Revocable and Irrevocable Trusts

[lem1955]

I've started talking to an estate planning lawyer about redoing Trust documents. I understand that I can protect some assets and plan for long term care with an Irrevocable Trust. My spouse and I do not have Long Term Care Insurance. If you went this route, what did you pay for the legal services to write the trust docs? And what did you learn along the way?

 

[Dtail]

I've started talking to an estate planning lawyer about redoing Trust documents. I understand that I can protect some assets and plan for long term care with an Irrevocable Trust. My spouse and I do not have Long Term Care Insurance. If you went this route, what did you pay for the legal services to write the trust docs? And what did you learn along the way?

An irrevocable trust was set up for my parents. About half of their assets are in this trust currently with probably more to be added.
The cost IIRC was around 6k.
I have found that many folks believe this is "not fair" aka forcing others to pick up LTC costs,etc. The management of ACA income is seen as less negative.
Another aspect to consider is you would need to give up entirely your direct access to the assets and thus trust the trustees. Even if they are your children, you need to think about it. With revocable trusts you maintain control, but would not work for LTC Medicaid.
Another aspect is the highest tax rates start at very low incomes in the trust, so you need to factor taxes in more heavily with investments potentially.

 

[samcat]

We just paid $4200 to redo our old trust with an irrevocable trust after one of us dies.

 

[lem1955]

Thanks, Dtail and samcat for your replies. Lots to think about here.

 

[CaliKid]

We just paid $4200 to redo our old trust with an irrevocable trust after one of us dies.

An irrevocable trust after one death (typically called an A/B trust or a bypass trust) is not the same as an irrevocable trust designed for Medicaid planning. Typically Medicaid planning trusts are more expensive. Just fyi.

 

[lem1955]

An irrevocable trust after one death (typically called an A/B trust or a bypass trust) is not the same as an irrevocable trust designed for Medicaid planning. Typically Medicaid planning trusts are more expensive. Just fyi.

I was given a quote for a revocable and a Medicaid Planning Irrevocable Trust of $9,000. Is that in the ballpark for what I should pay?

 

[Texas Proud]

Also think about the cost of taxes...


My mom is in a memory care facility and they had suggested she could get VA benefits since Dad was in the army.... but moving the assets to a trust would cost a good amount in taxes as the tax rate of a trust is higher than an individual...


This took into account the money that my mom makes from SS and pensions since they have to still be in her name.... these reduced the maximum monthly benefit where putting assets in trust was not worth the trouble...






Trust Tax Rates Table

If taxable income is: The tax is:
Not over $2,500 10% of the taxable income
Over $2,500 but not over $9,150 $255 + 24% of the amount over $2,500
Over $9,151 but not over $12,500 $1,839 plus 35% of the excess over $9,150
Over $12,500 $3,011.50 plus 37% of the excess over $12,500

 

[aja8888]

Also think about the cost of taxes...


My mom is in a memory care facility and they had suggested she could get VA benefits since Dad was in the army.... but moving the assets to a trust would cost a good amount in taxes as the tax rate of a trust is higher than an individual...


This took into account the money that my mom makes from SS and pensions since they have to still be in her name.... these reduced the maximum monthly benefit where putting assets in trust was not worth the trouble...






Trust Tax Rates Table

If taxable income is: The tax is:
Not over $2,500 10% of the taxable income
Over $2,500 but not over $9,150 $255 + 24% of the amount over $2,500
Over $9,151 but not over $12,500 $1,839 plus 35% of the excess over $9,150
Over $12,500 $3,011.50 plus 37% of the excess over $12,500

Just curious, but what transaction(s) creates these high taxes? And are they all federal income taxes?

 

[MichaelB]

Also think about the cost of taxes...


My mom is in a memory care facility and they had suggested she could get VA benefits since Dad was in the army.... but moving the assets to a trust would cost a good amount in taxes as the tax rate of a trust is higher than an individual...


This took into account the money that my mom makes from SS and pensions since they have to still be in her name.... these reduced the maximum monthly benefit where putting assets in trust was not worth the trouble...






Trust Tax Rates Table

If taxable income is: The tax is:
Not over $2,500 10% of the taxable income
Over $2,500 but not over $9,150 $255 + 24% of the amount over $2,500
Over $9,151 but not over $12,500 $1,839 plus 35% of the excess over $9,150
Over $12,500 $3,011.50 plus 37% of the excess over $12,500

I'm not a tax expert but I think trust income that is distributed is taxed against the beneficiary. The only taxes the trust pays are on undistributed income.

 

[Dtail]

I'm not a tax expert but I think trust income that is distributed is taxed against the beneficiary. The only taxes the trust pays are on undistributed income.

That is correct. The trust form is a 1041 tax form. If the the distribution of the trust is considered principle, then those distibutions are not taxed.

 

[Dtail]

Just curious, but what transaction(s) creates these high taxes? And are they all federal income taxes?

Unearned income creates those taxes and can be taxes on the federal and state levels.

 

[Texas Proud]

I'm not a tax expert but I think trust income that is distributed is taxed against the beneficiary. The only taxes the trust pays are on undistributed income.

That is true, but if the trust make a good amount of money and distributes it then you might not qualify for help... if you keep the income in the trust you pay a high tax rate...


That was the problem we had... we could have set up a trust and kept the income, but the taxes would have been more than the benefits...


If we distributed the income of the trust then moms income was too high to get benefits...


So we did not set up a trust...


The big thing is that we did not want to change AA no matter where the assets were located and they created a decent income...

 

[Gill]

Just curious, but what transaction(s) creates these high taxes? And are they all federal income taxes?

Yes, Federal and they are created by accumulated income or capital gains in the trust.
Gill

 

[Gill]

That is correct. The trust form is a 1041 tax form. If the the distribution of the trust is considered principle, then those distibutions are not taxed.

That's not entirely accurate. To the extent there is income in the trust and distributions are made to the beneficiary that income will be taxed to the beneficiary and not to the trust. You can't simply say I'm distributing principal and have it not taxed to the beneficiary.
Gill

 

[bingybear]

I'm not a tax expert but I think trust income that is distributed is taxed against the beneficiary. The only taxes the trust pays are on undistributed income.

When you set up an irrevocable trust for this, you don't have to make the grantor also the beneficiary. If you make someone else the beneficiary, the I would expect the income would not have an effect on the grantor's benefits.

However, be careful with doing this. Getting medicaid may involve getting moved to different facilities and possibly in a different areas.

 

[Dtail]

That's not entirely accurate. To the extent there is income in the trust and distributions are made to the beneficiary that income will be taxed to the beneficiary and not to the trust. You can't simply say I'm distributing principal and have it not taxed to the beneficiary.
Gill

Yes agree.

 

[CaliKid]

I was given a quote for a revocable and a Medicaid Planning Irrevocable Trust of $9,000. Is that in the ballpark for what I should pay?

Seems reasonable. I have heard more than that more often though. It seems $15k-20k is common my higher cost of living area. I would make sure attorney is highly experienced with Medicaid planning.