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Ask Todd: Pros and Cons of gifting stocks · The Financial Exchange Show

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  Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
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  Speaker 1: If you have an existing estate plan or in the
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  Speaker 1: market for one, Todd Lutsky is here to answer your
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  Speaker 1: questions and help you plan for a later life. Ask
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  Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
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  Speaker 1: New England for more than thirty five years, helping families
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  Speaker 1: with a state and tax planning, medicaid planning, and probate law.
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  Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
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  Speaker 2: We're now joined by Todd Lutsky from the law firm
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  Speaker 2: of Cushing and Dolan for Ask Todd. This is your
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  Speaker 2: chance to ask Todd your estate planning questions. And so
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  Speaker 2: we got the studio lines open at eight eight eight
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  Speaker 2: to zero five two two six three. That number again
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  Speaker 2: is eight eight eight two zero five two two six three.
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  Speaker 2: Todd's gonna help to answer some of your estate planning questions.
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  Speaker 3: So if there's been.
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  Speaker 2: One that's been on your mind, this is your chance
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  Speaker 2: to speak with Todd live on air right now. That
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  Speaker 2: number is eight eight eight to zero five two two
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  Speaker 2: six three. Again eight eight eight to zero five two
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  Speaker 2: two six three. Mister Lutsky, how are you today.
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  Speaker 3: I am doing great as we head into the holidays,
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  Speaker 3: how are you.
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  Speaker 2: Doing pretty well?
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  Speaker 3: I learned something new yesterday.
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  Speaker 2: Actually, yeah, do you know where they signed the Declaration
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  Speaker 2: of Independence?
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  Speaker 3: Yeah? At the bottom. That's that, that is true at
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  Speaker 3: the bottom.
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  Speaker 2: Yeah, it's amazing, fantastic, Todd. Let's talk a little bit
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  Speaker 2: about gifting. We now have, you know, fewer than thirty
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  Speaker 2: days to go until Christmas, so gifting's on everyone's mind.
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  Speaker 2: We already did a Black Friday segment earlier today. A
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  Speaker 2: lot of times we talk about gifting a house, sir,
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  Speaker 2: we might talk about gifting money. I want to talk
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  Speaker 2: about kind of something in between all those, which is,
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  Speaker 2: let's say that you're someone who has a highly appreciated
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  Speaker 2: financial asset, a stock, or something along those lines. Pros
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  Speaker 2: and cons of gifting that either to an individual or
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  Speaker 2: to a charity h during course of your lifetime.
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  Speaker 3: Well, that's two very very different things, right, So whenever
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  Speaker 3: you think about let's take charity first. Right, when you
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  Speaker 3: think about charitable giving, and if it's a if it's
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  Speaker 3: a highly appreciate you're saying investment, right, not like not
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  Speaker 3: like a piece of property, right, like a stock? Yeah, Okay,
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  Speaker 3: so when we talk about that, like if you wanted
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  Speaker 3: to give that away to a charity, you know you
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  Speaker 3: could probably set that up in what we call a
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  Speaker 3: charitable remainder trust. Whereas that way, when you put it
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  Speaker 3: in there and sell it in there, the gain right
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  Speaker 3: because it's highly appreciated, So there's income tax issues associated
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  Speaker 3: with giving, and that's why we're doing this right, So
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  Speaker 3: the gain associated with that would be taxed over time,
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  Speaker 3: the full amount of the money could be invested versus
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  Speaker 3: losing potentially twenty eight point eight percent federal and state
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  Speaker 3: at least here in mass when you liquidate that asset,
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  Speaker 3: so and you'd have that much less right to invest.
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  Speaker 3: This way, you have the full amount to invest and
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  Speaker 3: the money can be generated, generating a nice cash flow
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  Speaker 3: for you. So a charitable remainder trust allows you to
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  Speaker 3: get a stream of income your whole life, and then
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  Speaker 3: when you die, the balance goes to charity. So great
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  Speaker 3: it's included in your estate still, so if it grew,
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  Speaker 3: you don't care because when it goes to charity, you
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  Speaker 3: get an offsetting charitable estate tax deduction. So wonderful news there.
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  Speaker 3: And meanwhile, your whole life you got to live off
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  Speaker 3: that income stream, and you got to have more invested
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  Speaker 3: to generate a higher income for you. Now that's one idea.
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  Speaker 3: You could give it away to children without charities or
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  Speaker 3: to family members. Problem with that is you likely don't
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  Speaker 3: have use of it anymore. It's let's face it, it's not yours, right.
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  Speaker 3: You gave it away, sure, and more importantly, you gave
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  Speaker 3: them the built in gain. So if you give away
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  Speaker 3: that highly appreciated asset when they go to sell it,
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  Speaker 3: they are going to be stuck with that gain and
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  Speaker 3: they're gonna have to pay twenty eight point eight percent
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  Speaker 3: give or take right on the tax liability. Whereas if
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  Speaker 3: you decided to hang onto that asset and let them
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  Speaker 3: inherit it, then they would get the asset with a
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  Speaker 3: step up in basis, eliminating the built in gain. And
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  Speaker 3: instead of lowering your estate by giving away that asset,
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  Speaker 3: maybe you've got high basis assets, stocks that you just bought,
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  Speaker 3: or cash. Cash is always king. Give that away and
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  Speaker 3: that's what you use to reduce the estate for estate
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  Speaker 3: taxes while keeping the highly high or the low basis asset,
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  Speaker 3: the highly appreciated asset so that you eliminate the built
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  Speaker 3: in gain. So you're winning on the estate tax front
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  Speaker 3: and the income tax front when you take a minute
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  Speaker 3: and figure out what to gift, if anything.
• 5:03
  Speaker 2: Talking with Todd Lutsky from the law firm of Cushingen Dolan.
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  Speaker 2: This segment is called Ask Todd because it is your
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  Speaker 2: chance to ask Todd your questions. We still have a
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  Speaker 2: little bit of room on the phone lines here at
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  Speaker 2: eight eight eight to zero five two two six three.
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  Speaker 2: That number again is eight eight eight to zero five
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  Speaker 2: two two sixty three for your chance to ask Todd
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  Speaker 2: your estate planning questions. We're going to take a quick
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  Speaker 2: break here, but again right to your questions when we
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  Speaker 2: come back. Still some room on the phone line, so
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  Speaker 2: if you've got a pressing one, this is your chance
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  Speaker 2: eight eight eight to zero five two two sixty three
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  Speaker 2: your questions when we return.
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  Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
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  Speaker 1: only here on the Financial Exchange Radio Network. You're listening
• 5:53
  Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
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  Speaker 1: Radio Network.
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  Speaker 2: All right, as promised, we're going to get right to
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  Speaker 2: your calls with Todd Luski. First up, we've got Joe
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  Speaker 2: in Bedford. Joe it's your question.
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  Speaker 4: For Todd, I have a irrevocable trust with Medicaid planning. Okay,
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  Speaker 4: my house is part of the trust, and I'm going
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  Speaker 4: to be selling the house shortly. Is there any way
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  Speaker 4: I can get some of the money out of the
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  Speaker 4: trust to use for other expenses?
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  Speaker 3: So, Joe, I don't know. Obviously, did we do this
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  Speaker 3: trust for you at Cushing and Dolan or is this
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  Speaker 3: done by some other attorney?
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  Speaker 4: No, you did it.
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  Speaker 3: Oh, then I can speak to it because I wrote it,
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  Speaker 3: so I know what it says. So good news all
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  Speaker 3: the way around. One. Certainly you can sell it and
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  Speaker 3: will happen. And by the way, I'd strongly encourage you
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  Speaker 3: to use our firm to represent you at the sale.
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  Speaker 3: Only reason I say that is so many other people
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  Speaker 3: just could mess up your five year waiting period if
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  Speaker 3: you don't get the right advice from you know, another
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  Speaker 3: attorney who maybe is not a trust attorney. Not that
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  Speaker 3: they're doing anything wrong, they just don't understand trust. So
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  Speaker 3: that's just my advice. So what will happen is the
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  Speaker 3: house will likely go out of the trust to the buyer,
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  Speaker 3: and in will come all the money. Okay, assuming there's
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  Speaker 3: no life estate, So in will come all the money. Now,
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  Speaker 3: because this is a grant or trust, I've treated it
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  Speaker 3: treats you as if you are the owner for income
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  Speaker 3: tax purposes. So is this your primary residence Joe?
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  Speaker 4: Yes?
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  Speaker 3: And so do you think the game? Are you married?
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  Speaker 4: Yes?
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  Speaker 3: Good? Good? And so do you think the gain on
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  Speaker 3: this house when you sell it fair market value minus
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  Speaker 3: cost plus improvements is more than or less than five
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  Speaker 3: hundred thousand dollars of gain?
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  Speaker 4: It'll probably be a bit more than five hundred.
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  Speaker 3: Okay, so good news. If it's a bit more than
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  Speaker 3: five hundred. Because this is a Grand Tour trust, make
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  Speaker 3: sure you tell your tax preparer that and they in
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  Speaker 3: case they don't know it, that this is a grand
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  Speaker 3: tour trust. So you are entitled to that five hundred
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  Speaker 3: thousand dollars Code Section one twenty one Capital gains exclusion
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  Speaker 3: associated with the sale of your home. Okay, your primary residence.
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  Speaker 3: So if for example, you calculate the gain to be
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  Speaker 3: six hundred thousand dollars, remember that's not fair, that's not proceeds,
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  Speaker 3: that's just gain. If it's six hundred thousand dollars, you
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  Speaker 3: get a five hundred thousand dollars exclusion and you only
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  Speaker 3: pay tax on the one hundred so great, big win
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  Speaker 3: for you guys. Now the money, if you do this right,
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  Speaker 3: the money will be sitting inside the trust. And by
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  Speaker 3: the way you direct this whole sale, you tell the
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  Speaker 3: true us need to sell it, no problem. Now, of
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  Speaker 3: course I don't know if you have another house or not,
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  Speaker 3: but technically I guess you're homeless, so it sounds funny.
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  Speaker 3: But you can then take the house or take the
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  Speaker 3: money and buy another house and downsize. Even if you
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  Speaker 3: want to. Out would go the money and in would
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  Speaker 3: come a new house. Again, no borrowing, and that would
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  Speaker 3: not restart the five year waiting period. So that's all
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  Speaker 3: that said. Now you asked me about getting it out, okay, Todd, Well,
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  Speaker 3: what if I'm going to just use that money, invest
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  Speaker 3: it and rent it and rent somewhere and collect the money,
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  Speaker 3: collect the income. So first and foremost, you get all
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  Speaker 3: the income directly. So if it's generating interest and dividends,
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  Speaker 3: you get it. Now, if you want to reach into
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  Speaker 3: the principle and take out some of the money, you
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  Speaker 3: probably cannot do that directly, but you are allowed to
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  Speaker 3: make distributions out of the trust to a class consisting
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  Speaker 3: of and it would be defined if you had children.
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  Speaker 3: We probably said equally to your you know, into any
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  Speaker 3: child or grandchild, and then you have to ask that
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  Speaker 3: child or grandchild if they would gift it back, so
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  Speaker 3: you can get it out in a two step approach.
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  Speaker 3: Remember they don't have to, but at least once you
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  Speaker 3: gift it to them, they can gift it back to
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  Speaker 3: you and you can have that put back into your
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  Speaker 3: pocket to go spend on these other expenses. So hope
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  Speaker 3: that helps a little bit. And again it just really
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  Speaker 3: shows the flexibility of these irrevocable trusts that we have
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  Speaker 3: talked about over the years. Speaking of a flexibility, you
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  Speaker 3: might want to think about gifting your assets, and if
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  Speaker 3: you're going to gift them, you need to know how
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  Speaker 3: to do it, why to do it, when to do
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  Speaker 3: it right. Remember, folks, you don't think about it, but
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  Speaker 3: when you make a gift, it causes creditor problems. Right,
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  Speaker 3: if you throw a person's name on a house, you
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  Speaker 3: got creditor problems, or on a joint bank account you
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  Speaker 3: could have creditor problems. We just talked about gifting away
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  Speaker 3: low basis assets in the earlier part of the segment,
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  Speaker 3: don't do that gift high basis assets. You don't even
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  Speaker 3: think about it. You might set up a life estate.
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  Speaker 3: Did you make a gift, well, you you did. There
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  Speaker 3: could be ramifications on that right when you add kids'
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  Speaker 3: names to joint bank accounts. Folks. There's so many things
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  Speaker 3: to think about. And for higher net worth people, there's
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  Speaker 3: ways of leveraging your gifts by taking advantage of discounts
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  Speaker 3: on non voting shares of LLCs and the like. This
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  Speaker 3: guide gives you all the examples on how to gift,
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  Speaker 3: what to gift, and lastly, if to gift, maybe you
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  Speaker 3: don't even want to do it, and certainly if you're
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  Speaker 3: gonna gift, put it in a trust rather than in
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  Speaker 3: the hands of these beneficiaries. Folks. So many things to
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  Speaker 3: think about. It's right near the end of the month,
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  Speaker 3: especially with the holidays, so this is probably gonna be
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  Speaker 3: getting closer and closer to the last chance to get
• 11:41
  Speaker 3: it eight six six eight four eight five six nine
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  Speaker 3: nine or Legal Exchange Show dot com again, making the
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  Speaker 3: most of Gifting assets eight six six eight four eight
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  Speaker 3: five six nine nine or Legal Exchange Show dot com.
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  Speaker 2: Todd, I've got another one here for you. Let's go
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  Speaker 2: to Randall in Maine. Randall, you are on with Todd Lutsky.
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  Speaker 5: Hello, Jid, So this isn't exactly an estate question. I'm retired,
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  Speaker 5: I'm currently collecting Social Security. I've been a landlord for
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  Speaker 5: almost forty years, currently only just two properties. I was
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  Speaker 5: recently told that I could sell the property and do
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  Speaker 5: a ten thirty one to a real estate investment. Is
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  Speaker 5: that something I'm allowed to do? I mean, is that
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  Speaker 5: a ten I didn't know I could do a ten
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  Speaker 5: thirty one to a real estate investment.
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  Speaker 3: Well, I don't necessarily know what they're exactly talking about
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  Speaker 3: on the repurchase side. So there are these things called
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  Speaker 3: I don't know are the Delaware Statutory trust DSTs. I
• 12:47
  Speaker 3: hear those offered a lot. Maybe this is what you're
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  Speaker 3: buying into. Is some kind of a reed, some kind
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  Speaker 3: of a real estate investment trust, you know, like fund
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  Speaker 3: or something. So as long as you're buying into something
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  Speaker 3: that qualifies as a real estate holding. And again I
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  Speaker 3: can't comment on the real estate holding piece that you're
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  Speaker 3: describing because I don't really know what it is. But
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  Speaker 3: I can tell you that, yes, ten thirty one exchanges
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  Speaker 3: you are allowed to do and for everybody who doesn't
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  Speaker 3: understand them. If you have this rental property, as Randall does,
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  Speaker 3: and there's probably a lot of built in gain because
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  Speaker 3: he's been renting, he said, for years. He's been renting it,
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  Speaker 3: so he's probably depreciated the cost basis down to close
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  Speaker 3: to zero. And if he's done that, selling it would
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  Speaker 3: incur a large capital gain. And unlike selling your primary residence,
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  Speaker 3: there's no exclusion. You're paying the tax. So if you say,
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  Speaker 3: you know what, I'd rather buy another piece of property
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  Speaker 3: and defer the gain maybe until I die, and then
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  Speaker 3: get a step up in basis as we just discussed,
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  Speaker 3: and wipe out that gain. This is the way to go.
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  Speaker 3: You sell your property that you want to get rid of,
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  Speaker 3: and you identify what they call replacement property. Now you
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  Speaker 3: must have to identify the property within forty five days
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  Speaker 3: of the sale, and if it's a deferred exchange, you
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  Speaker 3: have to buy the new property or what they call
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  Speaker 3: the replacement property, within one hundred and eighty days of
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  Speaker 3: the sale. Okay, so those are your timetables. But yes,
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  Speaker 3: then when you sell and buy, as long as you
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  Speaker 3: reinvest all the money, the gain remains built into the
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  Speaker 3: new property. But you don't have to pay any capital
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  Speaker 3: gains tax. It's deferred and it's a wonderful way of
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  Speaker 3: getting a new asset and then saying I'm going to
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  Speaker 3: collect rent off my new asset, and you know what,
• 14:49
  Speaker 3: I'm happy with this. I'll just do my estate planning,
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  Speaker 3: maybe put it into a maybe an irrevocable trust if
• 14:56
  Speaker 3: I want to protect it from the nursing home and
• 14:58
  Speaker 3: get that clock running and save it for my family,
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  Speaker 3: and when they inherit it, they will get it with
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  Speaker 3: a brand new basis, eliminating all the built in gain
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  Speaker 3: that you've built up over the years. So that is
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  Speaker 3: a wonderful way to go for some people if they
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  Speaker 3: want to continue to be landlords. And Randall, yes, you
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  Speaker 3: would be eligible to do that, So please look into it.
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  Speaker 3: Hope that helps folks, and I hope everybody has a
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  Speaker 3: happy Thanksgiving.
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  Speaker 2: Mister Lutsky, thank you so much for joining us today.
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  Speaker 2: Have a happy Thanksgiving as well.
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  Speaker 3: Thank you always a pleasure.
• 15:32
  Speaker 1: This has been asked Odd on the Financial Exchange Radio
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  Speaker 1: Cushing and Dolan Armstrong advisor. He does not provide any
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