001hi I'm Mark Bergeron and the presentation you're about to see is the one that I had recorded for showing in Ashland in September uh this one is all about trusts um basically the three that I'm most often talking to people about uh the revocable trust which you would use if your goal was to avoid Pro the probate process down the line after you die the irrevocable trust which couples or excuse me the testamentary trust which couples often use if they want to make sure that if one of them dies the assets are safe if the Survivor needs to qualify for Mass Health and finally the irrevocable trust that single people sometimes use if they want to protect their assets against the possibility that they themselves may need to qualify for Mass Health later on if
002you get any questions regarding any of this please give me a call my direct line is 508-860-1470 I hope you enjoy the presentation thank you hi and uh welcome to seminar number nine uh of the elder law 101 series that I started at the beginning of this year my name is Arthur Bergeron I'm an attorney I do nothing but elder law and what I've tried to do this year uh in monthly chunks is to basically describe to folks who are older um basically all of the issues that they might need to address or all the major issues that they might be need to address as they get older so this presentation uh seminar number nine is elder law is uh trust what they are do you need one how do they work we've already done
003a number of sessions we started off with my friends Frank and Mary we always talk about Frank and Mary and their kids Peter Paul and Mary Jr Frankie Mary's goal in life is very simple they want to live in their house until they die they want to be buried in the backyard they want to leave their assets to their kids we talked about Frank and Mary in the first session before they were 60 and what kind of plan they might want we're going to talk a little bit about that actually again today and the in the revocable and amendable trust that they might have wanted we talk about Frankie Mary in their 60s as life is changing in the second seminar then we talked about dealing with that with them in their 70s when they're
004getting older and thinking about maybe um moving out of their house moving in with somebody shrinking down moving people in we talked we took a break to talk about taxes back in April uh and then in may we talked about Frankie Mary in their 80s all of the things they need to consider to make sure that life is going to be okay for them for the rest of their lives then we talked specifically about why it is that everyone can qualify for Mass Health uh we we spent one session dealing with the last year of Frank and Mary's life and how that might play out and the issues that they want to be facing or planning for during that time we talked about Frank and Mary after they were dead and we talked about a
005post-mortem to-do list and now we are talking about trusts this is probably one of the most common issues that I'm facing just literally every day clients will come in and say well you know I think I need a trust um and I'm not sure why but everybody's got one and so shouldn't I have one and so in this case we're going to start off by talking about Frank and Mary who are in this case young they are they are 60 years old and they've got their kids Peter Paul and Mary Jr but first of all we just want to take a second to talk about what a trust is and who a trustee is a trust is not for for legal purposes a separate legal person like a corporation is or a limited liability company
006it is it is a description of a relationship between two kinds of people there's the trustee and the trustee is the legal owner of the property that is in trust and can deal with third parties as that legal owner and can sell things to them and buy things from them and can take out mortgages and do all the things that an owner of property can do what distinguishes um trust property though is that the trustee in that case is not working for himself or herself but rather for the beneficiaries these other people who by the way can include the trustee who are the beneficiaries of the trust and there can be more than one trustee of a trust there can be more than one beneficiary as I mentioned a a trustee can also be a
007beneficiary the only limitation on a trust is that you can't have a trust with just one trustee and one beneficiary because if you do then the person involved simply owns the property it's not in trust anymore so trusts are meant to solve problems and each each problem has a different kind of solution but I'm going to talk about the three that Folk folks I talked to me the most about the three basic problems and the three basic Solutions when the problem is probate avoidance the answer the solution is a revocable and amendable Trust when the problem is asset protection for couples asset protection as far as protecting assets from nursing homes the solution is a testamentary trust when a when a single person is trying to protect assets from a nursing home the answer is
008a is an irrevocable and unamendable Trust we're going to talk about all three to start we're going to go back to Frank and Mary in their 60s and they've got their three kids Peter Paul and Mary Jr and Frank and mariona house with about five hundred thousand dollars Frank has an IRA with about 200 000 and savings worth another 200 000. now if Frank dies um then in that situation there would be no probate um because the assets the the home and the bank accounts were owned jointly by Frank and Mary and legally if someone dies as a joint owner of a bank account or a house their interest in the property simply evaporates and the other person becomes the sole owner there is no need for probate if you die and you own an
009IRA an IRA will always have a named deaf beneficiary in this case it would be Mary if you die and you have a named a named death beneficiary for a particular asset there is no probate if Mary were to Die the next day however owning those bank accounts and the house which are now just in her name there would need to be a probate and so the question is so then what happens if there is a probate many people will will say well you know I have a will and so I I'm not going to have to go through probate no that's not the case the probate process applies to all assets that you die owning if they're only in your name and there is no clearly named death beneficiary so in this case the
010bank accounts and the house before those assets can be distributed to anyone those assets have to go through the probate process the primary purpose or the first purpose of probate is to figure out where those assets go the assets that you die owning but before any assets can get distributed you have to go through this process what's the process you have to get a personal representative appointed someone who's going to be the representative of the estate before that person gets appointed the assets that are in that bank account that front that Mary died owning or the house can't be dealt with by anybody because there is no one who has the legal power to deal with them that's what an Executor now called a personal representative is for once a personal representative has gotten named
011that personal representative would actually get a new a separate tax ID number from the Internal Revenue Service because that the the estate itself is a taxpayer a separate taxpayer uh once they the the the personal representative had that uh that the personal representative could go to the bank with that document from the Probate Court saying that showing that they were approved and Marshall the assets they could close out any of the accounts that were in in uh in uh Mary's name uh they and then they would deposit those accounts into the estate account the estate account that they created because they had a tax ID number um that they the the personal representative would also have the power to sell the house uh if that personal representative were acting pursuant to a will uh Mary's
012will and that and that will had specifically given them the power to sell the house without Court approval they could do that if not or if there was no will uh and Mary was simply trying to sell the house as the personal representative of an estate without a will then she would first need to get the permission of the probate court but in either of those cases whether she has a house or not what or that she has a house or just has as the proceeds from the sale of that house those assets have to sit in Probate for a year the reason because before any assets can be distributed to anybody creditors have to get paid and creditors have one year from the day of Mary's death to file a claim against the probate
013Assets Now inevitably people will come in after one of their relatives has died and say well there aren't any creditors doesn't make any difference probate needs to stay open for the benefit of creditors you never know whether there is a creditor who might show up so that so the the estate has to stay open for the benefit of creditors for a year at which point the assets can be distributed where do they get distributed well if Mary did die leaving a will then they will get distributed according to the terms of that will if Mary did not have a will at the time of her death the assets would get would get distributed according to the so-called rules of intestacy that is the rules that apply when there is no will in the case of
014Franca and by the way at the end of that one year period unless creditors had had sued the estate and filed a claim filed notice of that suit um with the the personal representative those creditors will be wiped out um so the so the point is there is a benefit to the ex to the extent that you are wiping out creditors as long as you wait for that extra Year by the way that's the reason why many people now when they're having to go through probate if they're worried worried about creditors will actually wait for a year before they file in Probate because if in the meantime the creditors do not actually take action on their own to try to open up a probate and Sue the estate the creditors get wiped out at the
015end of that year but the point is things have to wait for that year so the the uh the the the to the extent that Frank and Mary were coming to me and saying well if we both die I'd rather not we'd rather not that our kids have to go through all of that well the answer to that particular problem is a revocable and amendable Trust they would create a trust which would be revocable revocable means whatever you put into a trust you can take back out amendable as the name suggests means that you could amend it Frank and Mary could amend the trust at any time while they were alive typically they would name themselves as the co-trustees of that trust and they would transfer the house to themselves as the co-trustees they would
016probably take any of their larger bank accounts put those accounts in trust also they would specify that when one of them dies the other would would stay as the sole trustee but then oh and by the way they would also once they were doing that revocable and amendable Trust they would do wills in addition the reason for the wills is would simply be to make sure that in case they forgot something uh at the time that they did their trust or or in case later on they inherited something and and it forgot to get the the assets into trust any of those assets which therefore needed to go through the probate process would then pass through that person's will but the will would become a very simple document a so-called poor over will the will
017would say when when I die any assets that are going through probate are going to pour into my trust in this case The Joint revocable trust after both parents have died typically one of the kids ends up getting named as the trustees you can name one or more of the kids you can name two you can name three what I typically tell folks is if you're not going to name one you want to name an odd number and make it clear that all decisions get made by majority vote that way you don't end up with things breaking down where you can't make a decision because you can't get the votes if you have two people as co-trustees we typically recommend that you name a tiebreaker specifically to break the tie between the trustees that way
018if the trustees can't agree they don't have to go to court and ask the probate court to break that tie so creditors would be wiped out um in in in in that case because creditors would only have a claim against the probate assets so there is no probate typically creditors are wiped out and finally uh those trustees or that trustee who stepped in after Frank and Mary had died could immediately sell the house and distribute the proceeds because once again there's no creditor period so you can distribute assets immediately so that's a really common estate planning strategy for people who are younger now there are a few other implications to the revocable and amendable trust that you should be aware of for tax purposes this trust is a so-called grantor taxable trust that is as
019long as Frank and Mary are alive for tax purposes both federal and state the fact that the properties are in trust is irrelevant all of the attributes of the property for tax purposes are the same are they are considered to be the attributes of the grantor the person who created the trust so in this case if the house were in trust and Frank and Mary then decided they wanted to sell their house they could and for tax purposes um they would they would be entitled to the same capital gains exclusion that they would be otherwise entitled to as long as they lived in the house for two of the previous five years if they hold the house until they die and the kids sell the house at the time of the death of the second
020of the two of them the so-called tax basis of this property will jump to the date of death value so that if the kids sell the house they're not going to pay any capital gains tax it's all everything is the same if they rent out the house any depreciation that they get any income they get all goes on Frank and Mary's tax return um so for tax purposes it's the same as if they owned it same thing for Mass Health purposes if Frank and Mary were concerned about making sure their assets were safe in the event that either of them needed to qualify for Mass Health putting them into this revocable and amendable Trust will not do the trick why because for Mass Health purposes just like for IRS purposes they still control the assets
021the trust is revocable so they can always pull the assets out it's amendable at any time therefore from for from the mass health perspective they still own the assets that's the reason why when Frank and Mary get a little bit older typically when they're seven or older and they are now thinking about more they're more worried about the possibility that one of them might need nursing home care it is at that point they start thinking about asset protection and therefore thinking about how to deal with that now in order to understand what they need to do for that kind of asset protection you need to understand the basic Mass health rules so what if Frank and Mary are alive and have these assets and then Mary needs nursing home care and now initially she's going
022to be paying for that nursing home care privately if she comes directly from home uh if she went to a hospital first and then got discharged from the hospital to the nursing home typically the the math Medicare will pay for up to 100 days of that care but after that she's going to be on private pay at a bill that can be anywhere between 12 and 17 000 a month at this point so in that situation Mary would be really interested in trying to get get away from that kind of very stiff monthly bill and she could do that if she can qualify for Mass Health and and as a matter of fact because Frank and Mary are both alive Mary could qualify for Mass Health fairly quickly and once again clients regularly come in
023and they're astonished by this fact they've they regularly tell me that they've heard radio and radio things they've read someplace no no no my assets are only going to be protected if I've given them all away and waited five years that is incorrect um the assets can be shifted around uh literally the day before a if someone qualifies for Mass Health if assets are being given to the spouse so if Mary wanted to qualify for Mass Health and once again we're assuming these are the assets they've that they've got a house worth 500 000 francs at the IRA worth 200. they've got Savings of two hundred thousand dollars now Mary can qualify for Mass Health as soon as she can show that she has less than two thousand dollars and that Frank um that his
024only assets are the home but he can own the home no matter what the equity in the home and that he had that he has cash or cash equivalent assets of less than 148 600 but Frank in that case can have unlimited income unlimited income therefore Frank and Mary's basic strategy and this can be done the day before Mary applies for Mass Health would be to shift all assets to Frank and remember as I mentioned there is no look back period regarding any of this at that point the house would be safe Frank would have too much money though because he'd have more than 148 600 in assets so what he would do is at that time he would buy an annuity with any assets that were over 148 600 as long as that annuity
025was irrevocable so that he couldn't get the money back and as long as it called for equal monthly payments to Frank he can't get the money back in a lump sum as long as it calls for equal monthly payments to Frank over a term that is shorter than Frank's Actuarial life expectancy at that time the purchase of that annuity in any amount is a legitimate conversion from a countable asset to a non-countable income stream we've literally bought annuities in this in these cases of up to a million dollars the day after the annuity is bought thereby reducing the remaining assets below 148 600 the the spouse in the nursing home can qualify for Mass Health going beyond that though one and by the way once Mary had qualified for MassHealth her income from pensioner Social
026Security would go to the nursing home MassHealth would pay all the rest what Frank would would at that point though probably also want to do would be to make sure that if he died these assets would still be safe and of course they wouldn't be safe if they were in a revocable trust what he would need to do with that case would be now that he has these assets in his name to change his will to specify that so now it's no longer a will that just as a pour over will into a revocable trust he would change his will to by creating within that will a testamentary trust a trust that is a part of the will and the trust would say that if Mary was still alive any of the assets that he
027owned would go into this testamentary trust for Mary's benefit after that after Mary dies or if Mary has already died the assets would simply get distributed to the kids what has to be what do you need to know about that testamentary trust well it has to be part of the will there is no way that you can create a separate Standalone trust in order to avoid probate while at the same time using this asset protection strategy it only takes effective death and and of course at death that testamentary trust which is part of Frank's will becomes irrevocable because he's dead so he can't take anything out of it that's going into it the will would specify that all assets go into that trust one or more of the kids can be the trustees all of
028the assets that flow into that trust would be immediately non-countable and non-leanable if Mary needed to qualify for Mass Health the assets could be used in the discretion of the trustees to provide for anything that Mary want might want so if Mary was not going into the nursing home and just wanted that needed Assets in order to live on the trustees could always distribute additional assets to her if she got those assets and then needed to qualify for Mass Health the assets that she had that were in her name would have to be spent down to less than two thousand dollars before she could qualify but all of the trust assets would remain safe this would cover all assets that were in Frank's name at the time of his death oftentimes folks even when when
029someone isn't actually going into a nursing home but folks are thinking about this even if they're both healthy wouldn't you get to be about 70 and by the way I turned 73 this year I get it right so once you get to be about 70 you start thinking about well how can we may I make how can we make sure that our assets are safe if one of us dies and the other one needs to qualify for Mass Health so I'll tell them often is get these Wills in place each one having a will with this testamentary trust for the benefit of the other if you don't know who's sick yet then don't you don't necessarily want to transfer any assets around at this point you can leave the assets structured the way they are
030however I will tell people if you get sick call might call your doctor first then call me so we can talk about who is sick and why for example suppose Frank called me and said you know I got I found out I have cancer not tomorrow but sometime soon I may die in that case we may just you the Frank and Mary may decide that they want to shift all assets at that time to Frank so that if Frank dies the assets will be safe non-countable and non-leanable if Mary later needs to qualify for Mass Health if on the other hand Frank said well you know I'm just having some memory problems and so not now but maybe in the future I might need Care at home or need a nursing home care for which
031I'd want to qualify for Mass Health in that case what I would probably suggest to them is that if they want to be on the safe side they may want to shift the assets at that time to marry so that if Mary dies suddenly that will is already in place with the testamentary trust for Frank's benefit and therefore all of the assets that she dies owning will be saved non-countable and non-leanable right so it works both ways as I just mentioned many many couples will will who who are both alive and both healthy will actually adopt these plans now while they're still healthy knowing that the only thing they have to do with the last minute if somebody is getting sick is to move around the assets um finally there are a few other other
032implications to a testamentary trust one of the most positive ones that many many people don't realize is regarding the house if the house gets transferred say to to Frank's name before he dies and then he dies the next day the so-called tax basis of that house will jump all the way to Frank's date of death value so if the house then gets sold either by the trustees of the trust um because they've just because Mary is no longer living at home and they want to just have the cash or by Mary if the trustees decide to give the house back to Mary and Mary then sells the house excuse me in either case the sale is not going to generate a capital gain because at the moment of Frank's death the so-called tax basis of
033the property jumped to the date of death value um also you know once you once you've got that trust those assets you would need to get a separate tax ID number for that trust and once again the house base basis steps up finally what about the situation where Frank has died the assets didn't go into trust because they were still held jointly and Mary now has all of these assets and she's now worried given the fact that she has all of these assets about what might happen if she needs to qualify for Mass Health because remember for her to qualify she would have to show that she has less than two thousand dollars in countable assets uh the house would not count as a countable asset but MassHealth would put a lien on the house
034to make sure he got repaid following her death regarding any payments made Beyond Beyond on her behalf her strategy and the only time where an irrevocable trust really makes sense is in this situation you have a single person who is older who is concerned about protecting their assets so if for to help her sleep at night what she may want to do is transfer her assets to an irrevocable trust a trust from which she cannot take out the assets once she'd put them in she would typically name one of her kids as the trustees of the Trustee of the trust regarding her house she would typically transfer a so-called remainder of interest in the house to the trust that is the interest that starts after she dies she'd keep a life estate so that she'd
035be in control of the house five years in it and then she would also could also transfer cash into that same trust five years in a day after she's done those transfers those assets are safe non-countable and non-leanable the assets once you put them in cannot be taken out Mary can't be the trustee but she can keep the power if she's getting having to if she's disagreeing with the trustee because she finds that the child that she named as trustee isn't turning out to be what who what she had hoped she can always fire that trustee and appoint somebody else the trust will typically name the children as the beneficiaries while Mary is alive so that if Mary needs any money the trustee would have the discretion to distribute some funds or even the house
036out to the beneficiaries and have the beneficiaries turn around and give them back to Mary this is this is all this all complies with MassHealth regulations at Mary's death the assets would get distributed immediately to the kids and there would be no probate the other implications of an irreva of an irrevocable trust we you can still structure it so that it would be grantor taxable so that when Mary dies that once again the tax basis will jump up to the date of death value the the trustee once again will need to get a tax ID number but there will be no probate so those are the three trusts that are most commonly used by seniors to solve the problems that seniors have the key is what you want is the trust that's going to help
037you sleep well at night that's the goal of this whole exercise if you have any questions about any of this you can always contact me uh you can you can watch this the same video on our YouTube page or you can call us my direct line is 508-860-1470 I hope you enjoyed the presentation we'll see you next month thank you