|A practical solution to the problem (discussed in one of my recent LISTEN TO LAWRENCE LETTERS – June 29th, Issue 151) of banks giving you a hard time when you want to transfer your CD into a trust.
I gave my bank two choices, put the CD in the trust name OR write out a check for $500k and I’ll see you never again. They moved it without penalty!
This is great advice, which I have given many times. It doesn’t always work but most of the time it does. Money talks!
Another life insurance and trust question:
I have a follow-up question regarding placing the insurance policy in a Medicaid trust. Would it be better to set up an ILIT and put the insurance policy in the ILIT instead of the Medicaid trust? You can name any beneficiaries you want and can have a lovely power of appointment in the trust to change beneficiaries if you want to. Does that work better? Just wondering.
NO, NO, NO…where are you getting this advice?
First, let me explain what an ILIT is. An ILIT is an IRREVOCABLE LIFE INSURANCE TRUST. This trust is for the purpose of removing your life insurance from your taxable estate. Did you know that the death benefit of
your life insurance is another asset that will be taxed to your estate at the
time of your death? Of course, if your estate remains under the approximately $6.5 million New York exemption, then no tax will be incurred. On the other hand, if the insurance proceeds will be taxable in your estate, then it may be prudent to get your life insurance out of your name. An ILIT is a great place to put it, but you must give up ALL control over the insurance, that is you must give up what is called all “incidents of ownership.” The ability to still change the beneficiaries (a “lovely power of appointment”) is an incident of ownership that will still cause the insurance to be taxable in your estate. The bottom line is
that an ILIT is a very restrictive trust.
A Medicaid trust, on the other hand, is a very different animal and is almost always prepared for people who do not have taxable estates. A Medicaid trust is a very flexible document that will allow you to keep a lot of control, including a “lovely power of appointment.”
ILITs and Medicaid trusts are two tools in the toolshed and you have to pick the right one for the right job.