In this episode of the Family Legacy Podcast, Michael Rutkowski, founder of Rutkowski Law Firm, and co-host Kerry Guard dive into the complexities of irrevocable trusts and debunk common myths surrounding this often misunderstood legal tool.
What Are Trusts? Michael begins by outlining the different types of trusts: revocable and irrevocable. A revocable trust is a common estate planning tool used primarily to avoid probate. It allows individuals to maintain full control over their assets during their lifetime and pass those assets on to their heirs in a streamlined manner after death. On the other hand, an irrevocable trust—which often causes fear and confusion—provides stronger protection but comes with certain restrictions.
Myths about Irrevocable Trusts Michael addresses the most common misconception: once assets are placed in an irrevocable trust, they’re inaccessible. In reality, there are varying degrees of irrevocable trusts, some of which allow the individual to remain trustee and maintain access to assets, albeit with some restrictions.
For example, in a Medicaid Asset Protection Trust, individuals can still use their assets for specific purposes, but access must follow the trust’s guidelines. Beneficiaries, such as children, can assist in accessing funds as needed, making it a flexible tool for protecting assets while ensuring eligibility for government benefits.
Why Consider an Irrevocable Trust? Michael highlights several reasons why people might choose an irrevocable trust over a revocable one:
Flexibility and Control Contrary to popular belief, Michael explains that modern irrevocable trusts offer more flexibility than ever before. In many cases, changes can be made with the consent of beneficiaries, or the trust can be dissolved entirely if all parties agree.
Setting Up an Irrevocable Trust Establishing an irrevocable trust involves a few key steps:
Conclusion The podcast concludes with a reminder that while irrevocable trusts may sound intimidating, they are invaluable tools for protecting assets from unforeseen risks, such as long-term care costs, lawsuits, and estate taxes. By working closely with a knowledgeable attorney, you can create a plan that meets your needs and offers peace of mind for the future.
If you're considering establishing a trust or need help with estate planning and asset protection, reach out to Rutkowski Law Firm at (248) 955-2842 for expert advice and guidance.
Michael Rutkowski 0:00
Use your resources. We don't need to know everything. You know, here's what was going on last week as we were trying to solve a problem internally at work, and I didn't have a solution. And you don't need to know everything. And I just reached out to my network and said, Here's my problem. Help me. You know, I raised the white flag, and I said, help me. And I got the best solution ever. We don't need to dive into what that was. It was just a simple work problem. But you know what? You don't need to know everything. And you have everyone has so many friends and people in their network. You know it's okay to ask for help.
Kerry Guard 0:41
Welcome to the family legacy podcast, a podcast that goes beyond legal jargon and gets the root of how to ensure your past, present and future are protected. This episode is brought to you by the ratoski Law Firm, Michigan's leading asset protection estate planning, Medicaid and Elder Law Firm. And here's our host, Michael rotoski. Michael Happy Tuesday.
Michael Rutkowski 1:01
Yeah, happy Tuesday. Here we are again. Love it.
Kerry Guard 1:04
Here we are again. How was your weekend?
Michael Rutkowski 1:06
It was good. You know? What this podcast makes me realize is that I do some really cool stuff. So this weekend, and I guess, I guess I should realize this better, but I you know, having to, like, reflect on the week. So last weekend, I learned how to scuba dive. I got certified, not the open I have it on the open water part, for those who know what I'm talking about, but I did all the book work and the pool work, and here's why I'm part of a group called EO entrepreneur organization. And in that you have what's called a forum, a smaller subset of members that you meet with monthly, and then annually, you do a retreat. And so each person plans the retreat, we rotate year by year, and the guy that's planning the retreat this year is super into scuba diving. So this group kind of pushes you outside of your normal limits to, like, try new things. And I am, like, hooked. It was the coolest thing I've ever done. One it's just cool to learn something new at an older age. But, like, I think I'm a scuba diver. I mean, I haven't done it yet, but I think I'm a scuba diver. Just call me scuba Steve,
Kerry Guard 2:20
scuba Michael, that is awesome. So did you do this on the forum, or you were getting you're getting ready to go to forum. The forum, we don't
Michael Rutkowski 2:30
go down to Mexico to actually go into open water scuba diving until January, but we have to get like half of the stuff done here. So we've got the book work done. We did all the pool stuff. We learned about regulators and BCS and, you know, all the other you know, everyone who knows what I'm talking about knows what I'm talking about. But it was very cool. It was so cool I could swim around in a pool for days like and the funny thing is, is the first exercise we had to do was go underwater and breathe for 60 seconds with no mask on, so your eyes are closed and you're just focused on breathing. And I'm like, I don't know that I can do this for more than 60 seconds, but then by the end of the weekend, I could stay underwater now for five hours. I mean, if you could, I could, I could do it. It's, it's so meditative and just awesome. And while you're doing it, there's nothing you can think about but what you're doing, which is so cool. So you just, like, turn off all the all the noise that we're always hearing and thinking about is so good. You're going to get more updates on this as I just get deeper and deeper into scuba diving. Oh,
Kerry Guard 3:33
I can't wait. So just to be clear, this is, like, the real deal, where you got the oxygen tank on and you're like, fully submerged,
Michael Rutkowski 3:41
fully submerged, Aqua tanks on the whole thing, flippers, yes, yes. Fins, yes, for sure. And family, there's, there's lingo that, like, you gotta use, like, it's called air and some other things. And if you're not using that lingo, like people, know you're, like, total amateur, not real, like flood burners.
Kerry Guard 4:05
No, you got your fins, you got your air. That is awesome. I can't wait for the next for the next update and January Costa Rica,
Michael Rutkowski 4:19
yeah, there'll be pictures for sure.
Kerry Guard 4:21
Oh, we better see some pictures, videos, all the good stuff. Well, we'll keep you all updated on that. More to come. This week we want to talk about irrevocable trusts.
Michael Rutkowski 4:32
You got it, you got it. You know, here's the deal is, it scares people. It scares people to even say the word, because there's so many different pronunciations you could say irrevocable, irrevocable. And you know, we've just been taught anyone's first introduction to an irrevocable trust is scary, because all we see on Google and everywhere is that like, yeah, you can create this trust that you. Put your stuff in, but you're never going to be able to touch it again. That's everyone's kind of like baseline understanding of what an irrevocable trust is, and that's so far from the truth.
Kerry Guard 5:11
Okay, so break it down for it well, let's talk about all the different types of trusts first, and then we'll spend most of our time on this one to sort of bust the myths. But, yeah, talking about different options.
Michael Rutkowski 5:22
Let's do that. And we ain't got time for that, because there's like, 60 trusts. But let's talk about, there's in categories, there's revocable trusts and irrevocable trusts. Most people are starting with revocable trust like, you know, here's some statistics where you half of people have no estate plan in place, so Okay, take those people out of it. Of those that have an estate plan, probably 95% are Revocable Living Trusts. Main purpose of a revocable living trust, avoid the probate court and make it as simple as possible for your kids or whoever is going to inherit this to just make it as real smooth transition. That is really the main goal of a revocable living trust. You're at the grocery store talking to someone about trusts, it's probably a revocable living trust. Then there's irrevocable trust, and there is such a wide variety of irrevocable trusts, and I'd say it starts with a very light version, that you can still be the trustee. You can make changes to you can access the assets. There's just some limitations in there about the revocability, meaning, can you just, like, blow the thing up and throw it out, like, that's what it means. Can you revoke it? Can you just, like, get rid of it, and then everything to like the one that we're all so familiar and scared of, which is like the tax planning irrevocable trust, where you need a third party trustee. You're going to put money in there and you're never going to touch it again. And what I mean by third party trustee is just someone else, someone else has to manage the trust, whether that's a corporate trustee, like a bank, a fiduciary, or just someone not related to you, whatever, you just have to have someone else other than you being the trustee, controlling the trust, and then you can't have access to the assets. Why someone would do that is if they're over the estate tax threshold, meaning if they were to pass away, there would be tax owed, inheritance tax owed to pass it to the next generation. That's why someone would do this. And so you can earmark some money, put it in this irrevocable trust, and it's going to pass to the next generation without that tax. And that tax can be a lot. It could be 40% so but here's the kicker with that trust right now, as we sit here in 2024 the estate tax is at around 25 million for a joint couple and about 12 million for an individual. So there's just not a lot of people that need this type of complex planning, but it's the one we're also familiar with, so we're scared of it. But that That being said, there's all kinds of other reasons we'd use an irrevocable trust. We'd use it to plan for Medicaid so that we can use Medicaid for long term care costs, so that we don't have to pay 10 to $15,000 a month. If someone in our family needs skilled care, we might use it for a special needs trust. What that means is, let's say someone's on governmental benefits because they were injured or they just their income and assets are such that they qualify for a Medicaid health insurance type benefit, if they receive an inheritance from like a lawsuit, a car accident, something like that, it can disqualify them from their benefits. So something like a special needs trust is a version of an irrevocable trust that can hold those assets and still allow you to gain governmental benefits. Yeah, go ahead. What
Kerry Guard 9:01
happens to those assets, though? So, like, if you get injured and you want to put that into an RE revocable trust, yeah, then, and it's under someone else's, someone else's, your trustee, yeah, let's say you get better or let like, what? What do you if you can't touch that money? Then, like, what happens?
Michael Rutkowski 9:20
So in a special needs or supplemental needs trust, kind of interchangeable terms, you can touch those assets, but they have to be given to you by a third party trustee. So like, you could be my third party trustee. I'm I'm government benefits. I get in a car accident, I win a judgment because I was in a car accident, I put that money in a special needs trust. You're my trustee, and I can get those assets for things like, you know, everyday living expenses, you know, like an apartment or transportation. There's usually a list of things that you're allowed to use the money for. So you use the. The trust money for all these things over here, and then you use your other money for the stuff that is not allowed through a special needs trust.
Kerry Guard 10:07
I think that's why we all get so scared when we start talking about this one, because it feels like once it's gone, it's gone. But I think what we're really breaking down here is when you can put a trustee in place, especially somebody that you trust, then you can, you can facilitate the funds in a way that makes sense for your current living situation.
Michael Rutkowski 10:35
It sounds like so yeah, and there has been a lot of law changes in the past, call it 20 years, that make it less scary, too. And what I mean by that is there's statutes now, at least in Michigan, that I'm aware of, that allow us to break irrevocable trusts. You know, we can, if it doesn't make sense to have this trust anymore, we can go to the court system and break the trust a lot of times with consent of all the beneficiaries, you can break the trust or modify the trust. I'm actually meeting with a family tomorrow, tomorrow afternoon that we're doing that same thing. They set up a charitable remainder trust, and we're changing who the the charity is, and so as long as we get consent by some of the interested parties, we can make those changes. So it's not as scary as it used to be, even even close. Like there are ways to make changes. It's you're not locked in on these things forever. Got it?
Kerry Guard 11:29
I cut you off there. But what are some other reasons why you would want the irrevocable trust versus the revocable Yeah, yeah. The
Michael Rutkowski 11:38
biggest ones are the long term care protection, so that in the event you need long term care, you don't have to pay for that. It can be covered by Medicaid or VA Aden attendance if you're a vet. So that's that can be great. The Special Needs stuff I talked about lawsuit protection. So that's always great. You know, any asset held by an asset protection trust is kind of off the table. If you were ever sued, that's a big one. Creditors, bankruptcy, those are some big ones. And then tax, tax planning has all kinds of different irrevocable trusts. I mean, it's like alphabet soup, no joke, like when they when they teach it to lawyers, they they call this section of the alphabet soup of of trusts, because there's like cruts and cracks and slats and all these things. They don't mean things, obviously, but it's just different mechanisms that we can use to shelter from taxes.
Kerry Guard 12:35
So in terms of now we have what all the different trusts are, in terms of irrevocable or revocable, and then we have all the different reasons why you might need irrevocable versus revocable. Let's talk about the myths you mentioned, a couple of them in terms of like, why? The biggest one, I think we mentioned in terms of why this is so scary, of feeling like you can never touch your assets in terms of conversations you've had with potential clients, or even current clients. What are some questions that come up for them in terms of, like, why they might be hesitant? Is that the main one? Or are there some other concerns?
Michael Rutkowski 13:10
Yeah, the main ones are the things that you find when you start going down the rabbit hole on Google. Honestly, the fears are, you need someone else to control the assets and you're not going to be able to ever touch them again. Those are the two main fears, you know, we'll, we'll walk through with clients all the different options, and we talk to them about, you know, the various degrees of irrevocable trust, and that you can still be the trustee and all these things. And there's probably a 50% chance that we're going to get an email about I could almost call this anywhere between three and seven days later with those exact questions, because usually everyone's so aware of the revocable living trust. They meet with us, and we just educate them about all their options. And they're like, why wouldn't someone do that type of trust? That makes total sense. Then they go do some research. Then they're like, Yep, let's do that. As they're moving through our process, they do a little research, they come back to us, and we just have to go over that one more time that you know, if we're doing Medicaid pre planning, you can still be the trustee. You still have control the assets. We just need to teach you how to do that. It's really a beautiful tool. We just have to get people comfortable with how it's the mechanics of it, the logistics of how it works.
Kerry Guard 14:24
Let's talk about that perfectly into my next question, in terms of how the logistics work in the process. So how would somebody go about setting up a river?
Michael Rutkowski 14:34
Yeah, yeah, a great question. And what I mean by Logistics is, how are they going to access their assets. So let's talk about that here, just in a second. You know, as far as setting it up, it's, it's a typical process of meet with us just to learn about your goals, or any attorney that you're you're meeting with, then they're going to probably have another meeting where they design out the plan. They're going to talk about everything from Who do you want us the six? Assessor, trustee, who are your beneficiaries in the event that your beneficiaries pre deceased you? Who do you want that share to go to? And they're going to walk through lots of different things. And it's a lot more conversational than people think. A lot of people are a little apprehensive about, like, what do I need to prepare for the meeting and all this and and it's just basically, you know who are the people that you trust to be your successor trustee, just like you mentioned, and then that you can count on. Let's say that you can count on them if you're if something happens to you, and then your beneficiaries. But as far as, like, the logistics of it, and it all depends on the type of trust we're doing, but let's cover the Medicaid asset protection trust today. So if we're setting that up for long term care benefits, that's probably one of the most flexible, irrevocable trusts that we do. If the main goal is to get someone qualified for the Medicaid long term care benefit or VA A in attendance, because they can still be the trustee and they can still gain access to the assets. But it's not direct asset access. It's not as simple as walking up to the bank and making a withdraw like no one's going to like that because you're not following the rules of the trust. Now, in reality, you can probably do that because banks are not governing the governing this as much as you like. So we need to make sure that we're following the rules, so that the day we need Medicaid, we can show them we follow the rules. So a couple ways to gain access to assets that are in this irrevocable Medicaid asset protection trust is a couple different ways. You can do it through any consent of a beneficiary. So let's just say it's you and a spouse who set up this trust, and you have your kids named as beneficiaries. If any of your kids say, Sure, it's okay for you to withdraw money, you can do that. That's one way to do it. And so one way that we structure that is if you just set up a joint, joint account with one of your beneficiaries. We kind of call that a flow through account where or a key holder account. We call it, where you just move money from the protected let's say there's a brokerage account, and you want to pull out, you know, $20,000 to put a new roof on your house. You take the 20,000 you put it in that joint account that has one of your beneficiaries names on it, and then you do what you want with it. So you just gotta follow the plan, essentially, and make sure you're following the rules of the trust. But you know, when we go to apply for the Medicaid Long Term Care Benefit, this is not a hide the ball strategy. We provide them a copy of the trust all the transactions for the previous five years, and as long as we follow their their rules, you qualify.
Kerry Guard 17:38
Yep, that just makes sense. I imagine everything needs to be written like, you can't just call up your son or daughter and be like, Oh, hey, I just want to take some money out of the account. Today. Is that cool paper trail?
Michael Rutkowski 17:49
Gotta have the paper trail. But what's so nice today with banking, there's paper trails on everything, you know. So it's pretty it's pretty straightforward. But same thing with that trust, like, even with that Medicaid asset protection trust, you can actually revoke it with consent of all of your beneficiaries if, for some reason, you wanted to get rid of that trust and get a new trust because laws changed or something. As long as all the all your kids sign off on it, you're good to go.
Kerry Guard 18:14
Okay, for the last question here, because we, I can't believe it, we're almost out of time. It just flies by. It's just flies by. What if you want to change the beneficiary? Let's say you put somebody that you thought you trusted in place, and things like you just mentioned, you know, things change. So what happens?
Michael Rutkowski 18:33
You still have complete control over who are the trustees and successor trustees, and who are the beneficiaries. You can make those changes anytime, just like a revocable living trust. Call our office, tell us who you want it to be, sign the paperwork, and you're done.
Kerry Guard 18:50
It doesn't seem like there's that much of a difference between the two in terms of the process
Michael Rutkowski 18:56
The Medicaid one is so similar. It's so similar i That's why I always say it's like the lightest version of an irrevocable trust possible. It's so close to a revocable
Kerry Guard 19:07
All right, one more question, because I can't help myself, Medicaid makes a lot of sense, and we talked about long term health care costs. Is there any other reason you know, if you're and it sounds like that's those are the two main reasons, and the third being the tax situation. If you're making over 12 million or 25 million as a family, then from a tax situation, you would want to do this to keep your taxes down. Is there are those.
Michael Rutkowski 19:36
The three main reasons, lawsuit protection. Lawsuit protection is that, as that other one, that it's usually, you know, and I would have to say, like, asset classes like when, when the best time to do a Medicaid asset protection trust is when there's a high likelihood if you need long term care, you're going to need Medicaid at some point. So let's just call it assets, to use round numbers, from zero to one. 1 Million, it's great to use the Medicaid asset protection trust. People with assets of 1 million and above their their concerns change. You know, they can easily private pay for care, but now they're more like lawsuit asset protection, because they're kind of a target, and maybe that'd be something great to talk about next time is the lawsuit asset protection piece.
Kerry Guard 20:18
All right, well, stay tuned on that before we go. Michael, what are you most looking forward to? We got seven days here between shows. What do you got going on? What are you
Michael Rutkowski 20:27
looking forward to? This is easy. This is easy. So my wife's going away to Nashville this weekend, so if you've seen it this weekend's like a yes weekend for my kids. So we just do all the things. Mom's gone. They're going to stay in pajamas all day. We're going to go get like, we're gonna go get our nails done. I do you know dad, girl, Dad stuff all the time, but it's gonna be incredible.
Kerry Guard 20:49
Oh my gosh. Well, I can't wait to follow up with you on Tuesday here about how, yes, weekend when I Oh, I expect rainbow colors here,
Michael Rutkowski 20:57
yeah, no paint, no paint, no paint. But I love when they massage the feet and stuff. It's real good.
Kerry Guard 21:03
Oh, it's pretty well.
Michael Rutkowski 21:04
I actually done it one other time, but I was like, Why haven't I been doing this my whole life?
Kerry Guard 21:09
You missed it out. Well, welcome. I know it's it's awesome. Uh, wonderful. Well, thank you so much. If you liked this episode, please like, subscribe and share. This episode was brought to you by the Ratos key law firm, the Michigan leading asset protection estate planning, Medicaid and elder care law firm. And if you'd like help with your estate planning and asset protection or to set up a trust, please call 248-955-2842, again, that is 248-955-2842, thank you again, Michael, see you next week.
Michael Rutkowski 21:42
My pleasure. See you next week, you.
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