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Understanding Irrevocable Trusts: A Key Tool in Estate and Medicaid Planning

Posted By Lineweaver Financial Group
July 16, 2024 Category: Finance, Legacy, Trust, Will, Estate

Estate and Medicaid planning are crucial components of financial strategy, as they can help protect your assets and secure your legacy. A powerful tool in this domain is the Irrevocable Trust, a fiduciary arrangement that offers numerous benefits while maintaining control over asset distribution. There are many intricacies with irrevocable trusts and they can potentially help enhance your estate-planning efforts. What is an Irrevocable Trust? A trust is a legal relationship where a grantor transfers assets to a trustee, who then manages these assets for the benefit of designated beneficiaries. Trusts serve various functions, such as reducing estate taxes, minimizing or avoiding probate, funding charitable gift strategies, and facilitating Medicaid planning. An Irrevocable Trust, as the name suggests, is a trust that cannot be modified or terminated once it is established. This can allow you to get assets out of your estate, which could potentially be helpful for estate and Medicaid planning. Trusts like these are ultimately about giving you control of your assets, your estate plan, and, ultimately, your legacy. One possible benefit of an Irrevocable Trust is its ability to help avoid probate court. Unlike a will, which must go through the often lengthy and public probate process, a trust can offer the grantor better control of how, when, and to whom money passes. Many parents find this comforting if they have children who are not good with money or if they simply want to

A new IRS ruling could affect your children’s inheritance

Posted By Lineweaver Financial Group
July 26, 2023 Category: General, IRS, Inheritance, Trust, Estate Planning

In a major shift, a new IRS ruling has tightened the regulations surrounding irrevocable trusts and the step-up basis. In the past, families have been utilizing irrevocable trusts to protect their assets from spend-down to still qualify for benefits like Medicaid and VA Aid. Also during this time, it was not clear if assets passing to beneficiaries through an irrevocable trust would receive a step-up in basis, which eliminated any capital gains taxes that would otherwise be owed.  Historically, assets that individuals sold or transferred during their lifetime have been taxed as capital gains, based on the appreciation in value that occurred over time. The capital gains owed are predominantly calculated by comparing the asset's value at the time of purchase with its value at the time of transfer. An exception to the obligation of capital gains taxes comes when the owner of the assets dies, and the assets pass to their beneficiaries. The beneficiaries receive a step-up in basis, therefore they inherit the assets as if it had been purchased at the current fair market value instead of the value of the assets at the original time of purchase. This eliminates any capital gains, and no taxes become due. The new IRS ruling has tightened the regulations surrounding irrevocable trusts and the step-up in basis. According to the updated guidelines, assets held within certain irrevocable trusts will no longer receive the benefit of a step-up in basis upon the grantor's

Don’t make the mistake of leaving your grandchildren with a tax bill instead of an inheritance

Posted By Lineweaver Financial Group
July 13, 2023 Category: Finance, Tax, Inheritance, Trust, 529, IRA

For older Americans, leaving retirement savings to their grandchildren without also leaving them a big tax bill is becoming harder under new rules that took effect in 2020.  Previously, heirs other than spouses had decades to draw down inherited retirement accounts. After the rules change, now they must do it within 10 years.  To maximize their family’s after-tax wealth, grandparents are changing their estate plans and creating new trusts. The timing change also has grandparents making a series of Roth conversions or big generation-skipping lifetime gifts. These choices make sense with the amount of money and taxes that are at play. According to the Investment Company Institute, Americans held $12.5 trillion in IRAs as of March 31, 2023 and 52% of households headed by someone 65 or older have one.    By choosing to leave a Roth IRA, you avoid some of the problems of the accelerated tax hit from an inherited traditional IRA since those can cause a big tax bill, especially if distributions fall during the heir’s highest earning years. Minor grandchildren may also need to file a tax return to report the IRA payouts, and the income could be taxed at the parents’ rate.  However, because of the 10-year payout period, there is a risk that your heirs will spend the money quickly.  Other options to consider when planning your legacy is to start making lifetime gifts to grandchildren as soon as they are born. That can look like pay