Transcript
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Some people are quick to just put the
house into their kids' name. So, we've
seen that where they transfer the deed
into their kids' name. That's a big
mistake because obviously there's your
kids could have their own creditors,
whether they're going through a divorce,
whether they, you know, have their own
creditor issues. But more importantly,
if you transfer your house into your
kids' names during your lifetime, you
lose what's called the step up in basis.
Okay? So you lose the the the tax
advantage of the kids getting it as a
inheritance versus giving it to them
during their lifetime. So really putting
it into this trust maintains a step up
in basis, maintains all the tax
advantages, but also puts it on the
side, earmarks it, doesn't go through
probate, earmarks it for the next
generation, and gets you into this
position where you're eligible for
long-term care under Medicaid.
Um, welcome to the middle class uh
podcast. Um, we're back. I know we have
our intervals of lack of consistency.
Um, but I think this episode is going to
be uh very very important. Um, we're
privileged to have as a guest uh Paul
Moscowitz Esquire from the Moscowitz
Legal Group in Ullet, New York. And
we're going to discuss a topic which no
one wants to discuss. And I'm going to
let that sit for a little bit so people
continue to listen.
Um so the topic we're going to discuss
today um is let's say ed uh estate
planning and Medicaid planning. That's
the general topic. Now the estate
planning piece includes a lot of things
like I was saying people don't like to
talk about wills, trusts, end of life
matters. And I would just say one point
and Paul you're going to really lead the
conversation. Um, but one point I would
make that it when it comes to this kind
of planning is that it's not about the
person planning per se. It's about the
people they for lack of a better way of
saying it leave behind. It's for the
people that are dependent, the people
that they're supporting, family,
friends. estate planning, Medicaid
planning, end of life planning is about
the people that are in your circle, not
necessarily about you and it's also good
for you as well. But that's very very
important I think. Uh so without uh
further ado, I want to introduce uh
Paul. Uh Paul, why don't you just tell a
little uh us a little bit about yourself
and your company and we'll get into
specific questions after that.
>> Sure. Um firstly, thanks for having me.
Um and uh thanks for uh inviting us on
the on the podcast. We have a law firm
that does specifically what my you were
you were describing. Um elder law,
Medicaid planning, estate planning. Um
we do guardianship, we do probate. Um
thank God our firm has evolved and
grown. Um we our our primary um office
right now is in Newlet New York but we
service the entire New York area um and
New Jersey as well and we um have about
five six attorneys about 30 30 staff
members all working under this you know
this umbrella of elder law Medicaid
planning which is I guess a niche within
estate planning. Um so um there is the
estate planning aspect with you know
high netw worth people and tax planning
and making sure we primarily focus on
the middle middle more middle class
individuals although we do have there's
an attorney that handles the high net
worth but our predominant you know
market is the is that elder law Medicaid
planning. So to your point where um you
know factoring in the people that you
leave behind um and the people that are
left to deal with the estate after
someone's passing with Medicaid planning
there's also the aspect of while you're
alive making sure that you're preserving
your money and it doesn't become a huge
um financial strain on the family
members um because you've done that
pre-planning and you've you've so the
advantage is not only postmortem
necessarily you know, once you passed
away, there's also a significant
advantage while you're alive to make
sure that you're not running out of
money, depleting your savings, not able
to afford your lifestyle because the
cost of care gets gets um very very
significant. Yes. Okay. So, and that was
very very good. Um and the great thing
about the middle class podcast is that
we want to go to the fundamentals um and
the I say basic concepts of what you
just said. So, you see, as an attorney,
you're very familiar with these uh
topics and conversations, but there were
a lot of things that you mentioned that
the average layman should know, but they
don't know about. So, I'm going to jump
into this because I'm also I'm not a
attorney. I'm an accredited estate
planner. So, I do work with attorneys
and there's a lot of overlap there. So,
I want to try to go in an order. So,
what you mentioned was one thing you
mentioned there um and there's a lot to
discuss, but one thing you mentioned was
probate.
So, from what I know, um and again, you
know, you're the attorney, so you're
going to go more into the specifics of
this. Probate is um really, uh the
process of the courts administering an
estate, but that only takes place if
there's some estate planning. Let's say
someone has no will, nothing. They just
pass away with assets. What happens? And
I'm bringing this out because this will
help us understand even more why estate
planning is so important. So,
>> Sure. Yeah.
>> So, that that if someone passes away
without a will, let's say they didn't
know estate planning at all, they don't
have a will. Um that is called passing
away in test date. Okay? Passing away
without a will. And it obviously depends
if they're let's take a a husband and
wife and unfortunately this comes up
husband and wife one of them passes away
um and they don't have a will in place
and a will could have said that all my
assets would go to my surviving spouse.
Okay. Without a will, the laws of
intestate, meaning the laws of passing
away without a will, um are that the
surviving spouse would get $50,000 plus
half of the estate and the children
would get the other half of the estate.
Um where that becomes problematic is
number one, if that wasn't your
intention, your intention was to leave
everything to your surviving spouse. And
number two is if you have minor
children, they are now the recipient of
half of the estate. Um, which becomes
problematic if they're minors, they need
a guardian. The court gets involved and
a lot of hurdles are experienced as a
result of not having a will. So some
people, you know, have this notion, I'm
too young to have a will. I don't have
much to have a will or but just the fact
that you have children and you have some
assets. You could be putting them into a
predicament where now they have money
that's going to them and it's going to
be controlled by a third party where
your intention really was that the money
should be going to the surviving spouse
to be able to afford you know continuing
your lifestyle and now half of the
estate is tied up in in in children's
names. So to answer your question
simply, intestate is the process where
you don't have a will and the court's
default or the state's default of
somebody not having a will are that the
assets are split between their surviving
spouse and the children. Having a will
basically is, you know, the way I like
thinking about having a will, it's uh
it's an instruction guide. It's saying
whatever the default is, don't listen to
the default. But attorneys came up with
like maybe a fancy way of, you know,
last will and testament. It sounds very
fancy so they can they can make you know
money on it. But really it's your
instruction. This is what I want to
happen to my money upon my passing. I
want it to go like this. I want this
person to manage it and therefore it
goes according to your wishes versus
according to the default of the state.
Okay. So beautiful. I love and I love
how we go in order from bottom. I don't
know if every everyone or anyone
listened to our tax podcast where we
started from the bottom literally. So we
just started from someone who doesn't
have any estate planning. They die like
you said intestate and I'm assuming that
depends on the state right the rules of
intestasy um
>> are state specific
>> state specific whatever it is it doesn't
sound good um like you said. All right
so now let's talk about a will. What are
the bas what's the basic skeleton of a
will? And I want people to know this and
understand this so they understand if
it's complex or not complex, how easy it
is, how hard it is, how they should go
about doing it. But what would be the
the basic uh structure of a will, right?
So like I mentioned, a will is
instructions. You're basically saying if
I if I pass away, this is how I want my
money to to be, you know, to go on to go
on to the beneficiaries, to go on to my
spouse, to go on wherever, to go to
charity. But you're basically
delineating where you want your monies
to go. Um, and that's what a will
dictates. It says, "This is where I want
my money to go." It's called the
beneficiaries. And the executive, you're
naming somebody that's going to be
responsible to carry out the directions
listed in the will. That's as simple as,
you know, a will is. And obviously, it
can get more complicated if you want the
will, you know, your assets to go to a
trust, if you want them to be locked up.
But from a simple standpoint, it's
directing where your money should go
upon somebody's passing.
>> Yeah. Right. So that's uh important that
people understand the fundamentals
behind the will. Um so a couple things I
wanted to zero in on there. So so you
have the will guiding the assets that
you have, where they should go, where
they shouldn't go, and then you have the
um executive, the person who's
administering uh administering the will.
Um, so what would you say is an
important piece of choosing an
executive? Should it be someone's
mother-in-law? Should it be their
brother? What would you say? Again, for
basic, someone who wants to write a
will, who should they pick and choose as
someone to administer that? Yeah. So,
it's a good question. Obviously, that's
very specific, family specific. Um, so
generally, you want to pick um one of
your children. I would say depending on
your age. Obviously, if you have young
children, then you pick maybe a sibling,
maybe even a parent and then change it
over time. Um, but if you are, you know,
you have older children that you trust
and they're established and maybe, you
know, you pick one of them, you could
pick two of them. Um, and make them both
co-executives. Um, but it would be
generally you should leave it within the
family. Um, and name that person to be
the, you know, the person carrying out
your wishes under the will. So
theoretically, if I would say this, and
tell me if I'm wrong, let's say you
have, you know, um, Jack and Jill, or
from the Jewish way of saying it, uh,
Schllayy and Rifky, okay? Um, and they
have three kids, whatever their names
are. Um technically for Schlamy to
create a will from himself his basic
structure would be if I pass away my
assets go to my wife let's say
>> and
>> Rifky
>> Rifky right sorry rabbits and Rifky
>> forgot Rifky and um the uh she she'll
receive the assets and she can become
the executive on the assets that Schlamy
has. Is that correct?
>> Yes, she can be the executive. The
executive happens before she receives
the assets, right? So she'll be the
executive. So that's generally the way
it is. They would be it's almost
mirrored wills. So husband would
basically choose wife, wife would choose
husband to be the executive and the
beneficiary and the primary beneficiary.
And then they would pick somebody that
would be the backup should god forbid
they, you know, both deceased um in that
scenario. So yes, she would be the
executive. So, I think that's important
to emphasize because that means for
someone to write a will and that again,
we're not getting into family dynamics
or complications. We'll maybe talk about
that later, but you know, regular
run-of-the-mill family for them to
create a will as far as what they need
to put in there, it's pretty
straightforward.
>> Absolutely. So, let's talk about that.
So, for again, for Slamyia and Rifky and
their three children, they come into
your office, they want to write a will.
Tell us a little bit about your process
of taking them from start to finish and
assuming again reg run-of-the-mill
family. No necessarily they're not
necessarily paying estate tax or
charitable requests or anything. Just
basic
>> basic structure is they they would have
a will. They would name each other as
the primary beneficiary, primary
executive. We'd ask them for a backup
just so that there is a backup listed
and they can each have their own
different backups. So um meaning um
Rifky can have her you know backup being
somebody that maybe Schlami doesn't want
to be the backup of that of um his
backup in in that example if they have
minor children there are you have to
name a guardian um also so meaning if
god forbid both parents were to decease
who would be the guardian of of the of
the minor children generally the
structure is all the assets are left to
the surviving spouse and after you know
that surviving spouse or If that
swerving spouse predesceased, then it
would go to the children equally and
hopefully at that point they're, you
know, not no longer minors at that
point.
>> Okay. So again, so we have a basic and
and again to get that will in effect, I
think all you need to do is have it
signed, notorized. Witnesses witnesses
and who could be sorry I want to get
specific on that cuz I know this
witnesses can be it's not like you know
you can't have cousins, can't have
gamblers. They shouldn't be they
shouldn't be a party to the will.
>> Shouldn't be a party to the will. So you
could literally have people you're
>> anybody. Yeah. We don't have to know
about their Yeah. They're you know they
could be
>> okay. Okay. Maybe we'll talk about a
will also um in a second, but I wanted
to branch off. So we got the basics of a
will, why it's necessary to have one. I
think that's pretty important. Um now I
know with a will comes a couple of other
documents. We have a health proxy
and uh financial power of attorney.
>> Correct.
>> Right. So could you explain what those
two things are? And am I correct that
those really accompany everyone?
>> Generally, generally when you're doing a
will, you do those documents at the same
time. A healthcare proxy is these are
both called advanced directives. So
unlike a will, which only comes into
play upon somebody's passing, it's your
last will in testament. Meaning your
will is a piece of paper until someone
passes away. It's really not an effect.
it doesn't really matter. Um, healthcare
proxy and power of attorney are two
documents that are specific during
somebody's lifetime. Obviously, a
healthcare proxy, you can only have
healthcare decisions to make if you're
alive, right? So, that's pretty um
straightforward. Um, it names the person
that will be your health care
representative if you can't make your
own decision. So, for example, if you're
going for a root canal, your healthcare
proxy can't come and say, you know,
you're going for the root canal. Um,
they can't force you into that
situation. And it's in a situation where
you are, you know, you're not mentally
competent or you're, you know, you're
not in a situ in a state of mind where
you can make those own decisions. You're
basically just naming somebody to be
your voice. And and power of attorney is
a very important document. It has
everything to do with all financial
anything not healthcare related is where
the financial um power of attorney comes
in. And that power of attorney allows
for somebody to be what's called your
agent um to act on your behalf in any
capacity. That is a very very important
document because if somebody is deemed
to be mentally incapacitated and you
don't have a power of attorney in place
that's when the court gets involved and
you have to go for guardianship and that
could have been avoided if a power of
attorney was put in place and the cost
of going for guardianship the emotional
the emotional cost the financial cost
are exorbitant and could have been
avoided with a with a power attorney. Um
you are not a default power attorney of
anybody. So just because you're married
to somebody or you're their parent or
they're you're their child or whatever
that case might be, you are not their
power of attorney. So for example, you
walk into a bank and say, "But that
person's my husband, you know, or my
wife or whoever that might be." Um that
will not play in. They will ask for a
power of attorney to show that you have
the right to access their accounts, pay
their bills, call on their behalf,
whatever that might be. And unless you
have that financial power of attorney,
that power of attorney, um the account
could be locked. you won't have access,
you can't pay their bills, you can't act
on their behalf, and you would have to
go to court to get guardianship, which
like I said could have been avoided.
>> Mhm. Okay. So, and again, a financial
power of attorney and a health proxy are
aren't difficult to just have to know
who they are,
>> right?
>> Yeah. So, um let me ask you, have you
ever do you have any stories uh to tell
us of people that didn't do this
properly? And uh it could be you don't.
We have stories all the time.
Unfortunately, we have stories where um
young people, unfortunately, whether
they're in this neighborhood, outside of
this neighborhood, where they um we're
in a we're in a situation they got, you
know, mental capacity was questionable
and they could no longer sign a power of
attorney. And um they needed to go for
guardianship, but guardianship had to
happen in emergency situation. Um that
happens unfortunately. Um, we've been in
situations where people didn't have a
will and unfortunately the kids are now
the inherited money. Um, and the courts
involved in making sure that there's a
guardian adum it's called where the
guardian is basically in control of that
money. um and the family needs the money
to you know pay bills and that's that's
um so many many situations where you
know it's the it's a common saying you
know you don't you only need a plan you
know but people don't plan they wait to
plan and um and they say you know I I
just don't need this right now and then
unfortunately they're in that situation
and that that that becomes a too late
situation um so yeah the question you
know this happens frequently
>> you've seen it so I would say and we're
going to shift more I think into more
details now once we um you know finish
the the will discussion the basics of it
I would say you know a couple things
conclusions from that firstly tell me if
you agree having a will health proxy and
financial power of attorney is
absolutely necessary
>> absolutely
>> okay
>> no matter the age
>> no matter the age young old wealthy not
wealthy
I mean to me it's self-evident based on
what you just So, but it's important to
say it, emphasize it. And number two,
the process of getting these documents
isn't too complicated. How many meetings
does it take? Two, three, how many
meetings?
>> Generally, we meet the person once and
just to take an intake and to gather
information around their family, their
dynamics, what they're looking to
accomplish, and then have a second
meeting to sign the documents.
>> Two meetings, create the will and sign
the will. And you do everything in your
office. You notoriize it and everything.
>> Sure. So I mean again at this point um I
know a lot I don't want to put
generalizations but the Jewish
attitude sometimes is to be hish with
things and not to plan
>> um and therefore maybe take a little bit
of time one or two meetings and set this
up and I and like you said also things
can be changed nothing is final but at
least you have something
>> for today for today you could always
change Right. Hopefully everyone will
get very wealthy and then they have
different things. But
>> yeah, and hopefully, you know, hopefully
nobody dies. Hopefully nobody gets
injured, nobody gets hurt, and you know,
that's that's what we hope for. But
>> at least have these documents in place
and know that they're set up,
>> right? Okay. So, now let's move on to I
think something a little bit more
advanced, but I think also very
relevant. Um, so I know with a will, and
again, you're the attorney, so you're
the more more expert in this. Um,
there's a process called probate.
>> Mhm.
>> Right. And again, that's when the courts
are still involved in administering the
estate estate except that they have this
will, which is a directive, right? But
then there's also putting trusts in
place and other types of vehicles where
you could avoid probate. So that's my
that's how how much I know. Could you
explain a little bit in more detail what
the process of probate is? One and
number two, what are the other vehicles
that can be used to avoid that? Because
I'm assuming, you know, having the court
involved in your administering of your
estate is not desirable.
>> Yeah. So the the primary driver to not
have the court involved in your estate
is people have you know there are every
state is different. Some states take a
percentage of the estate as a kind of,
you know, while you're going through
probate. Um, New York doesn't have that.
I think the the predominant motivating
factor not to go through probate is
really timing. You know, you want the
assets to go to um the kids right away.
Probate could take, you know, 2 months,
3 months depending on the backlog in the
courts. And that also does open up for
whether there be could be a dispute. it
could open up for a dispute if you know
somebody felt that they deserve more and
they want to whatever that dispute might
look like. Um and and by putting it into
a trust, you're basically moving the
assets out of your estate, putting it
into this vehicle, this trust, let's
call it like this uh company. Um and
that company would basically control it
during your lifetime and also dictate
who will go to upon your passing which
would avoid the entire topic of probate
um entirely. That's one way of
accomplishing it. That's called do
putting it into a revocable trust. Okay,
revocable just basically means that
you're the manager over your own trust.
You could change it at any point. You
could you could do whatever you want to
this trust. There are other ways to
avoid assets going through probate. One
of those ways is by just adding a
beneficiary to the account and if that
there's a beneficiary listed the on the
account that that account and that asset
will not go through probate. So there
are other mechanisms of avoiding
probate. Um now I could segue into
irrevocable trusts if you if you like.
So yeah so very we're going to get I
want to get there um actually. Um but
this is the concept that I wanted to
bring out is the trust concept because
everyone hears about trusts.
I don't think many people know what they
are exactly, but I think you just
explained it. A trust is an entity,
company entity of its own. You put the
assets in there and the trust directs
where the assets go and you could avoid.
So let's say let's say someone has a
trust document saying that if you know
again our case Schlamy passes away his
uh his uh wedding ring
they were moving his wedding ring goes
to um his his son uh Yitsy.
That's what it says in the trust.
>> Well really yeah tangible items are a
little bit funny. You can't really put
tangible items into trust, but but
conceptually, yes, that's
>> Give me another item that would go
>> house. A house. Okay, great. Oh,
beautiful. So, Schlimy's house, the
trust says it doesn't go to Riffy. Uh,
it goes to uh Yity. Okay, that's what
the trust says. So, in order for him to,
let's say, be put on the deed of the
house or gain ownership, he just has to
show the trust to the parties.
>> Correct.
>> And I guess the death certificate.
>> Yeah. Yeah.
>> And it becomes theirs.
>> Yeah. As long as the title of the house
was in the trust, then the trust
controls the, you know, dictates and
controls what's going to happen upon
Schlimey's passing. Look at that. So,
you have a trust. Hopefully, you trust
the trust and you put the assets in this
trust. You avoid the whole court
situation
completely.
>> So, and and like you said, re revocable
trusts are revocable. So, you can change
it and switch and take money out and put
it in. always the owner and the granter
etc. Um so I would say having a
revocable trust is
easy easy and can be implemented also
for people that aren't necessarily high
net worth.
>> Sure. Sure.
>> Right. So all right so let's let's just
focus on that a little bit. Can you just
give us the skeleton of a trust again? A
trust like like we said is a is a entity
you know like a company and you're
basically taking this entity um if
people are familiar with LLC's as an
example very similar in nature um it's
an entity a standalone entity and you're
basically titling assets into the name
of the trust so it could be the Albert
family trust and that Alpert family
trust will now hold the assets okay
revocable trusts though not to get you
know overly complicated here are not
creditor protected meaning whenever
you're in control over your own trust.
Revocable trusts are also for anonymity.
So basically, you could make it, you
know, put into a trust with a name
that's not yours and and basically have
this idea of it being, you know, away
and and people can't look you up. So
there's a little bit element to that,
but again, all it does is avoid probate.
That's really the the the most um
significant pro of having a revocable
trust is if you're concerned about
probate that there is a vehicle to avoid
probate. Um the other vehicle like we
described is have beneficiaries listed,
but in a house it's impossible to have
beneficiaries listed on your deed. You
could do something like a life estate
deed, but the cleanest way to put, you
know, to have that would be in a
revocable trust. So that that that's the
value in a revocable trust.
>> Okay. So, um, let me just explain a
little bit cuz I know a little bit about
the beneficiary piece and we're not
going to I don't want to go too much
into it, but again, it's an easy thing
to do. So, beneficiaries mean, for
example, um, your life insurance
contracts, they have a beneficiary. You
don't need to go through courts, right?
Um, if you have a retirement plan from
your company such as a 401k or you own
an IRA, individual retirement account,
you could put a beneficiary on that. Um,
and correct me if I'm wrong. Uh, joint
bank accounts, for example,
automatically go to the joint owner.
Correct.
>> Uh, house as well, if it's jointly
owned, automatically goes to the joint
partner. So, I'm not saying these are
things that are, uh, you know,
unimportant, but they're easy to do. Um,
these are different examples of avoiding
this probate process in a very easy way.
And I've seen this when we set up, let's
say, you know, 401k contracts for our
clients. they neglect to put the
beneficiary in there and then you know
well let me ask you what happens oh I
guess when there's no beneficiary it
goes through the will and then there's
the probate correct process
>> okay so the trust avoids that and let's
just go through again two more maybe two
or three more details with the trust the
trust has um a trustee as a trustee
generally in a revocable trust you are
your own trustee
>> okay
>> um but yes it has a trustee and then it
has beneficiaries of the trust so you're
a lifetime. In a revocable trust,
generally you're the lifetime, meaning
the person creating the trust is a
lifetime beneficiary of the trust. So,
they're not giving away their assets,
you know, at this time. And then it
lists beneficiaries subsequent to them
passing who the beneficiaries would be
of the assets that are held by that
trust.
>> Okay. Okay. Great. So, let's just recap
a little bit. So, we started from the
from Schlamian Rifky when they didn't
have any will and it was a disaster. Um,
then they had a will and it was better,
but they had to wait four months for
things to be uh split up and it was
public and everyone knew about it and
one of the kids was upset. So, it was a
little bit everything ended up okay, but
it wasn't as smooth. And then we created
a trust where everything was done in a
couple of days and the family's happy
and Shami is smiling down from Ganeden
uh with all of his uh his big mitzvah
that he did for his family. Okay. So,
now I think we want to move into a
little bit of the more uh advanced
estate planning. Um, so let's talk a
little bit about this. I I know I'm
familiar with this also. Um, we know
that Uncle Sam loves taking part in all
of our assets and everything we have.
And there's something called an estate
tax.
>> Yeah.
>> Okay. Estate taxes are exactly what they
are. when you pass down an estate
there's a tax Paul if you can just go
through the basics of estate taxes and
what planning would be needed
potentially or that piece.
>> Sure. So estate taxes obviously you know
every everybody's situation is different
what they're looking to accomplish what
they're you know so when you're they're
in a situation where people have um
assets are leaving over assets um over
let's call it $7.5 million for New York
state federal it's $30 million so $7.5
million give or take um on the on the
New York state estate tax you basically
hit a cliff okay where where if you go
over that over over that amount, they
give you a little bit of a cushion, but
if you go over that amount, you then
have to pay um estate tax on the assets
that are left over to the next
generation. Okay? The the predominant
way to plan towards that is basically to
give away those assets during your
lifetime. Start giving away some of
those assets during your lifetime. By
giving them away, obviously there is the
there is a gift tax. So, you have to be
considerate about the gift tax. There's
also this idea if you if you give it
away, you lose what's called the step up
in basis. You lose some tax advantages
by giving assets away during your
lifetime and also you lose control. And
if you're relying on the dividends and
the income for your lifetime, you may
also be in a situation where you're
losing some of that. Estate tax is a
factor and a consideration as you start
planning. Um when when you're planning,
one of the things to think about is
start moving some of those assets
towards closer towards the next
generation, moving it out of your estate
to avoid being in a situation where you
would be paying an estate tax. And
that's really where gifting comes in.
Trust planning comes in. A revocable
trust would not necessarily work in that
situation. There are more complicated
trusts that work in that situation. So,
if you're in that category where you
believe you're going to be leaving over
um a significant amount of assets to the
next generation, you definitely want to
um start thinking about how you're going
to plan to ensure that the next
generation will get that money, get
those finances, get the get their
inheritance without paying a significant
amount of that money to Uncle Sam.
Obviously, the pros and cons there are
always the more you give away, the less
control you have during your lifetime
for that money. Life insurance policies
are um they do they are part of the
estate tax. They're part of your estate.
>> That is that is an easy one to possibly
just put into a trust. There's an
irrevocable life insurance trust. You
can just move that entirely out of your
estate. So if you do have, you know, an
estate with $5 million and $2 million is
and $2 million on top of that with life
insurance. easy thing to just put your
life insurance into a life insurance
trust and therefore kind of put it on
the on the aside on the side um and um
therefore wouldn't be counted as part of
your entire estate.
Okay. So again, this is a middle class
podcast, so I do understand that we're
moving more towards the higher net worth
space, but to be honest, you did mention
things that are very relevant to middle
class. So, someone who owns a house in
our community, has a $5 million life
insurance policy, has some bank
accounts, has a retirement account, you
know, things like that, they can get up
to that threshold where, you know,
they're above that $7 million net worth.
Doesn't mean you have to have $7 million
in the bank. It means $7 million of
assets that you own and potentially pay
estate taxes. And I want to mention one
thing. Tell me if I'm wrong, cuz I've
seen this come up. There are people that
do give significant gifts even if
they're not high net worth. I believe
there's the, you know, something called
the gift tax exclusion, which is roughly
$19,000 a year
>> per per person, per person you're giving
it to.
>> If they give more than that, they have
to file a gift tax uh return. So, I I
want to just bring out this point that
you need to do some planning around
gifting also. Let's let's leave it at
that.
>> Okay. something more relevant also more
to the middle class but I think also
higher class and you touched on this
let's move more into Medicaid planning.
>> Sure.
>> So what is the need for Medicaid and why
should someone plan? Let's start from
the beginning. Yeah.
>> Sure. So so the need really is the cost
of care is very expensive. The cost of
being in a nursing home um basically hit
it junction where as people age they
might need care. Um whether that be care
at home or god forbid they end up in a
nursing home. The cost of that care is
significant. Home care could be private
privately could be anywhere from $10,000
a month, $15,000 a month, $20,000 a
month be a4 million a year caring for
somebody at home. And again, if that's
that's one person, that might be not be
24/7. 24/7 care could be even
significantly more than that. And
obviously if you if you know two parents
or two individuals that need that that
care the numbers go up significantly.
Cost of a nursing home could be $500
$550 a day. At in a nursing home you
could be looking at $300 $350,000 a year
um to be in a nursing home if you're
paying privately. Um most people in
nursing homes today in New York are um
the first 100 days are covered by
Medicare. Okay. Um and that's what
nursing home owners want. They want to
make sure that they get Medicare beds
and that's where they make, you know,
their their money in Medicare.
>> I want to cut you off, Paul, quickly
because there's a difference between
Medicare Medicaid
>> and Medicaid. They're not I hear this
all the time from clients like someone
once told me, you know, my Medicaid my
Medicaid health insurance,
>> but what is the difference?
>> Everybody when they turn 65 is on
Medicare. Okay, it's not an eligibility
thing. It's an age. You turn 65, you're
on Medicare. And that's not has nothing
to do with whether you're wealthy or
you're not wealthy. Is it's it's the
government's way of giving you insurance
as you age. There are ways to get on to
Medicare earlier than 65 and that's with
a disability. But generally at 65,
everybody is eligible and everybody goes
on to onto Medicare and you have to go
on to Medicare
>> and that's health insurance. That's
health insurance. And that's where you
get into the conversation about
supplemental and other other
conversations around Medicare and
getting making sure that you're covered
for health insurance. Health insurance
though does not cover long-term care.
Okay? Does not cover long-term care. No
health insurance covers long-term care.
The only options when you get to
long-term care are either you bought a
long-term care policy specifically
generally when you were younger. much
harder to buy when you're when you're
older and you um either just because of
age or because of health reasons. Um and
or because it's very very expensive. Um
so there is no insurance that covers
long-term care. Medicare does not cover
long-term care. Um so Medicare does
cover short-term care. Okay? And that
could be if you left the hospital and
you need some care at home for a couple
of days, for a couple of weeks, Medicare
can send the nurse. you know that's
called Medicare is called actually CHA
services where Medicare is sending over
home care for a couple of weeks for a
couple of days per you know during those
weeks and um in a in a facility Medicare
is covering up to it's not necessarily
full 100 days up to 100 days and then
Medicare stops. So, when you hit that
junction when you need care and Medicare
is no longer covering that because they
don't cover long-term care, you're
basically hit this roadblock where
either you're going to be qualifying
yourself for Medicaid or you're going to
pay privately. Okay? So, those are your
options at that point.
Now, in order to now, in order to
qualify yourself for Medicaid, there are
what's called look back periods. Okay?
Because Medicaid doesn't want everybody
just showing up to a nursing home and
saying after that 100 days ran out
saying I have no money voila now qualify
for Medicaid. Okay? They don't want
everybody in that situation. So they
impose a look back period. So you you
are not able to gift your money
immediately at that spot to your kids to
your whoever it might be and say I'm
financially not in a position to pay
privately cuz I don't have any more
money. So Medicaid imposes what's called
the five-year look back period.
Five-year look back period is
specifically for nursing home Medicaid.
Okay? It's called institutional
Medicaid. Um so basically you would have
had to plan in advance to put your
assets out of your name um in order to
then qualify for Medicaid. Okay? And
that's where Medicaid planning comes in.
Okay? So the look back period for
nursing home Medicaid is 5 years. The
look back period for what's called
community Medicaid where you can get
AIDS at home and uh get cared for at
home today is between 1 to 3 months.
Okay, that means that you could do
planning and 3 months later you can
qualify yourself for community Medicaid
and get home care at home covered by
Medicaid. Okay, which is important for
people to know that really anybody and
everybody could be eligible for
community Medicaid and nursing home
Medicaid as long as they wait that time
period of 5 years. Now, what do you need
to do to get yourself qualified for
Medicaid? You need to make yourself poor
on paper. Okay?
>> Poverty.
>> Poverty. It is an asset test. Okay? It
has nothing to do with income. Has
everything to do with assets. If an
individual has under $30,000 give or
take in their name, they qualify for
Medicaid. Okay, that requires them to in
advance start putting some of their
assets into a trust. The trusts
generally are what's called Medicaid
asset protection trust. They are
irrevocable trust. They are also grtor
trust and I'll explain what that means
in a moment, but basically they are
going into trusts unlike the trust we
described up until now, the revocable
trust. These have to be irrevocable
trust. Irrevocability means um in simple
in simple terms that they are not the
manager over their own trust. Okay? So
they own so going back to our trust
entity this trust the Albert family
trust they put their house and their
savings into this trust and they are and
and in our example Schllayy you know so
not Albert but Schllayy Mr. play me. Um
he puts his assets into the trust. He
then um qualifies himself 3 months later
for community Medicaid and he starts the
clock towards nursing home Medicaid. So
he leaves in his own name in his own
bank account. He leaves his income plus
$30,000. On the side of him he has a
trust. That trust is managed by his
child, you know, but that that trust is
now on the side of him. It's available
to him. There's assets in there. It's
not going to the kids yet. There is a
way to get, you know, access to that
money in that trust. It's not locked up,
but he is not the manager over his own
trust. Okay? As long as it goes into a
trust, the irrevocable trust, a Medicaid
asset protection trust, then he will
qualifi qualify himself for Medicaid.
Now, assets that don't need to go into a
trust are 401ks, IAS, anything that was
pre-taxed are not counted towards the
$30,000. and they're not counted towards
your eligibility towards Medicaid. So
those can stay in your name and you will
still qualify for Medicaid.
>> Okay. So let's uh review that quickly.
>> Break it down.
>> No, no, that was very good. I I think
that was uh again we see from here that
it's not not it's a process, but it's
not so hard to understand, right? So um
the key is again Medicaid is the
government sponsored long-term care
insurance. longterm care for someone who
needs, you know, they're bedridden, they
need a nursing home or
>> aid, home health aid. Um, and they
basically have to be poor. So, that's
something very for very hard for Jews to
do. It's very hard to get poor. Um, so
that's when you need to do some Medicaid
planning to make yourself quote poor and
get the assets out of your it's having
the it's, you know, it's it's what
what's the saying? Having the cake and
eat it, too. So, it's, you know, you're
you're saving your money and getting on
to long-term care insurance, getting
Medicaid to cover the long-term care,
but also maintaining and making sure
that you don't spend down your money to
to be left at 350 a year. You know, you
even for somebody that's wealthy, it
could be depleting a significant amount
of assets in, you know, a short amount
of time.
>> Yeah. I mean, even I see this story cuz
we do when it's not possible, let's say,
to do Medicaid planning, we do long-term
care insurance, which, like you said,
could be expensive. Um, and but you
know, someone who has too many assets,
but it could still be exorbitant to pay
long-term care. And who why would they
want to they want to pass on their
assets? They don't want necessarily to
spend it all. And a lot of families have
these stories of just depleting
everything they have if they didn't do
the proper planning. I had one specific
question with the Medicaid.
Medicaid has their own um like
caretakers or you can get whoever you
want and Medicaid will reimburse them.
Do you
>> question? So there are two there's a
there's a program called child caregiver
CDPAP or now it's taken over by a
company called PPL that that's where you
can get a child caretaker to care for
you and get paid for that under Medicaid
>> or you can any home care agency that you
see you know that advertises um is
Medicaid has a what's called Elix
Medicaid license and they get reimbursed
from Medicaid um so you're not paying
anything out of pocket they're sending
the aids covered by Medicaid You can
obviously choose the aid. If you don't
like the aid, you can go with another
agency. It's about you getting coverage
more than it is about anything else. You
get the coverage and then you can work,
you know, from a care standpoint to see
what care fits um and what care would
work for you.
>> Right. So, so Medicaid is Yeah. It's
just about getting the coverage, but you
you're you are covering your need,
you're saying, by
>> by uh becoming eligible for Medicaid.
And I'm assuming what who would be a
good candidate for long-term care
insurance? Do you think everyone should
do Medicaid planning or there are people
that just like what I'm thinking is
someone who doesn't want to necessarily
take their assets out of their name?
>> Right.
>> I think long-term care insurance
requires somebody, you know, at a at the
at the prime age in their life and that
they could afford it. Um, and if they,
you know, whether they're 40, 50, once
you age into, you know, 55 plus, 60, I
think at that point, but you, you're the
expert here, is I don't know what the
costs are, but the the premiums are
very, very expensive. They
>> get expensive. And again, it really
depends on somebody's financial on
financial um ability, if they could
afford it, if they, you know, see
themselves um in a situation where they
will never, you know, qualify for
Medicaid, whether their assets are, you
know, they have a significant amount of
assets and they don't want to put it
into these type of trusts. And, you
know, in that situation, definitely
definitely, you know, consider long-term
care insurance,
>> right? So, not right. So, in a Medicaid
asset protection trust, what nec like
what happens to the assets, right?
They're not it's irrevocable. It's not
in your name, but what can you Let's say
someone puts their assets in there. What
benefit do they still have from their
assets? Can they use it? Can what do
they
>> That's a good question. Let's let's talk
about a house. House is the easiest
thing to go into a trust. So, they put
their house into a trust. Okay. Um and
the house nothing changes for them.
Meaning the keys don't change. uh they
they'll still continue paying their
bills. If there's a mortgage, they'll
pay their mortgage. But now what they
did is, you know, they took $2 million,
let's say they're at an age where
they've paid off their mortgage, $2
million of equity, they put it into a
trust. They and and let's say they had,
you know, let's take an example.
Somebody has a million dollars in the
bank in a brokerage account plus a
house. Okay? Um which is, you know, a
normal situation. They have a million
dollars in the bank. They have they're
in a brokerage account plus a house and
they have a checking and savings
account. Um they're at an age they're 75
plus 80 85 plus whatever the age might
be. They need they're going to need
care. They take their house they put it
into a trust. They take their million
dollars in the brokerage account. They
put it into a trust and they now qualify
themselves for Medicaid. Now the house
life goes on the way exa exactly the way
they you know it was going on till now.
So nothing really changes. the brokerage
account. If their intention was that
that brokerage account is really
earmarked for the next generation,
they're not planning on taking it, then
all it is, it's now sitting under this
umbrella called a trust versus in their
own name and it's growing. It's in a
brokerage account and they're benefiting
by the fact that it's there. It's not
going to the beneficiaries yet, but it's
sitting there and it's growing in their
in their trust. Um, how are they living?
They're getting their income. They have
their pension and their social security
and their IRA or 401k RMDs, their
required minimum distributions all
coming to them. That's providing for
their income on a day-to-day basis. And
their life is, you know, and now they're
eligible for Medicaid because again,
from an asset standpoint, their big
assets are now in a trust. Their income
is not, it's not an income test, it's an
asset test. So now they qualify
themselves for Medicaid. It's a perfect
example of somebody who's
they have the money, their money is
safe, their money is protected, their
money continues to earn money in a
brokerage account, life's not changing
for them, and they also are eligible for
Medicaid.
>> Mhm. And and theoretically, I was going
to ask, but if their their house is in
this Medicaid trust, could they be
thrown out of their house?
>> No. Never. Never. the trust the trust
basically has you know stipulations that
they are in control of the house
>> stipulations okay
>> around you know they're in control of
the house also something to mention is
that is that some people are quick to
just put the house into their kids' name
so we've seen that where they transfer
the deed into their kids' name
>> that's a big mistake because obviously
there's your kids could have their own
creditors whether they're going through
a divorce whether they you know have
their own creditor issues but more
importantly if you transfer your house
into your kids' names during your
lifetime, you lose what's called a step
up in basis.
>> Okay? So, you lose the the the tax
advantage of the kids getting it as a
inheritance versus giving it to them
during their lifetime. So, really
putting it into this trust maintains a
step up in basis, maintains all the tax
advantages, but also puts it on the
side, earmarks it, doesn't go through
probate, earmarks it for the next
generation, and gets you into this
position where you're eligible for
long-term care under Medicaid. Mhm.
Yeah. I would just elaborate personally
for a second on the step up in basis
rule because I just had this with
someone someone who had a million
dollars in an IRA
um individual retirement account, a
pre-tax account that they put money away
in, they passed away, it went to their
beneficiary. Um but on an IRA, for
example, and they had put in $250,000
and it grew to a million dollars. So it
had $750,000 of growth. and the child
who received that IRA wants to take
money out of it, they're going to have
to pay taxes on anything that they do
more than this 250,000. Even though it
was worth a million dollars, upon the
death of the parent who passed it down,
it doesn't get what we call that step up
in basis, meaning anything above what
was put in, which is called the basis,
you pay taxes on. So that's just a I
don't know if that lost everyone or
maybe smarter or not. Um
>> I'll give you the example in a house
just just to relate it back to a house.
Um people paid let's say $100,000 for
their house. The house is now worth $2
million. There is a
>> 1.9 what do we say? We started $100,000
1.9 gain in that house. Okay. Um if they
sell it during their lifetime they get a
$250,000 credit. each each husband each
spouse gets $250,000 and then they pay
capital gains capital gains
>> on everything over that you know that
$600,000 basis in the house. Um it's
actually it's actually a credit but in
any event they'll pay capital gains tax.
Now
>> when you sell an asset again sorry to
make it so simple but when you sell an
asset that has gained you paid for it
and it has gained government takes a
piece of that.
>> Correct.
>> Right. However, if the family now if
they leave it over in the family and and
it goes down as an inheritance at that
point there is something called a step
up in basis where the the kids now step
into the shoes of whatever the basis is
at the date of death. So they get it at
the $2 million at the $2 million mark
and if they sell it the day later they
pay zero in tax. It's it's a
significant, you know, gain, especially
when you're talking about real estate or
any appreciated
asset that went up over the course of,
you know, parents lifetime.
>> Mhm. So, anything in let's say a regular
irrevocable trust, does that get a step
up in basis or
>> Yes. So, it's a good question.
>> If it gets too complicated, we can
>> No, it's a good question. There are
different types of trust. Okay. So in
order for it to be to to retain this
aspect of it whereby it's going as an
inheritance, it has to be what's called
a defective grantor trust where for to
back to your question, they have the
right to live in it. That makes it in a
sense defective because they're giving
it to the trust, but it's not entirely
owned by the trust. They still retain an
interest in that property and therefore
you can get a step up in basis. um where
you put it into a trust that's
completely out of your your world
entirely and those are they're you know
complex trusts and things like that and
that's really where people do that for
tax planning there you're moving it
entirely out of your estate and there
you do lose the step up in basis right
so you see right away the tax tax
environment of the US is you want to
avoid estate taxes by taking it out of
your property but you lose the step up
in Right. Right.
>> So,
>> so it's always dealing with that, you
know, the conundrum there,
>> the balance and the conundrum. Um, okay.
Okay. So, yeah, and that's again where
it gets a little bit more. Um, so let's
just review what we just discussed in
Medicaid. We'll we'll discuss a couple
more topics and we'll wrap it up. Um,
again, with the Medicaid, the goal is to
make it out of your take it out of your
property, make yourself po in the
poverty world. Um, and then you can be
eligible for, you know, Medicaid, which
is the government sponsored long-term
care insurance, uh, which is a sizable
amount of money that they, uh, could
provide for you. And it's, to be honest,
how many meetings does it take to create
a Medicaid plan? It's
>> generally two meetings.
>> Two meetings.
>> So, the first meeting we meet and then
we sign.
>> Two meetings. I mean, can you imagine
two meetings? If someone doesn't do
those two meetings, they could be losing
millions of dollars. Um, it's it's
incred. I find this in any financial
planning space how such small decisions
can make such a huge financial
difference. You agree?
>> Absolutely.
>> We're on the same page. Um I would ask
one more maybe a couple more questions,
but one thing that I think is important
to stress, not just because I uh sell
it, um but how important would you say
having life insurance is in an estate
plan?
>> I think it's critical having life
insurance today. I know there's a big
push for, you know, especially younger,
especially Rabam, um especially
reviewing it during your, you know, as
your financial situation changes
throughout your lifetime, making sure
that there's money and there's money
available to um there's money available
for the family to continue living. I
think it's uh it's in a way sinful not
to think about life insurance um to make
sure that there's money available for
the family if god forbid there's a
tragic event. Now, some people use life
insurance. Not that we're, you know,
we're trying to maybe, you know, put the
tax planning um a little bit on the side
of this conversation because it
requires, you know, a lot more um heav
heavier lifting on a conversation.
Many people use tax um life insurance as
a way to pay taxes when the taxes are
due because if they have real estate,
they have a large portfolio of real
estate and those are not liquid and they
leave it over to the next generation and
there is an estate tax to be paid. Where
does the money come from? They could be
in a situation which I've seen where
they are forced to sell assets to pay
the taxes. But if they would have
considered doing life, you know, buying
life insurance policies specifically for
the purpose of having liquidity to pay
off those taxes, they're in a much
better situation. So again,
>> the life insurance is critical for the
person that, you know, just needs it for
financial stability as they're raising
kids, as they're, you know, in a
situation between, let's say, 2021, the
time they get married, they have a kid,
um to, you know, 55, 60, they're married
off, god willing, their kids. But that
that is really just to make sure that
they can continue and they're not
relying on um you know, handouts. Nobody
wants to be in that situation, god
forbid. Um, so that's really just um
ensuring that they have this, you know,
in place and like any other insurance,
you wouldn't drive your car without
without car insurance. You shouldn't be
walking around with life without life
insurance. Um, and then there's a
component of, you know, getting life
insurance to handle some aspects of
your, you know, within your financial
and your planning and your financial
planning, your tax planning, your legal
planning. there is an there is a there
is a place for it that holds significant
value around making sure that there's
liquidity for the next generation.
>> I think that's an important point to
emphasize because that doesn't make a
difference whether you're high net worth
or not. If someone has $20 million of
assets and they have a will and they did
all their estate planning, they have a
will, they have trust, etc. Um but if
they didn't do proper planning around
having life insurance,
they need liquidity to cover cash flow.
Right. Right. after they pass away,
there's no income. So, life insurance is
a it's a it's literally a paycheck that
comes in after someone passes away. And
that could be if you're worth $20
million, but your money's in real
estate. It's not you're not, you know,
you're not buying groceries with uh your
building, right? And anyone even someone
all the more so someone who's in in, you
know, middle class that needs that as an
income replacement, um having life
insurance is an essential piece of of
really uh planning an estate. And it's
not expensive. Someone's doing an estate
plan, like we've said before, they can
put it into a special trust that puts it
out of their estate. Um, but it it's
something that's not expensive and could
do so much for a family in this type of
planning. I mean, you're saying you've
seen things like this, right?
>> Sure. Sure.
>> Yeah. I
>> feel it feels almost like it's your
responsibility more than, you know, and
I, you know, for the younger age, for
sure. And then for the people who are
have the financial wherewithal as they
age and they have the significant assets
then you know also feels like you know
you just don't want to leave people
without without liquidity
>> right okay so I think that was an
amazing overview of basic estate
planning um
before we re recap it is there anything
we missed do you think that we should
mention
>> I think we spoke about one thing that we
didn't mention was the hahik aspect um
wills planning Um
>> what's the basics of that? Yeah,
>> basics obviously there's there's two
components of um planning in general.
This is there's a concept of if there
are boys, girls should not inherit.
That's the the conversation around
and then there's a conversation of uh a
bakar, right? into having a um a bar and
giving that bakar pim. Um
obviously everybody has to speak to
their their rav and understand what that
what that looks like for them
specifically and understand their wishes
specifically if that's how they want it
and and and how to work around it. So
generally what people do if they don't
want to or if they do want to they put
in provisions into their will. Um and
again this is just my simple
understanding of what that looks like.
Basically the way that looks like is
maybe like uh you know selling yours in
a sense or however you want to look at
it but it it it it basically operates
that the will has language that this
becomes a gift prior to prior to
passing. So instead of it being a yusha
where then you run into the
if you give it as a matana during your
lifetime you're entitled to give a
matana throughout your lifetime and end
up with nothing and give as much as you
want or as little as you want to
whomever you want. And this is a way for
people to give all their kids equally.
um make sure that you know and and and
make sure that they give the the the the
the woman and you know the the the girls
>> um
>> and make sure they're it's accounted for
in a in a in a equal fashion and also
considering halak obviously. So so so
that's the when you do trust planning
the way I I understand trust planning is
that that is a gift during your
lifetime. So it doesn't really need a
hikic um provisions because you're
essentially giving that away into this
vehicle, this entity that's giving it
away during during your lifetime whereby
it doesn't it's no longer classified as
yusha. It's now a matana during your
lifetime.
>> Mhm. Okay. I think that pretty much
covers what we needed to cover. Um, of
course there's a lot more details and
sophistication when you move into the
more advanced planning, estate planning,
estate taxes, but I mean after hearing a
podcast like this, um, I I can't
imagine, again, I'm not trying to toot
my horn, but I can't imagine someone
could listen to this and not get a will
done and basic trust, I mean, and basic
life insurance. I mean,
>> there's no excuse for it. Um,
>> yeah. and and I could I couldn't I can
tell you you know it is a notion out
there that I'll never qualify for
Medicaid.
>> Okay,
>> 99% of the people we speak to qualify
for Medicaid. There is ways there is so
any any aspect of this conversation it's
really about getting educated, getting
knowledgeable, meeting the right person,
getting the right information and seeing
how it applies to your situation. I've
met with people years after they've
spent significant amounts of money on
their care and they then were like, "Oh,
I wish I would have done this earlier. I
could have saved all this money."
Obviously, you know, it's important to
get, you know, to to get educated and to
and to understand that there are always
options. It's just about speaking to the
right people, understanding your
options, seeing if they apply to you,
seeing, you know, what you might have to
give up in order for them to apply to
you. and uh and um and uh assessing it
for yourself.
>> Yeah. Yeah. That's what I see from this
Medicaid also. And and yeah, if things
are a little complicated or you know,
you have your attorney, a financial
planner could be part of the team to
help you coordinate, negotiate,
understand. I mean, between there's
plenty of resources to get it done.
>> Um so I wanted to thank you Paul for all
that great information. you'll send me
the bill after the podcast for an hourly
rate. Um, but the truth is it really was
informative and very very easy to
understand. I look forward to, you know,
continuing making sure people plan
properly. Um, and uh, thank you again.
Thanks so much.
>> Pleasure. Thank you.