not counted in the benefit application as PML Patient Monthly Liability that has to be paid to the facility. That's my income, okay, it's not counted in my income picture. It's also the assets in there. The stuff is not counted as my stuff, my assets, right, same thing. You and your siblings are beneficiaries on this trust death beneficiaries. So if I die, you guys get everything.
Greg McIntyre:
Okay, if you're under 25, it's going to set up at 18, a trust, a sub-trust, and pay for health, education and welfare. It's going to pay for university, college, trade school and at 25, it's going to pay out of that sub-trust the individual sub-trust for each child a 10 and 10 distribution, 10% of income and principal for the next 10 years or until exhausted. Okay, that's how I'm setting up that trust and I'm doing it with specific rules, with US trustee with a legal fiduciary duty to protect those assets for me and get me the income for the rest of my life off the assets Because I want to open myself up to a potential long-term care benefit that I might need in the future. Okay, while not giving up those assets but setting them up under rules in this trust where they're retained for my use and benefit income still comes to me with someone I trust as the trustee that's in charge of it. Okay, that's how an irrevocable trust works and that is a very, very powerful trust to use, especially when doing benefits planning.
Greg McIntyre:
There are major differences between a revocable living trust and an irrevocable trust like a Medicaid Asset Protection Trust. Both are great tools for specific purposes. It depends on what the purpose of the client is or what your needs are, and that's always individual. A convertible trust starts off revocable and then can go irrevocable, so it's really the best of both worlds. So when you need to go into protective mode, you can, but really it's sitting down talking about what your goals are, what your assets consist of, what the risk of a long-term care issue is. Do you have other long-term care insurance? How many assets do you have? How much of the assets are there? What character are they Real estate versus retirement, other investment accounts that's important to take into account in a consultation. I'd be glad to offer that free consult to you or your loved one. Give us a call at 1-888-999-6600 or you can schedule directly on our website online at mclderlaw. com/scheduling. Thank you so much for joining me today for this Elder Law Report.