Should You Put Your House In A Trust?

[Music] hello I'm Michael Rooker I'm the managing partner cream bush Financial Group and today we're going to be discussing should you consider putting your house in a trust we actually have this conversation a lot with our financial planning clients and most people think as soon as they hear the word trust that's just for the uber wealthy my last name is in Rockefeller so I'm never getting it to trust but that's actually not true trusts have a lot of benefits that average families average individuals should really consider accessing for events down the road but I'll first start off and the most simple for people that aren't familiar with trust what is a trust like a trust is essentially you're setting up a third party a fictitious third party to own your assets sometimes that third party even has its own social security number which is called a tax ID number so just like we're setting it up and I'll go through why you would do that and what the benefits are so there's really two types of trusts and this is very important there's revocable trust and then there's irrevocable trust so the main difference between the two is revocable trust give you more flexibility because you're not really giving the asset away you can always take that asset back versus an irrevocable trust as a name suggests you're making an irrevocable non reversible gift to this trust that you're not supposed to be able to take back to you and each trust has different types of benefits that we'll be discussing today so let's first start with a revocable trust this is the most flexible one now revocable trust why would you want to set one up the primary reason people set up these trusts is to avoid probate now if anyone's ever had a family member or friend pass away and you've been the executor of their estate you realize that probate is a huge headache there's a lot of cost there's a ton of paperwork so to avoid that any asset that's owned by a trust there is no probate when you go through the probate process just like you got to pay attorneys you got to pay it count so you might have to pay an appraiser it's a court driven process you got to deal with the courts so if I own my house and I just wanted to go to my kids essentially if it's just in my will and I will it to them that's going to go through the probate process so my kids might not take ownership of that house for six to twelve months while it's going through the probate process versus if I have a revocable trust on the house my kids can take immediate access to that thing as soon as they look at the trust documents a out belongs to the kids there's no probate issue here you go and it saves all the costs that you would have had to go through during the probate process so big benefit there the other reason why people set up these revocable trusts is they have kids under the age of 25 so when you have younger children if we have you know a house we have retirement accounts we have insurance god forbid something happens to me and my wife simultaneously and we have young children essentially happens is those assets get set aside for the kids but then when they turn 18 they have full access which means they could come in to large sums of money and they might not make the best financial decisions at the age 18 they might decide not to go to college or they may make some questionable life choices because they're just flush with cash now to prevent that what people will do is set up these revocable trusts to say if in that instance that happens where something happens to both parents that says all the money goes into this trust but then it's the only gonna get released or in accordance with the language and the trust document so I might say my trust document you know if that happens money can always be spent for education health normal living expenses but the principle of that trust will not be released until they get a third of 25 a third at age 30 and a third at age 35 you can set these up however you want they're completely custom and everyone has different wishes but just knowing it's a way to kind of control those assets if you have younger children in the family so that's really revocable trust so let's kind of shift gears over to the irrevocable trust now this is the trust we are giving assets so just like so why would someone subject themselves and more restrictions now the two and reputable trusts have all the benefits of an irrevocable trust so your void probate you can control it for younger children but it has two added benefits so that one benefit is it protects assets from a long-term care event and the other one is it shrinks your estate now shrinking your estate that is for the uber wealthy that's they have got a 20 million dollar estate and I'm gonna have a huge estate tag so if I give money of this trust I'm essentially removing it and shrinking my estate now since most of us don't have that issue really it's the first one that kind of says I want to protect assets from a long term care event now again if you've ever had a family member that's had a long-term care event well then they've needed home health aides they've been in a nursing home assisted living you know that care is very very very expensive and the way the system works now is you're essentially required to spend through all of almost all your assets and then when you're well below the poverty level then Medicaid will start paying for your care on your own now with some advanced planning using error and an irrevocable trust you can protect a lot of your assets that should that long-term care event happen down the road you don't have to spend down all of your assets so that's like myomas ask clients you know you've worked so hard to build these retirement accounts pay off your house and everything do you want those assets to go to your kids or your beneficiaries or do you want it to go towards your care or Medicaid when they take it down the road if there's a long term care of it most people say I wanted to go to my kids well this is a way with a little bit of advanced planning you can ensure that those assets do there's a way Medicaid works is if you have a long-term caravan they have what's called a 5-year look-back period so they look back five years to say if you gifted any assets away if you give to do two a trust and individual anything it's back on the table like it never happened because what Medicaid does not want to have happen is you have alarmed caravan and then your gift all your assets to a trust and say hey qualify for Medicaid start paying for me that's not what it's set up to do the reason why there is that advanced planning is if you want to do this you have to put these assets in the irrevocable trust it has to make it by the five year look-back period once you're past the five years if there's a long-term Caravan they can't look at those assets as a spend-down because they haven't been yours for more than five years now people say well I've heard your house with Medicaid they can't make you sell it it's not a countable asset you know to an extent that is accurate that it's not a countable asset if all you own is your house and you've spent through all of your other assets you won't qualify for Medicaid however what people do not realize is Medicaid puts a lien against that house while they can't make you sell it while you're still living they put a lien against it that says listen if we paid out $150,000 for you for your long-term care when you pass when you we're gonna make you sell that house and we're gonna recoup that money so again in the situation saying I want my house to go to the kids people don't realize that yeah you didn't have to sell you qualify for Medicaid but Medicaid is waiting to take that house as soon as you pass if you have the house owned by an irrevocable trust and it's been in there for five years they can't touch it it's gonna go to your kids which is usually a more ideal situation so when you look at that for the amount of make cost to set up a trust if an attorney charges you two or three grand which sounds like a lot of money well how much is it for your house the value of your house to make sure it's passing to your kids or to protect assets against a long-term care event which is very expensive I mean it's not uncommon for nursing homes to cost upward of 120,000 Plus per year so just like so again a little advance planning going a long way so now I do get some questions and these kind of came in from our blog and the website that it did want to go over so that were very good questions so when you give your house to a trust the question was okay I have a star exemption or I have an enhanced star which reduce my property taxes do I still receive that if the house is owned by an irrevocable Oracle trust the answer is yes so you usually the estate attorney will put enough language in there that says any of the tax benefits you were getting as an individual will pass through to the trust even though it's owned there the other question I've that was a good one is if my house is gifted do a trust do my beneficiary still receive a step-up in basis because if you own a sense an individual survived by my house for twenty thousand dollars forty years ago but now it's worth two hundred fifty thousand when I pass if it's owned by an individual you're gonna step up in basis which means when my beneficiaries get the house they pay no tax on that it's the same thing where if the attorney is putting the right language and the trust document you should still be able to maintain that step-up in basis so your beneficiaries don't have to pay tax in the game which is a big deal because a lot of people have owned their house for a long time have that game built up in their primary residence here's the other big one so if I sell my primary residence while I'm still alive so I put my house in irrevocable trusts when I'm 70 and I decided 75 hey I'm gonna leave New York and go move to Florida and I've had in the trust for more than five years is there an issue with me buying another house since I transferred the ownership the answer is no there's no there's no issue if the uravugal trust owns my house here the ever revocable trust will sell the house and then buy my next house now here's the number number one mistake that we see people make in these real estate transactions so there's a lot of stuff going on at these closings we've seen it happen where someone will own a house in an irrevocable trust they'll have satisfied the five-year look-back period they sell their house the attendants that have the trust to buy the new house but at the closing they make the check payable to the person the owner the owner then takes that check they put it in their checking account and then deposit the money back to an account that's owned by the trust you now have to satisfy a new five year look-back period because you took ownership of those assets even for a second so once you have to make sure is that that closing that closing check should be made payable to the name of your trust and then you immediately take that check and deposit to either a checking account or an investment account that's owned by the trust or you take that money and then your trust buys the next house in the next closing make sure it never leaves the trust otherwise you voided all everything you've gained in the last five years look back you have to start over again so that's very very important another question we get is does the trust need to file a tax return revocable trust do not have to file their own tax return because it's built in your social security number of the grantor or the owner so there's no additional tax return needed irrevocable trust may have to file their own tax return if the only thing in that yerevan will trust is your primary residence it's usually not income producing so it has no income so it doesn't have to file a tax return however as soon as you sell that house if you sell the house and then you take the money and you put it in an investment account or you put it in checking account and there's interest that has to be reported as taxable income then your irrevocable trust under the tax ID will have to file its own tax return so for those years forward you filed tax return for yourself and your trust so that'll be something you'll have to consider now going back to a point I made earlier our irrevocable trust is there any way to break them if you need to get to assets say there's some unforeseen event and that's what kind of shines people away sometimes from the irrevocable because it feels like I'm never gonna be able to get these assets back and I can tell you there's ways that the estate attorneys used to kind of get away or get around those barriers and one of the ways is give money to an irrevocable trust let's just say it's sitting in an investment account now and I need to take fifty thousand dollars back but I can't because I gave it away what those trusts can do is they can distribute are a lot of times gift money to the beneficiary some of the beneficiaries are my kids the trust can give money to the beneficiaries and then the beneficiaries gift the money back to me so just kind of it's like a family meeting saying hey we're setting this their irrevocable trust to really protect the assets for you guys if we need it they're gonna give money to you and you're gonna give two back to me that's okay that's kind of a workaround because essentially they're making a gift to me I'm not just taking my asset back the other way is the trustees of your irrevocable trust can partially revoke some of the trust so we can look at the trust assets and say we're gonna partially revoke fifty thousand give those assets back to and dad so there's definitely workarounds it says you know once you've given it you know there's creative ways to kind of get those that's back if needed so how to establish the trust so okay we've gone over the benefits everything like that how do we actually establish one of these things you usually need an estate attorney to establish these because the trust is an actual document and you have to outlay who's going to be the trustee you know what are the terms of the trust who are the beneficiaries a lot of times it mimics your will because you'll have a will that says anything that's not owned by the trust is passing this way but here's the trust document iams if like everything goes my wife and then my kids your trust document is gonna say the same thing but you might have some additional language in there for some of that stuff for the younger children's then they only get assets at a later date now the other question again is if I have a trust do I even need a will anymore usually you need both because there's always gonna be some assets that are not owned by the trust like a car like registering a car in the name of trust is kind of a headache so there's always gonna be maybe some outlier assets that are owned by your state that essentially you're gonna need the will to speak to otherwise you typically try and get as much as you can in the name of the trust to avoid probate hope this has been helpful if you guys have any questions feel free to reach out to me at money smart board com thank you [Music] you [Music]

Channel: Michael Ruger - Greenbush Financial Group

Views: 196,918

Keywords: trust, house, medicaid, long term care, nursing home, benefits, taxes, financial planning, strategy, what is a trust, Michael Ruger, Greenbush Financial Group, Money Smart Board

Id: zM8jDvAB7ds

Length: 14min 36sec (876 seconds)

Published: Wed Mar 13 2019