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The pitfalls of leaving assets up a generation · The Legal Exchange

• 0:01
  Speaker 1: This is the Legal Exchange with Todd Lutsky from the
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  Speaker 1: law firm of Cushing and Dolan and Susan Powers of
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  Speaker 1: the Armstrong Advisory Group. Each week, Todd and Susan will
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  Speaker 1: discuss many topics, including estate planning, how to avoid probate,
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  Speaker 1: and protecting your money from a nursing home. If you
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  Speaker 1: Here are your hosts, Todd Lutsky and Susan Powers.
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  Speaker 2: Welcome into the Legal Exchange with Todd Lutsky. I'm Susan Powers,
• 0:41
  Speaker 2: a financial advisor the Armstrong Advisory Group, and I'm joined,
• 0:45
  Speaker 2: of course by Todd Lutsky, a partner with the law
• 0:47
  Speaker 2: firm of Cushing and Dolan with a master's in taxation.
• 0:51
  Speaker 2: Welcome Todd. How are you today?
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  Speaker 3: I'm never better in you.
• 0:54
  Speaker 2: I'm great, Thank you. What do you have for us
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  Speaker 2: this week?
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  Speaker 3: Couple of things? Uh, Kansas. We're going to go to
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  Speaker 3: Kansas where we have an appellate court case. Basically, how
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  Speaker 3: does an anti lap statute work when you leave assets
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  Speaker 3: to people, in this case parents and disinherit children, and
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  Speaker 3: then parents die before you, which is expected, and you
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  Speaker 3: don't provide where it goes in that event. There's so
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  Speaker 3: many problems with this case. First of all, why are
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  Speaker 3: we leaving assets up a generation? Number one? Never mind that,
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  Speaker 3: But there's a lot we can learn in this thing.
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  Speaker 3: But folks, a lot of people do things like this,
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  Speaker 3: So it's really going to come down to drafting and
• 1:35
  Speaker 3: planning and understanding how to do it. And then we're
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  Speaker 3: going to head over to Missouri where we have an
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  Speaker 3: appellate court case dealing with specific enforcement of a contract
• 1:46
  Speaker 3: where a family not a family member, just not a friend,
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  Speaker 3: but someone who worked the farm for some for Kathy
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  Speaker 3: in this case, and basically Kathy ultimately wanted to sell
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  Speaker 3: the farm to Anthony. And then after are they in
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  Speaker 3: a into a contract, they got a much better offer. Now
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  Speaker 3: what do you do? Is there undue influence here? Was
• 2:06
  Speaker 3: there some hanky panky going on? Who knows? So we're
• 2:10
  Speaker 3: gonna we're gonna find out about that. But again, I
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  Speaker 3: think the bigger picture on this case is, you know,
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  Speaker 3: how do you deal with getting real estate to another person?
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  Speaker 3: What's the most efficient and effective way to do that
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  Speaker 3: from a planning perspective? And I think that's what we're
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  Speaker 3: gonna learn from that case. But most importantly, it is
• 2:27
  Speaker 3: a new month, so brand new welcome, Welcome to October
• 2:32
  Speaker 3: fall and super fall. In this case, we are going
• 2:35
  Speaker 3: to be giving you a guide that's interestingly enough, making
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  Speaker 3: the most of gifting. Uh. And so it's important because
• 2:43
  Speaker 3: in it it talks about not only you know what
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  Speaker 3: if you gift, what do you gain? You you lose
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  Speaker 3: a step up in basis, but you get it out
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  Speaker 3: of your estate. Is that good? Is that bad? You know?
• 2:53
  Speaker 3: What about from a medicaid perspective, if I own something jointly,
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  Speaker 3: is that a gift? How does it Is it protecting half?
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  Speaker 3: Is it not protecting? Our bank accounts treated differently than
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  Speaker 3: think about when it comes to gifting, and the tax
• 3:30
  Speaker 3: is related to it, not just gift but a state
• 3:32
  Speaker 3: and income tax all built into this guide. Please get
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  Speaker 3: it eight six six eight four eight five six nine
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  Speaker 3: before you make the gift eight six six eight four
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  Speaker 3: Heading to Kansas, shall we h going over the rainbow?
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  Speaker 3: So Larry dies with a will in eight of twenty
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  Speaker 3: twenty two. His parents, Frank and Clara are the sole beneficiaries,
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  Speaker 3: and he intentionally omits his two kids. I guess it's
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  Speaker 3: a Zemi and Frank Junior. We'll call him Junior. Turns out,
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  Speaker 3: of course, that the parents predeceased Larry, so normal, So
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  Speaker 3: in May of twenty twenty three they probated the will.
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  Speaker 3: Interestingly enough, a creditor of the estate named Judy was
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  Speaker 3: appointed pr. So now we've got a creditor of the estate.
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  Speaker 3: And so Maddie's the niece who basically says, we got
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  Speaker 3: to file a petition to determine airship. Who gets what here? Well,
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  Speaker 3: the kids, Frank Junior and a Zemi argue that the
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  Speaker 3: gift to the parents had lapsed because both parents had
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  Speaker 3: predeceased Larry and there was no residuary clause in there,
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  Speaker 3: so the assets should pass to them through the interstate
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  Speaker 3: succession statue.
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  Speaker 2: But he specifically disinherited the two.
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  Speaker 3: Kids, right, But but there was no residuary clause as
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  Speaker 3: to where it goes if the parents die. And the
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  Speaker 3: parents died first. So the residuary clause, folks, for all
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  Speaker 3: of you that need to know, is a catch all provision.
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  Speaker 3: It says, in the event nobody's around here, where the
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  Speaker 3: rest residue of my assets go. Fine, well, that wasn't there. Well,
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  Speaker 3: the district court decided that no, the anti yes, the
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  Speaker 3: anti lap statute should apply. And so you know, basically,
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  Speaker 3: Maddie is entitled to a share. And and of course
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  Speaker 3: the children of a Zemi and Frank were not disinherited really,
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  Speaker 3: so as grandkids, they should take what the parents would
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  Speaker 3: get and split it up, right, So they're his silo amount. Yeah, yeah,
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  Speaker 3: so they want They said that that's how should go. Well, Frank,
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  Speaker 3: and as you imagine, Frank, Junior and a Zemi appealed.
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  Speaker 3: They didn't like that result at all. They said, no,
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  Speaker 3: we're gonna We're gonna appeal for all the same time, Well,
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  Speaker 3: the appellate court affirmed the district court, and I think
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  Speaker 3: that's appropriate, stating basically that the lack of a residuary
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  Speaker 3: clause does not prevent the stated disinherited language of the
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  Speaker 3: don ore from being effective. You are still disinherited kids.
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  Speaker 3: That doesn't change because there's no residuary clause. And therefore,
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  Speaker 3: since the kids, the grandkids of the two kids were
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  Speaker 3: not specifically disinherited by the don oor, well then those
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  Speaker 3: kids should take under the intestate succession.
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  Speaker 2: Status Junior and Zemi's kids the grandkids because but not them,
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  Speaker 2: not them, they're the children of Larry because remember he
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  Speaker 2: left it up a generation.
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  Speaker 3: Crazy. Yeah, anyways, folks, I think that's the right result here.
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  Speaker 3: But we don't want to have to go He.
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  Speaker 2: Didn't want them to get it, so it does sound right.
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  Speaker 3: Yeah, we don't want to go through this. And again
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  Speaker 3: I think it's if you make a good point, Susan,
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  Speaker 3: at least what I was going to say this a
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  Speaker 3: will or a trust. Both of these serve to specifically
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  Speaker 3: direct how your assets go.
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  Speaker 2: And sometimes more importantly where you don't want them to
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  Speaker 2: go or.
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  Speaker 3: You don't want them to go. So in this case,
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  Speaker 3: while they didn't do a trust, they did a will.
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  Speaker 3: And I always say a will's a won't but it's
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  Speaker 3: better than nothing. And in this case, it's at least
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  Speaker 3: going to make sure that the assets go where you
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  Speaker 3: don't want them to go, right, And you make sure
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  Speaker 3: where they go where at least as the next best option.
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  Speaker 3: And again remember by doing the will and not of trust,
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  Speaker 3: you put the creditors in play. And that's always interesting
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  Speaker 3: that a creditor in this case was.
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  Speaker 2: Maybe maybe he owed you money. It could be a
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  Speaker 2: sister or something, yea a sibling or.
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  Speaker 3: So from a lesson standpoint, again, the trust would have
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  Speaker 3: been better because it would have avoided probated. In many
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  Speaker 3: states only probate assets are at risk for creditors, so helpful.
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  Speaker 3: What about drafting. Remember whenever your disinherit people and you're
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  Speaker 3: leaving assets unequally, always put a no contest clause in
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  Speaker 3: right would have been helpful here too. And no contest
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  Speaker 3: clauses always is always helpful, and also be clear, right,
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  Speaker 3: don't leave things open like you did here. Example, if
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  Speaker 3: we're disinheriting a child, ask the I always ask, okay, well,
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  Speaker 3: if you don't want to go to the child, do
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  Speaker 3: you also not wanted to go to their kids?
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  Speaker 4: Right?
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  Speaker 3: You know, just because you had a bad relationship with
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  Speaker 3: the child, are you going to penalize the grandchildren or
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  Speaker 3: do you have a good relationship with them?
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  Speaker 2: Yep?
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  Speaker 3: Or even if you don't and they were sheltered, are
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  Speaker 3: we going to blame them because of what the parents did?
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  Speaker 3: You know, you have to think that through, so always
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  Speaker 3: ask that. And really the bigger picture here is whenever
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  Speaker 3: you're leaving assets up a generation, you always need to
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  Speaker 3: consider where things go if they die first, right, which
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  Speaker 3: they did.
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  Speaker 2: But even if they don't die first, they're going up
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  Speaker 2: and then they're going to be taxed on the way
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  Speaker 2: down again.
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  Speaker 3: And that was exactly right, Susan. That's exactly what was
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  Speaker 3: next on my list here. It says you've got to
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  Speaker 3: be careful because if you leave it up a generation,
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  Speaker 3: then it's taxed on the way back down what you
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  Speaker 3: don't want, and then it's taxed again at your generation,
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  Speaker 3: right to go down to grandkids. But more importantly than that,
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  Speaker 3: and it's okay to take care of parents. I'm not
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  Speaker 3: saying not to, but do it right. If you leave
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  Speaker 3: it up a generation, leave it in trust for them,
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  Speaker 3: in which discretionary distributions can be made by the trustee
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  Speaker 3: to or for their benefit. That way, they don't own.
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  Speaker 2: It, so like the inheritors trust that you like an
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  Speaker 2: inheritor trust, right. I never thought of that for a generation.
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  Speaker 3: Up generation up that way. Not only do they not
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  Speaker 3: own it, so it's not subject to a state tax
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  Speaker 3: when they die, it's not subject to the nursing home
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  Speaker 3: if they go into a nursing home. Now you've preserved
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  Speaker 3: it for the kids and the grandkids down a generation.
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  Speaker 3: If in fact you really want to make sure you
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  Speaker 3: take care of your parents in advance of your family,
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  Speaker 3: I mean, and there's nothing wrong with that, but just
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  Speaker 3: be careful when you're doing it as to how you
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  Speaker 3: do it and how you put it to Like anything, folks,
• 10:01
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  Speaker 2: You've been listening to Todd Lutski, a partner with the
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  Speaker 2: financial advisor with the Armstrong Advisory Group. We've got much
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  Speaker 2: more to come when we return to the Legal Exchange
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  Speaker 2: Welcome back into the Legal Exchange with Todd Lutsky. I'm
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  Speaker 2: Susan Powers, a financial advisor with the Armstrong Advisory Group,
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  Speaker 2: and I'm joined by Todd lack Sky, a partner with
• 14:01
  Speaker 2: the law firm of Cushing and Dolan with a master's
• 14:04
  Speaker 2: in taxation. So we're not in Kansas anymore.
• 14:07
  Speaker 3: You're right, perfect timing, We're not well played.
• 14:11
  Speaker 2: We're in Missouri, close by, close by, don't make me
• 14:16
  Speaker 2: pointed out them, So head over to Missouri.
• 14:19
  Speaker 1: Right?
• 14:20
  Speaker 3: What do we got going on here? Something we don't
• 14:21
  Speaker 3: talk a lot about, but specific performance in a contract
• 14:26
  Speaker 3: and making it enforceable. And why is that an estate
• 14:29
  Speaker 3: planning issue? And how does lack of capacity and undue
• 14:31
  Speaker 3: influence even come into play here? M let's take a peek. Anthony,
• 14:37
  Speaker 3: an individual, began farming Kathy's farm in two thousand and seven,
• 14:43
  Speaker 3: and over the years they had developed a professional relationship
• 14:47
  Speaker 3: and actually over the years they became good friends with
• 14:50
  Speaker 3: each other. Anthony would even spend the holidays over there
• 14:55
  Speaker 3: and Kathy. As Kathy got older, Anthony even started helping
• 14:58
  Speaker 3: out with cutting the grass and picking up meds and
• 15:01
  Speaker 3: taking her to the doctor and you know, doing things
• 15:04
  Speaker 3: for her. So they professional and friends and he's running
• 15:08
  Speaker 3: the show, running the farm. In twenty sixteen, Cathy decided
• 15:13
  Speaker 3: to ask Anthony if he wanted to buy the farm,
• 15:16
  Speaker 3: and he said, yeah, I would love to, but I
• 15:17
  Speaker 3: can't afford it. I can never pay what you could
• 15:19
  Speaker 3: get even at auction for it. But Cathy said, you know,
• 15:23
  Speaker 3: I'd rather sell you the farm than have it go
• 15:25
  Speaker 3: to auction, and I don't care about the difference in costs.
• 15:28
  Speaker 3: So they continued to discuss this idea until about June
• 15:32
  Speaker 3: of twenty twenty two, when they agreed on a purchase
• 15:35
  Speaker 3: price of two hundred thousand dollars. Anthony prepared the contract
• 15:40
  Speaker 3: but wanted to wait to have it signed until Kathy's daughter,
• 15:43
  Speaker 3: Martha was actually present they could talk about it nice. Well.
• 15:48
  Speaker 3: In September of twenty twenty two, they did execute the contract.
• 15:52
  Speaker 3: Martha was there, and they did it right before Kathy
• 15:55
  Speaker 3: moved to Colorado to live with Martha, the daughter a
• 15:59
  Speaker 3: week later. One week later, Martha gets a text from
• 16:04
  Speaker 3: Kathy's neighbor to buy that farm for four hundred and
• 16:08
  Speaker 3: fifty thousand dollars. Remember they agreed on two hundred. Yeah,
• 16:13
  Speaker 3: Martha tells Anthony the agreements off. Anthony Sue's for specific
• 16:18
  Speaker 3: performance in breach of contract, which makes sense right well. Martha,
• 16:24
  Speaker 3: as guardian ad lightem which raises a red flag to
• 16:28
  Speaker 3: me guardian adlam for Kathy, says that there was undue
• 16:35
  Speaker 3: influence and lack of capacity as a defense when Kathy
• 16:39
  Speaker 3: signed this contract.
• 16:41
  Speaker 2: But Martha was there, wasn't she.
• 16:43
  Speaker 3: Martha was there. I remember this June of twenty two.
• 16:46
  Speaker 3: They agreed, September of twenty two, they executed and then
• 16:50
  Speaker 3: moved in a week later. So was their lack of
• 16:53
  Speaker 3: capacity at that time? Well, the court said judgment for Anthony,
• 17:01
  Speaker 3: which I agree with, yes, and they appealed. Of course,
• 17:06
  Speaker 3: the appellate court affirmed, basically stating that Cathy understood the
• 17:10
  Speaker 3: nature of what she was doing, the effect of entering
• 17:13
  Speaker 3: into the contract, and in fact, she's the one that
• 17:16
  Speaker 3: even asked Martha to invite Anthony over for the signing contract. Plus,
• 17:22
  Speaker 3: Catherine is the one who initiated the discussion way back
• 17:26
  Speaker 3: when to sell the farm.
• 17:27
  Speaker 2: She knew what she was doing, She did.
• 17:29
  Speaker 3: That back in twenty sixteen. So I'm pretty sure that's
• 17:33
  Speaker 3: a good outcome.
• 17:35
  Speaker 2: But again, and that's what she would have wanted.
• 17:37
  Speaker 3: It's all about. And again, at this point, she hadn't died, right,
• 17:41
  Speaker 3: She's still alive, So that's a whole other kettle of fision.
• 17:45
  Speaker 3: What are you doing here? You don't want to do
• 17:46
  Speaker 3: stuff when I'm alive. That's not good for you Martha
• 17:49
  Speaker 3: in general. But folks, again, I think what we learned
• 17:52
  Speaker 3: from this is, yes, we understand enforcement of a contract,
• 17:55
  Speaker 3: but you know, there might be better ways to get
• 17:57
  Speaker 3: a piece of property to Anthony then this way. And
• 18:00
  Speaker 3: we're gonna have to talk about this. We're gonna learn
• 18:02
  Speaker 3: stuff about part sale, part gift. What happened here? And
• 18:05
  Speaker 3: how does this work? From a tax perspective, Well, taxes
• 18:09
  Speaker 3: come into everything, folks, and the new guide we're giving
• 18:11
  Speaker 3: away this month also deals with taxes, gift taxes, income taxes,
• 18:16
  Speaker 3: and a state taxes. When how do we make the
• 18:19
  Speaker 3: most of giving assets? Ideas? Do we give them away outright?
• 18:24
  Speaker 1: No?
• 18:25
  Speaker 3: Maybe we use a gifting trust for our kids? Okay,
• 18:28
  Speaker 3: should we give we lose a step up in basis,
• 18:30
  Speaker 3: but we gain a state tax savings. Got to compare
• 18:33
  Speaker 3: the difference. Am I saving federally or just state a
• 18:36
  Speaker 3: state tax? Is it worth it to save ten percent
• 18:39
  Speaker 3: and lose a thirty percent step up in basis on
• 18:42
  Speaker 3: the capital gains front?
• 18:43
  Speaker 2: Got to do the math.
• 18:44
  Speaker 3: Gotta do the math? Should I?
• 18:45
  Speaker 1: You know?
• 18:45
  Speaker 3: From a medicaid perspective, jointly owned bank accounts versus investment accounts? Right?
• 18:51
  Speaker 3: Is it half protected? Is it fully protected? Does it
• 18:54
  Speaker 3: protect it at all, that's a protection question from a gift, right,
• 18:58
  Speaker 3: you got to really consider can we give it away
• 19:00
  Speaker 3: and decide to still enjoy what we gave away? With
• 19:03
  Speaker 3: slats for higher net worth clients. All of this is
• 19:06
  Speaker 3: in the guide folks, Learn how to make the most
• 19:09
  Speaker 3: of your gift and get the new Guide eight six
• 19:11
  Speaker 3: six eight four eight five six nine nine or Legal
• 19:15
  Speaker 3: Exchange Show dot com again eight six six eight four
• 19:19
  Speaker 3: eight five six nine nine or Legal Exchange Show dot com.
• 19:25
  Speaker 2: So when you have a guardium ad item, is it
• 19:27
  Speaker 2: only when you're incompetent? I'm just wondering.
• 19:30
  Speaker 3: Yeah, yeah, Usually some kind of incapacity is where you
• 19:34
  Speaker 3: can't make decisions yourself. There's no power of attorney. Remember,
• 19:37
  Speaker 3: if you got a power of attorney, you can likely
• 19:40
  Speaker 3: act on behalf of at least with regard to money
• 19:43
  Speaker 3: and monetary decisions and paying bills. You might need you know,
• 19:47
  Speaker 3: a healthcare proxy to deal with power over the person. Right,
• 19:51
  Speaker 3: But yeah, pretty much some kind of incapacity. So you
• 19:56
  Speaker 3: know what I like to see here is our tips
• 19:59
  Speaker 3: and lessons are Look, contracts are like trusts. They're enforceable, right,
• 20:04
  Speaker 3: we follow them, right, there's a sense to carry out
• 20:07
  Speaker 3: the wishes of the individual, whether it's a contract, whether
• 20:10
  Speaker 3: it's a trust. You know, clearly here there was no
• 20:13
  Speaker 3: undue influence. I mean, I don't see it, right, But again,
• 20:17
  Speaker 3: what I do think about is, you know, when she
• 20:21
  Speaker 3: moved to Colorado and became guardian, why did she have
• 20:27
  Speaker 3: to become guardian? You know in June of twenty twenty two,
• 20:31
  Speaker 3: she was competent to sign in September of twenty twenty two,
• 20:36
  Speaker 3: So suddenly she's under guardianship.
• 20:38
  Speaker 2: Right.
• 20:38
  Speaker 3: So I'm a little strange, a little concerned really about that.
• 20:43
  Speaker 3: And so maybe if there's any undue influence, maybe it's
• 20:47
  Speaker 3: Martha who's unduly influencing Mom and saying, Mom, you got
• 20:53
  Speaker 3: to avoid this contract because.
• 20:54
  Speaker 2: It'll mean a bigger inheritance for me.
• 20:56
  Speaker 3: It'll mean a bigger inheritance for me, so I'm going
• 20:58
  Speaker 3: to be better off if you do. That's exactly right, Susan.
• 21:01
  Speaker 3: So I worry, you know a little bit about that,
• 21:03
  Speaker 3: But that didn't come up and it didn't matter because
• 21:06
  Speaker 3: the judge gave the right decision. What about taxes here?
• 21:10
  Speaker 3: That make I always think about taxes, right, That's what
• 21:13
  Speaker 3: I do. So what's going on here? Can you sell
• 21:15
  Speaker 3: the property for less than fair market value? Do people
• 21:18
  Speaker 3: do that all the time to their children? Do we hear, child,
• 21:21
  Speaker 3: I want to sell you the property. I'm going to
• 21:22
  Speaker 3: sell it to you for a half price because I
• 21:24
  Speaker 3: love you. Okay, can you Yeah? Well, what does the
• 21:28
  Speaker 3: government think about that? Well, it's a part sale, part gift,
• 21:32
  Speaker 3: which is okay. So that means that the piece you buy.
• 21:35
  Speaker 3: So in this case, the two hundred thousand dollars that
• 21:38
  Speaker 3: he's getting would be his basis, but it's really worth
• 21:43
  Speaker 3: four fifty because we got a willing buyer, willing seller
• 21:47
  Speaker 3: telling us that it's worth four to fifty. So it
• 21:50
  Speaker 3: would seem to me that we've made a two hundred
• 21:52
  Speaker 3: thousand dollars purchase and a two hundred and fifty thousand
• 21:56
  Speaker 3: dollars gift. So then you have to the numbers and say,
• 22:00
  Speaker 3: really I have. So from a tax perspective, there'll be
• 22:05
  Speaker 3: a capital gain on whatever the two hundred thousand dollars
• 22:09
  Speaker 3: piece is worth. Let's just say it's close to half,
• 22:12
  Speaker 3: but then there'll be a taxable gift. And this is
• 22:15
  Speaker 3: all by all by Kathy.
• 22:17
  Speaker 2: Well it's a big it's a big domino effect.
• 22:20
  Speaker 3: Yeah, so Kathy's going to have the taxable gift of
• 22:22
  Speaker 3: the two fifty and a capital gains tax, which will
• 22:25
  Speaker 3: be less because the gain will be less. It's only
• 22:28
  Speaker 3: on on the two it's only on a portion of
• 22:31
  Speaker 3: the overall amount. So that's what's happening on her side.
• 22:36
  Speaker 3: But on his side, he's now got a low basis
• 22:39
  Speaker 3: because he's got a two hundred thousand dollars cost basis
• 22:42
  Speaker 3: that he paid for it, and a carryover basis for
• 22:46
  Speaker 3: the two fifty piece. So if it's if there's fifty
• 22:49
  Speaker 3: percent was purchased and fifty percent was a gift, well,
• 22:53
  Speaker 3: then fifty percent of the cost basis is his basis
• 22:58
  Speaker 3: plus the fifty percent paid, So his basis is lower,
• 23:02
  Speaker 3: which is going to result in capital gains tax liability.
• 23:05
  Speaker 3: You know down the way when.
• 23:06
  Speaker 2: He sells it to the neighbor for four.
• 23:08
  Speaker 3: Fifty exactly exactly right. That's a really good point. But
• 23:14
  Speaker 3: in any event, the step up. A better way to
• 23:16
  Speaker 3: do it might have been to use a trust folks,
• 23:18
  Speaker 3: but in most cases, think about it, think about planning,
• 23:21
  Speaker 3: think about gifting. Get the guide making the most of
• 23:24
  Speaker 3: gifting your assets. Please learn how to do it before
• 23:28
  Speaker 3: you do it. Or maybe it'll tell you not to
• 23:31
  Speaker 3: do it eight six six eight four eight five six
• 23:35
  Speaker 3: nine nine or Legal Exchange show dot com.
• 23:37
  Speaker 2: You've been listening to Todd Leutski, a partner with the
• 23:40
  Speaker 2: law firm of Cushing and Dolan. I'm Susan Powers of
• 23:43
  Speaker 2: financial advisor with the Armstrong Advisory Group. Todd will be
• 23:46
  Speaker 2: answering your listener questions when we return to the Legal
• 23:49
  Speaker 2: Exchange with Todd Lutsky.
• 23:51
  Speaker 1: Cushing and Dolan want to help you avoid costly mistakes
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• 24:12
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  Speaker 1: The proceeding was paid for in The views expressed are
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  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
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  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
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  Speaker 1: registered investment advisor. Nothing in the ad or in any
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• 26:45
  Speaker 1: your own financial tax into state planning advisors before making
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  Speaker 1: any investment decisions. Armstrong may contact you to offer investment
• 26:51
  Speaker 1: advisory services. You're listening to the Legal Exchange and it's
• 26:55
  Speaker 1: time for Ask Todd, the segment where Todd will answer
• 26:59
  Speaker 1: your questions about anything and everything that's included in the
• 27:02
  Speaker 1: estate planning process. Once again, here's Todd Lutsky and Susan Powers.
• 27:08
  Speaker 2: Welcome back, Todd. We have a few questions from listeners.
• 27:11
  Speaker 2: First question comes from Barbara and Newton Mass and Barbara writes,
• 27:15
  Speaker 2: my father is on hospice and not expected to live long.
• 27:18
  Speaker 2: Is there a benefit to gifting any assets to the
• 27:21
  Speaker 2: family now to bring his estate down? His total net
• 27:24
  Speaker 2: worth is two and a half million, and he has
• 27:26
  Speaker 2: a lot of cash in the bank that he could gift.
• 27:29
  Speaker 2: Should he give away five hundred thousand to get below
• 27:32
  Speaker 2: the Massachusetts two million dollar exemption amount. Interesting, weave your
• 27:37
  Speaker 2: magic wand here wish you.
• 27:39
  Speaker 3: So this is a great analysis that has to be
• 27:43
  Speaker 3: run right because it's not a lot over the two
• 27:47
  Speaker 3: million dollar exemption. It's only five hundred thousand over the
• 27:50
  Speaker 3: two million dollar exemption. So my initial gut reaction would be,
• 27:55
  Speaker 3: why am I trying to save approximately twelve percent on
• 28:01
  Speaker 3: five hundred thousand dollars if in fact doing that would
• 28:05
  Speaker 3: result in a capital gains tax with a carryover basis
• 28:09
  Speaker 3: of what I give at twenty eight point eight percent.
• 28:14
  Speaker 3: The answer is, I wouldn't do that, But your facts
• 28:18
  Speaker 3: are a little different. Your facts say he's got plenty
• 28:22
  Speaker 3: of cash to gift.
• 28:24
  Speaker 2: We like cash. Cash is kingly yes.
• 28:26
  Speaker 3: Right, If we gift away the five hundred thousand dollars
• 28:30
  Speaker 3: of cash, there is a zero capital gains tax problem
• 28:36
  Speaker 3: because it's cash. So we don't have to worry about
• 28:39
  Speaker 3: the twenty eight percent loss of step up in basis,
• 28:43
  Speaker 3: and we can reduce the estate down to two million.
• 28:46
  Speaker 3: And in Massachusetts there's no under the new rule, we
• 28:53
  Speaker 3: are still going we don't have to worry about that
• 28:55
  Speaker 3: Cliff rule anymore. Remember if you go a little bit over,
• 28:58
  Speaker 3: then they pay tax on everything, yea, and they reduce
• 29:00
  Speaker 3: the exemption. So in this case, we under the new
• 29:05
  Speaker 3: rule that it's two million dollars, they will take the
• 29:07
  Speaker 3: two point five lower it to two. So now your
• 29:11
  Speaker 3: estate is two and yes, your exemption is technically one
• 29:16
  Speaker 3: point five. Right, So for filing purposes, we now have
• 29:22
  Speaker 3: to file in a state tax and mass because our
• 29:25
  Speaker 3: exemption is one point five and our estate is two million. Yep, okay,
• 29:29
  Speaker 3: we're we gotta fi pay tax, we gotta file. Let's
• 29:32
  Speaker 3: make it two million one dollars. We got a file.
• 29:34
  Speaker 3: So we got a file. But the new calculation under
• 29:40
  Speaker 3: the mass estate tax would be okay, what's the tax
• 29:44
  Speaker 3: on two million dollars? The tax on two million dollars
• 29:48
  Speaker 3: about ten percent. It's ninety nine six hundred dollars. Call
• 29:51
  Speaker 3: it ninety nine six. That's exactly the tax on two
• 29:55
  Speaker 3: million dollars. But the new calculation gives us a credit
• 30:02
  Speaker 3: of ninety nine six. Remember the two million dollars is
• 30:05
  Speaker 3: the threshold. Well, the tax on two million is ninety
• 30:08
  Speaker 3: nine six, and we get a credit for ninety nine six.
• 30:11
  Speaker 3: So even though we had to file because they lowered
• 30:15
  Speaker 3: the threshold by five hundred thousand dollars for the taxable
• 30:19
  Speaker 3: gift that you made. YEP, it doesn't matter because you'll
• 30:22
  Speaker 3: calculate the tax on two million, it's ninety nine to
• 30:25
  Speaker 3: six and then you get to apply a credit of
• 30:27
  Speaker 3: ninety nine six, so your tax do is zero, so.
• 30:31
  Speaker 2: Zero on that. So if they didn't have money in
• 30:34
  Speaker 2: the bank, and let's say they had low cost basis
• 30:37
  Speaker 2: stocks that they decided to gift away because they didn't
• 30:40
  Speaker 2: get good advice.
• 30:42
  Speaker 3: And you have to think about it, so then it
• 30:44
  Speaker 3: would have.
• 30:45
  Speaker 2: Been you know, let's for easy massly, it's a third
• 30:48
  Speaker 2: of that five hundred, right, that they're going to pay
• 30:50
  Speaker 2: tax on.
• 30:51
  Speaker 3: Because so you would say, if I've got five hundred
• 30:53
  Speaker 3: thousand of built in GAINEP and I give that away,
• 30:56
  Speaker 3: there's twenty eight point eight percent of built in gain
• 30:59
  Speaker 3: that would be so object to tax on five hundred thousand.
• 31:02
  Speaker 3: So you know, five times street one hundred and fifty
• 31:04
  Speaker 3: grand close. If I die with two point five million
• 31:08
  Speaker 3: in Massachusetts, the tax is probably one hundred and fifty thousand,
• 31:14
  Speaker 3: but I get one hundred thousand dollars credit, so I'm
• 31:17
  Speaker 3: paying fifty grand way better.
• 31:19
  Speaker 2: So you cause yourself to pay one hundred grand extra
• 31:21
  Speaker 2: by just giving away those.
• 31:23
  Speaker 3: Exactly that's exactly right. I don't want to give that
• 31:25
  Speaker 3: away because then I'd rather just pay Massachusetts.
• 31:28
  Speaker 2: So you got to be careful and do the math.
• 31:30
  Speaker 3: You really do, folks, And that's exactly what this guide does.
• 31:33
  Speaker 3: It gives you the whole tables, It gives you the calculations.
• 31:37
  Speaker 3: It says, here's how what you gift, how you gift
• 31:40
  Speaker 3: when you gift. Think about it from do I want
• 31:43
  Speaker 3: to give away you know assets and still retain control?
• 31:47
  Speaker 3: So for higher net worth people, slats are available and
• 31:51
  Speaker 3: you can actually figure out a way to gift and
• 31:53
  Speaker 3: retain control. We just discussed whether to give away and
• 31:56
  Speaker 3: give up a step up in basis or pay the
• 31:59
  Speaker 3: estate tax. From a medicaid perspective, maybe you think you
• 32:02
  Speaker 3: own things jointly, like an investment account or a bank account,
• 32:05
  Speaker 3: and you somehow protected half because you made a gift
• 32:08
  Speaker 3: of half. Maybe not learn how it is From that perspective.
• 32:12
  Speaker 3: Then it also talks about it from you know, what
• 32:14
  Speaker 3: about a rental property? Oh, I probably don't want to
• 32:17
  Speaker 3: give that away with a whole bunch of depreciation built in, folks.
• 32:21
  Speaker 3: So many things to think about. Get the guide brand
• 32:24
  Speaker 3: new Making the most of Gifting Assets eight six six
• 32:27
  Speaker 3: eight four eight five six nine nine or Legal Exchange
• 32:32
  Speaker 3: Show dot Com again eight six six eight four eight
• 32:36
  Speaker 3: five six nine nine or Legal Exchange Show dot Com.
• 32:40
  Speaker 2: Well you're going to be able to talk about that
• 32:41
  Speaker 2: rental property, Todd, because Dawn from Boylston has a question
• 32:44
  Speaker 2: for you. Oh excellent, And she writes, now that Massachusetts
• 32:47
  Speaker 2: has increased the estate tax exemption to two million, couldn't
• 32:50
  Speaker 2: I just give my largest assets away while I'm living
• 32:53
  Speaker 2: and die owning less than two million, I am worth
• 32:56
  Speaker 2: around three and a half million, and I could gift
• 32:59
  Speaker 2: a one million dollar vacation home in a one million
• 33:02
  Speaker 2: dollar rental property to each of my children.
• 33:05
  Speaker 3: Wow. So if she did that, let me see if
• 33:07
  Speaker 3: I'm doing the math right, that would take her three
• 33:09
  Speaker 3: point five million down to one point five million. Yeah.
• 33:13
  Speaker 3: I'm not jumping up and down about this one. So again,
• 33:18
  Speaker 3: compared to Barbara's question, which we were jumping up and
• 33:20
  Speaker 3: we had cash on here, we don't.
• 33:23
  Speaker 1: Right.
• 33:24
  Speaker 3: So here we've got a vacation home which let's assume
• 33:28
  Speaker 3: it wasn't even rented, but maybe bought thirty years ago,
• 33:32
  Speaker 3: which is not uncommon. So I mean, maybe she's got up.
• 33:35
  Speaker 3: Maybe she paid for that million dollar home. Maybe she
• 33:37
  Speaker 3: paid one hundred grand. It's now got nine hundred thousand
• 33:41
  Speaker 3: of gain you know, built in it just and that's
• 33:44
  Speaker 3: not uncommon, No, it's not. And more importantly, the bigger
• 33:48
  Speaker 3: issue is what about this rental property. If she's been
• 33:50
  Speaker 3: renting this property for more than twenty seven and a
• 33:53
  Speaker 3: half years, it's very possible that the basis is zero
• 33:57
  Speaker 3: because you folks, what depreciation is when you rent it,
• 34:01
  Speaker 3: you get a deduction. You take the value of whatever
• 34:03
  Speaker 3: it was you paid for it. So if you paid
• 34:05
  Speaker 3: five hundred thousand over the next twenty seven and a
• 34:08
  Speaker 3: half years, you will take that five hundred thousand dollars
• 34:10
  Speaker 3: basis and reduce it to zero by taking incremental parts
• 34:14
  Speaker 3: of it as a deduction each year against your rent.
• 34:18
  Speaker 3: So you pay less income tax because of this phantom deduction.
• 34:23
  Speaker 3: But they come back and get you later because the
• 34:25
  Speaker 3: basis has been reduced, and so when you go to
• 34:28
  Speaker 3: sell it, they recapture that depreciation. Okay, so very important
• 34:33
  Speaker 3: that we understand that, especially if you're gifting. Yeah, so
• 34:38
  Speaker 3: if for whatever reason we wanted to give away. There's
• 34:41
  Speaker 3: just a million dollar rental. Well, let's say we get money.
• 34:43
  Speaker 3: But it says both, let's do both. And let's say
• 34:46
  Speaker 3: there's a there's a million dollars built in gain in
• 34:49
  Speaker 3: the rental and nine hundred thousand built in gain on
• 34:53
  Speaker 3: the vacation home.
• 34:54
  Speaker 2: See, you have one point nine million.
• 34:56
  Speaker 3: Of built in gain.
• 34:57
  Speaker 2: Of gain and one hundred thousand cost base.
• 35:00
  Speaker 3: Yeah, so you're looking he.
• 35:01
  Speaker 2: Did this in a vacuum without any legal advice at all.
• 35:04
  Speaker 3: That's got to be five hundred and fifty thousand dollars
• 35:07
  Speaker 3: of capital gains tax somewhere around.
• 35:09
  Speaker 2: There easily, because you've got the depreciation recapture.
• 35:12
  Speaker 3: And if you took two hundred, if you took two
• 35:15
  Speaker 3: million times thirty percent, that's six hundred thousand. I'm using
• 35:18
  Speaker 3: thirty which is a little higher than twenty eight point
• 35:20
  Speaker 3: eight because of depreciation. The other trick with depreciation, folks,
• 35:25
  Speaker 3: is depreciation piece of the gain is taxed as ordinary income.
• 35:30
  Speaker 3: It's not capital gains tax.
• 35:32
  Speaker 2: Got it.
• 35:33
  Speaker 3: So when they recapture that that piece is taxed as
• 35:36
  Speaker 3: ordinary income. The appreciation is taxed as gain. Right, so
• 35:42
  Speaker 3: it's higher, but.
• 35:43
  Speaker 2: At that level, it would be in the twenty percent.
• 35:45
  Speaker 3: We're looking at six hundred thousand dollars.
• 35:47
  Speaker 2: Easily, probably conservatively.
• 35:50
  Speaker 3: So okay, you need to know that. All right, I'm
• 35:53
  Speaker 3: giving my family a six hundred thousand dollars tax bill.
• 35:58
  Speaker 3: If I do that, then I'm going to have no
• 36:01
  Speaker 3: mass tax. We just went through the calculation on the
• 36:03
  Speaker 3: last one where you get the credit. Yeah, there's no
• 36:05
  Speaker 3: mass tax.
• 36:06
  Speaker 2: No mass, no federal easypasy.
• 36:09
  Speaker 3: But if I don't do it and I die owning it,
• 36:12
  Speaker 3: I get a full step up and basis eliminating the
• 36:15
  Speaker 3: six hundred thousand dollars in tax, and I gotta pay
• 36:17
  Speaker 3: tax and MASS on one point five million. So on
• 36:20
  Speaker 3: one point five million, the tax is about one hundred
• 36:25
  Speaker 3: and fifty.
• 36:25
  Speaker 2: Thousand versus six hundred thousand.
• 36:28
  Speaker 3: I'm good. Don't gift folks, learn how to gift or
• 36:32
  Speaker 3: not gift eight six six eight four eight five six
• 36:36
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• 36:37
  Speaker 2: If you have a question you would like to ask Todd,
• 36:39
  Speaker 2: visit his website Legal Exchange Show dot com and click
• 36:42
  Speaker 2: on the ask Tod tab. Maybe I'll be able to
• 36:45
  Speaker 2: read your question on the air, and hopefully his answer
• 36:48
  Speaker 2: will stop you from becoming one of his next real
• 36:50
  Speaker 2: life stories. You've been listening to Todd Lutsky, a partner
• 36:54
  Speaker 2: with the law firm of Cushing and Dolan. I'm Susan Powers,
• 36:58
  Speaker 2: a financial advisor with the Armstrong Advisory Group. We'll be
• 37:01
  Speaker 2: back with more after this quick break on the legal
• 37:04
  Speaker 2: exchange with Todd Lutsky.
• 37:06
  Speaker 1: Cushing and Dolan want to help you avoid costly mistakes
• 37:09
  Speaker 1: when it comes to gifting assets to your children. Their
• 37:11
  Speaker 1: brand new guide Making the Most of Gifting Assets shares
• 37:14
  Speaker 1: crucial strategies to help you protect your legacy and your family.
• 37:18
  Speaker 1: Many people think gifting is always a good thing, but
• 37:21
  Speaker 1: if it's done the wrong way, they can create real headaches.
• 37:24
  Speaker 1: Even well intentioned gifts can cause complications if your children
• 37:27
  Speaker 1: are dealing with financial pressure or legal issues like a divorce.
• 37:30
  Speaker 1: The guide also explains how a major gift like a
• 37:32
  Speaker 1: home or vacation property could come with hidden tax consequences
• 37:36
  Speaker 1: that may impact your entire estate plan. Before you make
• 37:39
  Speaker 1: any big moves, arm yourself with the facts and this
• 37:41
  Speaker 1: new guide from Cushing and Dolan. Call eight sixty six
• 37:44
  Speaker 1: eight four eight five six ninety nine right now to
• 37:46
  Speaker 1: get your copy. That's eight sixty six eight four eight, five, six,
• 37:50
  Speaker 1: nine nine, or request it online at Legal Exchange Show
• 37:53
  Speaker 1: dot com. That's Legal Exchange Show dot com. The proceeding
• 37:56
  Speaker 1: was paid for. The views expressed are solely those of
• 37:58
  Speaker 1: Cushing and Dolan. Cushing and Dolan and or Armstrong Advisory
• 38:01
  Speaker 1: may contact you offering legal investment services. Fishing and Dulan
• 38:04
  Speaker 1: Armstrong Advisory do not endorse each other and are not affiliated.
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  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
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  Speaker 1: registered investment advisor. Nothing in the ad or in any
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  Speaker 1: Armstrong guide a specific financial lindgular tax advice. Consult your
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• 40:39
  Speaker 1: Your tune to the Legal Exchange with Todd Lutsky. If
• 40:42
  Speaker 1: you are a loved one needs a nursing homestay. Call
• 40:45
  Speaker 1: Todd right now at eight six six eight for eight
• 40:47
  Speaker 1: five six ninety nine and let him make sure your
• 40:50
  Speaker 1: assets are protected. That's eight sixty six eight for eight
• 40:53
  Speaker 1: five six nine nine. Or visit him online at Legal
• 40:56
  Speaker 1: Exchange Show dot com.
• 40:58
  Speaker 2: Welcome back into the Legal Exchange with time. I'm Susan Powers,
• 41:02
  Speaker 2: a financial advisor with the Armstrong Advisory Group, and I'm joined,
• 41:05
  Speaker 2: of course by Todd Lutsky, a partner with the law
• 41:08
  Speaker 2: firm of Cushing and Dolan with a master's in taxation.
• 41:12
  Speaker 2: So Todd, this month we're talking all about gifting those assets,
• 41:15
  Speaker 2: getting ready for you know, the gifting season.
• 41:18
  Speaker 3: Yes, it's coming before you know it.
• 41:21
  Speaker 2: Can't even believe it, I know. So it can be
• 41:24
  Speaker 2: an important tool that you use with your higher net
• 41:27
  Speaker 2: worth clients, yes, in their estate planning process. So how
• 41:31
  Speaker 2: do you actually go about reducing your estate taxes by gifting?
• 41:37
  Speaker 2: Because I've heard you say a million times, don't just
• 41:39
  Speaker 2: give it away? So you're not recommending that your higher
• 41:43
  Speaker 2: net worth clients transfer and just put their assets in
• 41:47
  Speaker 2: their kids' names for example, correct.
• 41:49
  Speaker 3: Right, Yeah, I would never do that. And in fact,
• 41:52
  Speaker 3: when we're talking about higher net worth clients, they're probably
• 41:57
  Speaker 3: not interested in giving it away and not haveing. So
• 42:01
  Speaker 3: I think we've got two issues to talk about here, right.
• 42:04
  Speaker 3: So your first question, I think is, you know, when
• 42:08
  Speaker 3: we talk about higher net worth gifting in today's world,
• 42:12
  Speaker 3: where in January one, under the big Beautiful Bill, the
• 42:16
  Speaker 3: exemption is going to be fifteen million, okay, so we
• 42:20
  Speaker 3: can shelter thirty million as a married couple.
• 42:24
  Speaker 2: So you're talking about reducing federal estates, you're not on
• 42:28
  Speaker 2: the state level when you're doing this type.
• 42:30
  Speaker 3: Of generally speaking, we're not using spousal lifetime access trusts
• 42:35
  Speaker 3: for people when they're just dealing with state estate tax.
• 42:40
  Speaker 3: I would say, never got it, okay, But yeah, these
• 42:44
  Speaker 3: higher net worth clients, and again they would be thinking
• 42:47
  Speaker 3: about in terms of giving away you know, ten million,
• 42:50
  Speaker 3: twenty million, right, I mean big numbers. And when we
• 42:54
  Speaker 3: give away these big numbers, those are the kind of
• 42:56
  Speaker 3: people that are saying, yes, we want to get it
• 42:58
  Speaker 3: out of our estate. I get it. But wait a minute.
• 43:03
  Speaker 3: You know I want to have a nice right, I
• 43:07
  Speaker 3: want to have a nice life when I do it.
• 43:09
  Speaker 3: So a couple of things to think about, you know.
• 43:12
  Speaker 3: And so when we talk about giving away ten or
• 43:16
  Speaker 3: twenty million and moving it out of the estate. Why
• 43:20
  Speaker 3: am I not worried about the basis? Right, I'm not worried,
• 43:24
  Speaker 3: So I still am. I always worry about basis. If
• 43:27
  Speaker 3: I can do both, I want to. I want to
• 43:29
  Speaker 3: save the step up and or give away highly appreciated
• 43:32
  Speaker 3: assets if I can. But here you're dealing with a
• 43:36
  Speaker 3: federal and likely a state estate tax here in Massachusetts. Anyway,
• 43:42
  Speaker 3: the two combined to put you at darn close to
• 43:45
  Speaker 3: fifty percent.
• 43:47
  Speaker 2: Yep.
• 43:47
  Speaker 3: Well, if I'm saving fifty percent on a gift, then
• 43:51
  Speaker 3: I no longer care about the twenty eight point eight
• 43:53
  Speaker 3: percent that I'm trapping.
• 43:55
  Speaker 2: Because you're still half as much ballpark right as it
• 43:58
  Speaker 2: would be if you kept it in your estate.
• 44:00
  Speaker 3: Yeah, so that's a way better savings. And really there's
• 44:04
  Speaker 3: another thing to think about with that, And that's just
• 44:06
  Speaker 3: one piece, and I know we have more to talk about,
• 44:07
  Speaker 3: but that's You're right, there's a no brainer. I'm saving
• 44:11
  Speaker 3: it that way. But also remember, even though I'm trapping
• 44:14
  Speaker 3: the capital gains when I do this, even though I
• 44:16
  Speaker 3: save fifty percent on the death tax, yep, that fifty
• 44:19
  Speaker 3: percent of the death tax. If I didn't give it away?
• 44:21
  Speaker 3: Is do hard stop nine months after death? No planning,
• 44:26
  Speaker 3: You got to pay it capital gains tax. On the
• 44:30
  Speaker 3: other hand, that I've trapped for the kids, they can
• 44:32
  Speaker 3: have some wiggle room, right, They don't have to pay
• 44:35
  Speaker 3: that capital gains tax till they actually sell. So maybe
• 44:38
  Speaker 3: they can say, well, I've got some losses this year.
• 44:41
  Speaker 3: Maybe I'll sell some and I can offset my sale
• 44:43
  Speaker 3: my gain with my losses. I can. You know, there's
• 44:45
  Speaker 3: a little bit of tax planning that can be done
• 44:48
  Speaker 3: on the capital gains front, whereas on the estate tax
• 44:52
  Speaker 3: nine months, hard stop, pay the bill. Okay, So things
• 44:56
  Speaker 3: to think about like that. Now that's gets you bet
• 45:00
  Speaker 3: to the guide, folks. This is in here. We're talking
• 45:03
  Speaker 3: this time about spousal lifetime access trusts, giving away and
• 45:07
  Speaker 3: retaining control. There's other kinds give away, as you said, Susan,
• 45:12
  Speaker 3: but not to the kids. To a gifting trust for
• 45:15
  Speaker 3: the kids. That's different than slats.
• 45:17
  Speaker 1: Right.
• 45:18
  Speaker 3: We need to think about what we give away, like
• 45:20
  Speaker 3: we talked about rental properties, vacation homes. Maybe not from
• 45:24
  Speaker 3: a medicaid perspective, right, do I want it? Do I
• 45:27
  Speaker 3: think you know? If I give it away? Am I
• 45:29
  Speaker 3: protecting it from the nursing home. But what are the
• 45:31
  Speaker 3: tax ramifications if I own property jointly? You know, how
• 45:35
  Speaker 3: is that affected from a medicaid perspective? So there's there's
• 45:38
  Speaker 3: nursing home perspectives in here, there's gift to state and
• 45:41
  Speaker 3: income tax perspectives. Learn How to give Away your Assets
• 45:46
  Speaker 3: or not eight six six eight four eight five six
• 45:51
  Speaker 3: nine to nine or Legal Exchange Show dot Com Making
• 45:54
  Speaker 3: the most of gifting your Assets eight six six eight
• 45:58
  Speaker 3: four eight five six nine or Legal Exchange Show dot
• 46:02
  Speaker 3: Com New guide for the month.
• 46:04
  Speaker 2: So the espousal Lifetime Access trust, Todd, you said that's
• 46:09
  Speaker 2: the type you would use to I mean the primary
• 46:11
  Speaker 2: goal is to reduce the estate taxes, correct, Yeah.
• 46:15
  Speaker 3: Pinmar really a big issue on this one.
• 46:17
  Speaker 2: But you also said that you're giving it away, so
• 46:21
  Speaker 2: you're locking in that cost basis, which leads me to
• 46:23
  Speaker 2: believe that they don't have access to these assets. Right,
• 46:27
  Speaker 2: So how are you using these trusts and still making
• 46:31
  Speaker 2: Mom and Dad, who've given away ten or twenty million,
• 46:33
  Speaker 2: right feel okay about it?
• 46:35
  Speaker 3: That's exactly right, because that's the first thing they're going
• 46:37
  Speaker 3: to say is, yes, I'm psyched about giving it away
• 46:39
  Speaker 3: to save estate taxes. But hold on, I want to
• 46:41
  Speaker 3: live hould the boat. Yeah, I want to live. I
• 46:43
  Speaker 3: want to live comfortably. So how do we do that?
• 46:45
  Speaker 3: And remember, folks, a lot of gifting, when we're talking
• 46:47
  Speaker 3: about higher net worth, gifting is not just about the
• 46:51
  Speaker 3: amount you gift today. It's the future growth on that
• 46:58
  Speaker 3: amount that really matters, right, don't forget that.
• 47:02
  Speaker 2: Right?
• 47:02
  Speaker 3: So I give away ten million today and I live
• 47:06
  Speaker 3: twenty years and that doubles two times. That's the power
• 47:11
  Speaker 3: of gifting. So I just wanted to bring that to
• 47:13
  Speaker 3: yours without forgetting your question, which now I forgot. Oh
• 47:18
  Speaker 3: how do we get to keep control?
• 47:19
  Speaker 2: Take control? Yeah?
• 47:20
  Speaker 3: Got it?
• 47:21
  Speaker 2: I want to play with that money.
• 47:22
  Speaker 3: So so here's how you do it. If you give
• 47:25
  Speaker 3: something away to a spousal lifetime access stress. So let's
• 47:29
  Speaker 3: say we've got the Susan trust and the Todd Trust.
• 47:32
  Speaker 3: And I know this is tough. Let's just assume for
• 47:34
  Speaker 3: the moment that we're married. I know it's hard, so
• 47:37
  Speaker 3: and now what, well, I can make a gift to
• 47:41
  Speaker 3: the toddsplat yep. But remember, in order for it to
• 47:45
  Speaker 3: be a completed gift by me, I have to give
• 47:49
  Speaker 3: up complete control over it. If I give something away
• 47:53
  Speaker 3: and I either retain the right to enjoy what I
• 47:57
  Speaker 3: gave away, like income interest of it, or I'm trustee
• 48:02
  Speaker 3: and I retain the power to control the beneficial enjoyment
• 48:07
  Speaker 3: of what I gave away. The government says, hold the horses.
• 48:12
  Speaker 3: You didn't give it away, You pull it back into
• 48:17
  Speaker 3: the estate when you die under this Code section twenty
• 48:20
  Speaker 3: thirty six, that most heavily litigated code section. So you
• 48:23
  Speaker 3: got to really cut that string, got it?
• 48:26
  Speaker 1: So?
• 48:26
  Speaker 3: Okay, Todd, how am I going to do that and
• 48:29
  Speaker 3: still enjoy it?
• 48:29
  Speaker 2: Then that's a tall order in control of your trust.
• 48:32
  Speaker 3: Right, that's a really tall order. So I'm going to
• 48:35
  Speaker 3: contribute ten million to my slat. I am not a
• 48:39
  Speaker 3: beneficiary and I am not trustee. But guess who is
• 48:44
  Speaker 3: trustee Me Susan. I'm going to spend your money, and
• 48:49
  Speaker 3: the beneficiaries are Susan and the kids. Yeah. So now
• 48:55
  Speaker 3: there's language in there that allows distributions to come out
• 48:59
  Speaker 3: to the kids or Susan, and hopefully, if we're getting along,
• 49:03
  Speaker 3: we can enjoy that money once it comes out of
• 49:06
  Speaker 3: the trust. So well, I can't directly enjoy it, I
• 49:10
  Speaker 3: certainly can indirectly enjoy it because it got into the pot.
• 49:13
  Speaker 2: Wow, this just seems crazy to me because it just
• 49:16
  Speaker 2: seems like a giant loophole.
• 49:18
  Speaker 3: Well it's not really, it's actually there.
• 49:20
  Speaker 2: No, it's with the codes and you're following all the rules.
• 49:22
  Speaker 3: Now, remember they have to be a little different. So
• 49:24
  Speaker 3: we would probably have you and a kid serve as
• 49:27
  Speaker 3: trustee on your trust and to make them a little
• 49:29
  Speaker 3: different on my trust rather on your slat. You contribute
• 49:33
  Speaker 3: and I would be the sole trustee and then I
• 49:35
  Speaker 3: can take money out directly.
• 49:37
  Speaker 2: For me spend my money too.
• 49:38
  Speaker 3: Well, if you're nice, we'll take you out to dinner.
• 49:41
  Speaker 3: But you see how that arrangement works. And again, folks,
• 49:44
  Speaker 3: there is this thing called the reciprocal trust doctrine that
• 49:47
  Speaker 3: it is very important that these two trusts are not identical, right,
• 49:51
  Speaker 3: they got to we put a few differences in there.
• 49:53
  Speaker 2: So if you did this, let's say it gave way
• 49:55
  Speaker 2: ten million dollars, you're saving an incredible amount of taxes.
• 50:00
  Speaker 3: It's it's absolutely phenomenal. What can be saved againworks, it's
• 50:06
  Speaker 3: generational tax free building growth. That's really what wealth is,
• 50:11
  Speaker 3: really what it is, and so people need to understand.
• 50:14
  Speaker 3: That's how it works, and it works for everybody. It works.
• 50:16
  Speaker 3: And even if you're not giving it away and you
• 50:18
  Speaker 3: use smaller estates and you still shelter it for kids
• 50:21
  Speaker 3: and grandkids. Folks, it can be done even at that level.
• 50:25
  Speaker 3: So don't think it's just for high high net worth.
• 50:28
  Speaker 3: But you need to learn how to plan. Are we
• 50:30
  Speaker 3: doing a state planner? Are we making gifts? The Guide
• 50:32
  Speaker 3: Making the Most of Gifting Assets? Learn which one's right
• 50:35
  Speaker 3: for you eight six six eight four eight five six
• 50:38
  Speaker 3: nine nine or Legal Exchange show dot com.
• 50:42
  Speaker 2: You've been listening to Todd Lutsky from the law firm
• 50:45
  Speaker 2: of Cushing and Dolan. Todd, thank you so much.
• 50:47
  Speaker 3: Thank you, Susan, always a pleasure.
• 50:49
  Speaker 2: I'm Susan Powers, a financial advisor with the Armstrong Advisory Group.
• 50:52
  Speaker 2: We thank you for joining us today and we'll be
• 50:55
  Speaker 2: back again next week on the Legal Exchange with Todd Lutsky.
• 50:58
  Speaker 1: Cushing and Dolan want to help you avoid costly mistakes
• 51:01
  Speaker 1: when it comes to gifting assets to your children. Their
• 51:03
  Speaker 1: brand new guide Making the Most of Gifting Assets shares
• 51:06
  Speaker 1: crucial strategies to help you protect your legacy and your family.
• 51:10
  Speaker 1: Many people think gifting is always a good thing, but
• 51:13
  Speaker 1: if it's done the wrong way, they can create real headaches.
• 51:16
  Speaker 1: Even well intentioned gifts can cause complications if your children
• 51:19
  Speaker 1: are dealing with financial pressure or legal issues like a divorce.
• 51:22
  Speaker 1: The guide also explains how a major gift like a
• 51:25
  Speaker 1: home or vacation property could come with hidden tax consequences
• 51:28
  Speaker 1: that may impact your entire estate plan. Before you make
• 51:31
  Speaker 1: any big moves, arm yourself with the facts and this
• 51:34
  Speaker 1: new guide from Cushing and Dolan. Call eight sixty six
• 51:36
  Speaker 1: eight four eight five six ninety nine right now to
• 51:38
  Speaker 1: get your copy. That's eight sixty six eight four eight
• 51:41
  Speaker 1: five six nine nine, or request it online at Legal
• 51:44
  Speaker 1: exchange show dot com. That's legal exchange show dot com.
• 51:48
  Speaker 1: The proceeding was paid for in The views expressed are
• 51:50
  Speaker 1: solely those of Cushing and Doolan. Cushing and Dolan and
• 51:52
  Speaker 1: or Armstrong Advisory may contact you offering legal investment services.
• 51:55
  Speaker 1: Cushing and Dolan Armstrong Advisory do not endorse each other
• 51:57
  Speaker 1: and are not affiliated HI.
• 51:59
  Speaker 6: This is Mike arms Strunk from the Armstrong Advisory Group.
• 52:01
  Speaker 6: Turning seventy isn't just another birthday, It's when the clock
• 52:04
  Speaker 6: starts ticking on your retirement withdrawals at age seventy three
• 52:07
  Speaker 6: or at age seventy five if you were born in
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  Speaker 6: nineteen six year later, you need to start withdrawing money
• 52:11
  Speaker 6: from your IRA. They're called required minimum distributions, and missing
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