OK Senior Law Podcast
This is the podcast from the OK Senior Law firm in Tulsa Oklahoma. The hosts are the partners of the firm Jorjana Marx, Blaine Frizzell and Todd Whatley. They cover by themselves all the topics you need to know about Elder Law, Estate Planning and Medicaid benefits. They also have guests from around the Tulsa area talking about their businesses that can also help you succeed as a senior or the family of a senior.
OK Senior Law Podcast
Maximizing Estate Security with Irrevocable Trusts
Can revocable living trusts truly safeguard your assets from Medicaid, or could they complicate eligibility? What about an Irrevocable Trust? Discover the surprising truths about estate planning as Todd Whatley, Blaine Frizzell, and Jorjana Marks debunk common myths surrounding revocable and irrevocable trusts. In our latest episode, we clarify why revocable living trusts, while effective at avoiding probate, may not be the panacea for everyone’s estate planning needs. We stress the importance of tailored strategies, highlighting that simpler, more cost-effective solutions might be a better fit for many individuals, while more intricate scenarios often call for irrevocable trusts.
Join us as we unpack the extensive benefits of irrevocable trusts, especially for those with considerable assets like homes, family farms, businesses or large savings. Learn why transferring assets directly to children could backfire, exposing assets to creditors, divorce settlements, and hefty tax implications. By contrast, irrevocable trusts can offer protection from Medicaid and ensure favorable tax benefits for your heirs. We delve into leveraging distinct rules from Medicaid and the IRS to maximize financial security and tax efficiency. This episode is a must-listen for anyone serious about safeguarding their legacy and ensuring their loved ones' financial futures are secure.
Welcome to OK Senior Law Podcast, your guiding light through the complexities of estate planning and elder law, right here in the heart of Tulsa, oklahoma. Join us as we demystify wills, trusts, tax planning and elder care with insights from our distinguished legal experts Blaine Frizzell, with his advanced LLM in tax law, georgiana Marks with her passionate advocacy, and Todd Whatley, a certified elder law attorney. Bring their wealth of knowledge and experience to empower you with the tools you need for peace of mind in planning your legacy. Let's navigate the intricacies of estate law together, ensuring your future and that of your loved ones is secure. Here is Blaine, georgiana and Todd.
Speaker 2:That's right. This is the OK Senior Law Podcast and my name is Todd Whatley and I am, as always, super excited that you have joined us today and we have a really good podcast today. If you have not subscribed, please subscribe Whatever platform that you are listening to this on, please subscribe. Whatever platform that you are listening to this on, please subscribe. That way, you'll be given a notice when we record a new podcast which we are going to do this more but you will get every podcast that we do keep up to date and get some of the great information that we're giving out Today I want to talk about. We're all going to talk. Oh wait, I am here with my partners, georgiana Marks and Blaine Frizzell. Hey guys, how are you?
Speaker 3:We're good. Hello, very good.
Speaker 2:All right, good to see you again. Glad we're all back together. So today we're going to carry on from our last podcast, where we talked about a few misconceptions about different things, and I know one of those was trust. And today I want to talk about recap, kind of why a revocable living trust does not protect you from Medicaid. A lot of people think it does and talk about a trust that will protect you from Medicaid, but there's some huge pros and cons to it. So, blaine, why don't you tell everybody about, remind us again about the? You know revocable living trust is great but it doesn't protect you from Medicaid. So kind of go into that just a little bit and then we'll jump into the other trust that does.
Speaker 4:Sure, yeah, I'd love to talk about that, because for years and years I was an estate planning lawyer and one of my best tools is a revocable trust, and we still do a lot of revocable trust, because the main reason for those is to help people avoid probate, and they do a great job of that. So we see a lot of revocable trust. But the thing that I didn't know for all of those years was that I was. If my clients needed long-term care, then the revocable trust not only didn't help you with that, but in some cases it hinders you being able to apply for or qualify for Medicaid.
Speaker 4:And so then I met Todd Watley and Georgianne and I both learned a lot from him, and including the fact that and it's a surprise to most estate planning lawyers and that is that many times there are assets like a house that are non-countable assets for qualifying for Medicaid, but if you put that house in a revocable trust, it becomes countable, and so now, luckily, that's a problem you can fix relatively easily, but it's something that most estate planning lawyers don't know, and so there are other options that will help you avoid probate and help you qualify for Medicaid. So that's the irrevocable trust, and maybe Georgiana can talk a bit about that.
Speaker 3:So a lot of people come in and they think that they absolutely have to have a trust because their mom had a trust or their aunt had a trust, and so they're sure that they need a trust. And one of the things that we like to do when we meet with clients is really look at their specific situation and see if a trust is a necessary tool for them. All of these things that lawyers do. We just have tools at our use to help you meet your goals. So sometimes someone will come in and they'll say well, I know I need a trust. So here I am, where I'm here for my trust, and Blaine and I and Todd always tell them hey, you might not need a trust.
Speaker 3:What is your goal here, and if it's like, well, I just, you know, I've got a retirement, I've got a house, I want everything to go to my daughter, but I know it needs to be in a trust and we'll say, no, you probably don't need a trust. A trust is more complicated planning for you and it will just be more money and you don't have to have a trust. But if it's maybe a married couple that come in and they say, well, we've got kids from my first marriage and kids from her first marriage, and then we've got kids together and one of our kids doesn't need anything, but one of them really does, and one of them needs to be protected from him spending it all, we start saying, oh OK, now we're getting complicated.
Speaker 3:Yeah now we're in trust land for sure. So one of the big takeaways is not everybody needs that revocable trust. It's really good planning for the right situation. It does have consequences when you're wanting benefits for the nursing home later, but we want to talk to you and figure out if that is worth the expense of spending more on a trust. Sometimes it absolutely is. That's the only way you're going to accomplish your goals, but sometimes it's not, and so we want to find, you know, the easy, the easy and affordable way for everyone to meet their goals.
Speaker 2:Yeah, and I want to be clear. I've had people you know, when I do public presentations, you know, and I say your trust technically makes you worse off for Medicaid, they're like, oh well, I'll go cancel my trust. No, no, no, no, don't I mean, it's fine, keep it. And, like Blaine said, it's a very easy fix and what it is is your home. If it is in the trust, it's a countable resource. But if it's back into your name alone, it's a non-countable resource and we can just deed it from the trust to you. That's one piece of paper, easy, easy fix. So don't go terminate your trust just because we said it makes you worse off for Medicaid. It does technically, but it's a very easy fix.
Speaker 2:Okay, so now, and the reason that a revocable living trust so now, and the reason that a revocable living trust doesn't protect you from Medicaid is because you benefit from that trust. Okay, you're in control of it and you benefit from it and therefore Medicaid doesn't just look at everything that's in your name. That's a common misconception. It's like, oh well, if I do a trust, it's not in my name anymore, so therefore it's protected from Medicaid. No, that's not what Medicaid just looks at. They look at. Do you benefit from this trust? And if you do, it's a countable asset. So how do we fix this for someone who's coming in and they're not like going into the nursing home next week, but they're like you know, we're older, health's not great, but it's not bad. Is there some way we can protect our assets so that they're not all caught up in this qualification for Medicaid? So what can people do?
Speaker 3:Yeah. So a lot of times they say, oh, I've heard about this trust, is there a Medicaid trust that we can use? So maybe that's an option for you. Again, it's like very situation specific, and so we've got to see what the assets are, which is why we ask for that asset information. And then, yeah, there is a trust that we can use for the right situations right, um, financial and health situations for people, and that is a asset protection trust. That's what people have heard about the asset protection trust and it is a fantastic tool when it works for you, um, but there are some drawbacks to it that make it a big decision for people, and we say that all the time to people like, don't, don't even make the decision today unless you know. We've we've had multiple conversations with you already, because there are a lot of serious factors to consider when doing this trust, and we want you to think about it.
Speaker 3:We want you to know what you're getting and what the consequences are, and how to act and how to do things once you have this thing in place.
Speaker 4:Yeah, I had two of the. I mean, the two biggest hurdles that clients need to consider with these irrevocable asset protection trusts is, yeah, they're great when they work and you you've got assets that you literally totally protect from Medicaid recovery. You qualify for Medicaid if everything works out right and they can can be fantastic and you don't have to. You know you save on capital gains tax when you die. But the two biggest hurdles that people, in order to get that benefit, the two biggest hurdles are number one you've got to have someone that you completely trust a child usually. That will be the trustee and in control of the trust as well as the beneficiary of the trust, because you can't be the trustee and you can't be the beneficiary.
Speaker 4:So that's the first thing is kind of giving up the control over your assets that you've controlled all your life. You're kind of giving up control of some of your assets. And then, secondly, the next hurdle is what's your health condition? Because when we make one of these trusts, we typically need a window of time of at least five years from the time you put assets into the trust until the time you think you might need long-term care. Of course, nobody knows for sure if or when they will need the long-term care. But if you're in relatively good health and you think you have at least five years and you don't mind the thought of losing control over these assets, then you could be a candidate for an irrevocable asset protection trust.
Speaker 2:Yeah, very good summary, very good summary. So I think some of the words that scare people is irrevocable. Once you do it, it can't be changed, and I always say it can't be changed easily. We as lawyers, we aren't going to lock our clients away so that just absolutely can't be changed. But I will tell you it is difficult to change it and it's sometimes expensive, sometimes a court appearance. So just know, pretty much know that it can't be changed, okay, and then it's.
Speaker 2:It's um, you mentioned you can't be the trustee and you can't be the beneficiary, and that concerns some people. But I think a big thing is you don't benefit from it anymore, and so this is why you can't have a little bit of money in this work. Okay, if you have just a little bit of money, the crisis planning works very well for you, and I'm not sure if we've done a podcast on that, but if not, we will definitely key that up and we'll do one on that sometime soon so that you know, if you're married and you have three, four, five hundred thousand dollars, you really don't need to do this trust because you don't have enough to make it work. You really don't need to do this trust because you don't have enough to make it work. But there's some really cool things we can do when you're in need of long-term care immediately. We can protect almost all of that if you're married.
Speaker 2:Okay, we're talking about people that you know have probably upwards of a million dollars $1 million, $2 million, $3 million where paying $8,000 or $9,000 a month is going to be pretty devastating to your financial situation. But utilizing this tool is we put some of it in the trust. You keep some of it out so that you're not broke. You can still spend money. You keep enough money to go buy a car or go on vacation, do things. You're not broke, but you're in a much better position than you are currently with one, two, three million dollars. Okay, is that a pretty good summary, guys?
Speaker 3:Yeah, definitely.
Speaker 2:Yeah, people come to us. They hear you know they have three $300,000 plus a home and they're like I want to do an irrevocable trust. And we're like you know you really, I mean to make the trust worthwhile and I will tell you this trust is not cheap. Okay, and we'll get into that in just a second. But if you lose control and lose benefit, that that seems like a gift. Okay, we're just giving it away. Why do we have to use a trust? Why can we not just give it to the kids? Who wants to address that?
Speaker 3:Yeah Well, there's a couple of really good reasons why we don't advise to just give something outright to your kids. First of all, let's talk about the house. So some people come in and they say well, I want to put my kid on my deed so that if I die he just gets it. Seems like great DIY, do-it-yourself planning.
Speaker 2:Sure.
Speaker 3:The problem is, if you put your kid on that deed, he now owns your house too, and so if he has any sort of issues with creditors or good for nothing spouses, that's divorcing. He owns an asset and it's the house you're living in, right? So if the creditor comes after one of his assets, that he's not living in, then they can get your house right.
Speaker 3:So we don't want you to give your house and expose it to all this possible issues of the person you're giving it to. That's the first problem. Another problem is there's a tax issue for your child. When you give them your house, they get it at the same tax basis, which is like the price you bought it at. Basically, think of it like that they get it for the same price that you bought it at and then when they go to sell it and they haven't lived in it now they have a difference in the price that they're getting for it and the price they paid for it, which is what you paid for it.
Speaker 3:So for a lot of people where we hear like, oh yeah, I bought this land out in the country and it was, you know, $50,000 in the seventies and for all this land. Well, now it's worth a million dollars and you gave your gave it to your son by putting his name on the deed, and when he goes to sell it he's going to have to pay taxes on the difference in the $50,000 and the million dollars. So you create a tax issue for your kids by doing this too.
Speaker 2:And that's like a 25% tax on the difference. It's 23 point, something I forget, but basically it's about 25%. So that, basically, million dollar increase is going to cost him $250,000 because you just gave it to them. But we can put it in this trust. But we can put it in this trust and I always tell clients this is cool, because when we do this trust, we're telling Medicaid you're broke, you don't control it, you don't benefit from it, it is out of Medicaid's reach. As long as you can make it five years, get outside of that five-year. Look back. We show Medicaid this is no longer their asset based on your rules. But then we turn around and we talk to the IRS and say, hey, irs, this is still their property. And you're like, how can you do that? Well, it's super complicated. But we can tell Medicaid, nope, they don't own it anymore. And we can tell the IRS, yep, they still own it, and it's because they have different rules, obviously. And so with the IRS we say, yes, they own it. And if you own it and it transfers because of your death, your son gets it. At that million-dollar basis, the basis jumps $950,000, and we just saved you a quarter of a million dollars by doing this trust.
Speaker 2:Okay and that's, and you know, I'll say it. Y'all too probably won't say it, but I see I see clear malpractice all the time in this area. People go in and they tell the lawyer, I want to give my house to my kid, and the lawyer does what the client says. Well, you're like that's what we're supposed to do, right? Well, sometimes. But they also come to us as attorneys because we know stuff they don't know and I think we're supposed to tell them that hey, this is a problem. Giving this to your kid with those numbers is a quarter of a million dollar. Uh-oh, that's clearly fixable and can be avoided and particularly with taxes and Medicaid, it just makes sense to do this trust. Blaine, you're the tax expert here. What do you want to say?
Speaker 4:No, I love all you said and the you know now the you know there's long-term capital gains tax rates and short-term capital gains tax rates. Luckily right now and although there are rumblings about how it's going to go up dramatically but right now the highest rate is 20%, but that's still $200,000 in your example. But if it's a short-term capital gain, they use the same brackets as our income taxes, so that easily gets way above even 23%.
Speaker 2:It starts pushing 50%.
Speaker 4:then that's right, yeah, yeah, it goes really high. And so anyway, yeah, that those capital gains tax implications can be really big. And the great thing about this irrevocable trust is it kills two birds with one stone. And and it tells one agency, the Medicaid DHS agency, that you no longer own the asset, and yet it tells another government agency, that the IRS, that you still have enough tentacles attached to the property that the IRS is willing, according to their laws, to allow for a step up at basis at your death, so that your child will pay zero capital gains tax. So it's a really nice thing.
Speaker 3:And another way that it works in two ways is we're doing this, thinking like okay, in the future, what if I need to go to the nursing home? How am I going to protect my assets? So we've got one eye on Medicaid, but on the other, we're still doing estate planning. And so if you pass away, what's the best way to avoid probate and get your assets to your kids? With all the protections, with the tax implications planned into it, it's a really, really great tool for estate planning. It just has this awesome benefit of if you need a nursing home, we've protected your assets.
Speaker 2:Yeah, Very well said. Okay, I think we've pretty much covered that topic. I mean, I think people should understand that better. And if you have assets you know pushing a million dollars or more and you're concerned about the cost of long-term care, you may think, oh well, I've got a million dollars, I can never qualify for Medicaid. That is not true. Okay, Join us, you know, on future podcasts when we will talk about some of the Medicaid planning tools.
Speaker 2:For people with 300, 500, all the way up to probably 800 or almost a million dollars, we can get them on Medicaid very quickly and protect everything. But if you're north of that, it does get complicated and becomes difficult. Honestly, Congress was pretty smart when they created these rules and made it so that just really rich people can't immediately qualify. But if you're willing to give up control and benefit of an asset for five years, they will pay for your nursing home care. Okay, but you've just got to do it correctly and think about all the surrounding issues around it. All right, as always, give us a call at Oklahoma Senior Law and we can definitely get you in. We can look at your specific situation. Definitely get you in. We can look at your specific situation. We can look at your facts and answer your questions and see if this is an appropriate trust for you. All right, Anything else, guys.
Speaker 3:I think that's it. We'd love to talk to you about it.
Speaker 2:Okay, all right, y'all. Thank y'all, as always, for listening and share this with your friends. If you have some friends who have questions about this and you think I bet they've got over a million dollars they need to hear this, and so tell them about the podcast, have them come listen, and we would love to work with them also. So thank you very much and we will see you next time.
Speaker 1:Thank you for tuning in to OK Senior Law Podcast. We hope today's episode has provided you with valuable insights into estate planning and elder law that resonate with your life and aspirations in Tulsa and surrounding areas. Remember, planning your estate is not just about legal documents. It's about ensuring a lasting legacy and peace of mind for you and your loved ones. For more information or to schedule a consultation with our expert attorneys Blaine Frizzell, georgiana Marks or Todd Whatley, visit our website at wwwokseniorlawcom. Protect your future today. Until next time, take care.