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Ask Todd: Making the most of gifting assets · 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.
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  Speaker 2: Lutsky and we've got Todd Lutsky joining us now for
• 0:30
  Speaker 2: Ask Todd. It's your opportunity to ask Todd your estate
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  Speaker 2: planning questions. Phone lines are wide open at eight eight
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  Speaker 2: eight to zero five two two six three, so get
• 0:41
  Speaker 2: calling early and often. We can usually get through two
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  Speaker 2: to three questions with Todd, so make sure that you
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  Speaker 2: get in line again. That phone number is eight eight
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  Speaker 2: eight to zero five two two six three. One more
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  Speaker 2: time it is eight eight eight two zero five two
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  Speaker 2: two six three. That's the number to call to ask
• 1:01
  Speaker 2: Todd your estate planning questions, live on air right now.
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  Speaker 2: Mister Lutsky, how are you doing today?
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  Speaker 3: I am never better? How's that?
• 1:11
  Speaker 1: Is that?
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  Speaker 4: Good?
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  Speaker 2: Right, it's good. I'm struggling a bit. Fell for a
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  Speaker 2: scam at the florist the other day.
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  Speaker 3: At the florist.
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  Speaker 2: Yeah, it was a pansy scheme. Oh yeah, well yeah,
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  Speaker 2: it just totally took me for a ride. But hey,
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  Speaker 2: you live and learn and you move on. Todd, I
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  Speaker 2: want to talk a little bit about gifting, if you
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  Speaker 2: don't mind, because we're rapidly approaching the holiday season and
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  Speaker 2: tims the season to talk about gifting. Yes, well, we
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  Speaker 2: look at the annual gifting limits that are in place
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  Speaker 2: for twenty twenty five. What is that threshold?
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  Speaker 3: So there's two different thresholds really to think about. One
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  Speaker 3: would be what we call a present interest gift exclusion.
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  Speaker 3: And this is what I like to call the freebie.
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  Speaker 3: It's complete freebie, meaning you can do it, make the transfer,
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  Speaker 3: make the gift, and there is no filing requirement for
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  Speaker 3: a gift tax return and no reporting whatsoever. Freebe how
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  Speaker 3: much nineteen thousand per person per year. So it's if
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  Speaker 3: you are married and you want to give to your child,
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  Speaker 3: you and your spouse can give nineteen each to that child.
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  Speaker 3: So it's about thirty eight thousand. So that's a good
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  Speaker 3: a good amount, and you can do it for every
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  Speaker 3: single kid, every grandkid. And remember it's also not limited
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  Speaker 3: to family. So in case you want to send Chucks
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  Speaker 3: some money, you can, right, just nineteen thousand, no reporting,
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  Speaker 3: So excellent way of gifting. And it's just an outright freebee.
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  Speaker 3: Now what happens if you go one dollar over that?
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  Speaker 2: Like what happened if I write a check, just like
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  Speaker 2: I'm like, hey, look at me, I'm doing nineteen thousand
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  Speaker 2: and one dollars dollar? What do I do with that?
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  Speaker 2: What happens because of that extra dollar?
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  Speaker 3: So and again, whether it's an extra dollar, which is
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  Speaker 3: your example, or an extra million dollars same event, you
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  Speaker 3: now technically have a taxable gift. Okay, a taxable gift
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  Speaker 3: taxable to whom I know. I know, it's it's crazy,
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  Speaker 3: but I'd like to always say that no good deed
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  Speaker 3: goes unpunished. Right, Guess who pays the gift tax? The giver, well,
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  Speaker 3: not the recipient, say it. It's so not the recipient,
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  Speaker 3: it's the giver. And it makes sense in the grand
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  Speaker 3: scheme of things, right, because if you have an estate
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  Speaker 3: tax and you could say, hey, right before I die,
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  Speaker 3: I'll just give everything away to avoid the estate tax,
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  Speaker 3: and you didn't have a gift tax, then the estate
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  Speaker 3: tax would have no teeth. So I get why they
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  Speaker 3: do it, but it does sound funny that the giver
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  Speaker 3: has to pay the tax. So the giver pays tax.
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  Speaker 3: Last exemption fifteen million come January one, twenty twenty. Right
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  Speaker 3: now it's thirteen nine. It's going to be fifteen million
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  Speaker 3: as your federal estate tax exemption. It's also your gift
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  Speaker 3: tax exemption. So if you start making taxable gifts and
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  Speaker 3: going over this nineteen grand. So like, for example, if
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  Speaker 3: I file a million dollar, let's just make it easy numbers.
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  Speaker 3: I file a million, I pay, I make a gift
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  Speaker 3: of a million dollars, and let's say I could shelter
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  Speaker 3: the first twenty as a freebe that would make eight
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  Speaker 3: eight hundred thousand dollars taxable. Right, No, I'm sorry more
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  Speaker 3: than that, right, if you twenty thousand would be a
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  Speaker 3: milli it would be it would be a nine eighty
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  Speaker 3: thousand dollars taxable sure, because you can only shelter the
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  Speaker 3: first twenty or nineteen in this case, right, So you
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  Speaker 3: have a nine hundred and eighty thousand dollars gift taxable gift.
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  Speaker 3: Need to file a Form seven h nine gift tax
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  Speaker 3: return to report the amount over the nineteen thousand. That's
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  Speaker 3: the piece that's the taxable gift. You get to back
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  Speaker 3: out the nineteen file the the gift tax return. The
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  Speaker 3: only good news here is when I say this is
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  Speaker 3: an exemption, you then eat into your million dollar exemption
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  Speaker 3: by the taxable gift amount and you end up paying
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  Speaker 3: no tax. But you got a file.
• 5:12
  Speaker 2: Talking with Todd Lotski from the law firm of Cushing
• 5:14
  Speaker 2: and Dolan. You got questions for Todd. He's got answers.
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  Speaker 2: Eight eight eight to zero five two two sixty three
• 5:21
  Speaker 2: is the phone number, so you can ask Todd your
• 5:23
  Speaker 2: estate planning questions live on air. Right now, that number
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  Speaker 2: is eight eight eight to zero five two two six three.
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  Speaker 2: We're gonna take a quick break here, but when we return,
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  Speaker 2: we're gonna get to your questions with Todd. Right after
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  Speaker 2: the break again. It's eight eight eight to zero five
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  Speaker 2: two two six three. One last time, that number is
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  Speaker 2: eight eight eight to zero five two two sixty three.
• 5:51
  Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
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  Speaker 1: only here on the Financial Exchange Radio Network. If You're
• 6:00
  Speaker 1: listening to Ask Todd with Todd Lutsky on the Financial
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  Speaker 1: Exchange Radio Network.
• 6:20
  Speaker 2: If you've got a question for Todd, Lutsky's still room
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  Speaker 2: on the phone lines at eight eight eight to zero
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  Speaker 2: five two two sixty three. That is eight eight eight
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  Speaker 2: to zero five two two six three. Let's go to
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  Speaker 2: Mic from Boston. Michael, you are on with Todd Lutsky.
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  Speaker 4: Good morning. I had a question about the cost of
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  Speaker 4: an irrevocable trust. Uh, there never seems to be any
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  Speaker 4: talk or referral to what that cost is. Sure hear
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  Speaker 4: a lot about it. I've done some research myself. I've
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  Speaker 4: read a few. I guess she'd call them relatively simple.
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  Speaker 4: But in nineteen twenty pages roughly eighteen pages is legal jargon,
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  Speaker 4: they were the same from trust to trust. The only
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  Speaker 4: thing that changed was the names of the trustees, the beneficiary,
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  Speaker 4: how he will receive his money or her money, and
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  Speaker 4: any little other stipulations in there. Additional which took about
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  Speaker 4: a page and a half or two. What does it
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  Speaker 4: cost to what I considered to be relatively simple, the
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  Speaker 4: same from trust to trust. As far as the work
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  Speaker 4: you put in, the terminology seems to be the same.
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  Speaker 4: From trust to trust.
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  Speaker 3: Well, I'm going to beg to differ with you tremendously
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  Speaker 3: on that front, because, first of all, there's many kinds
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  Speaker 3: of irrevocable trusts out there. There's qualified personal residence trusts
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  Speaker 3: that are irrevocable, their spousal lifetime outs access trust for
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  Speaker 3: high net worth clients that are irrevocable when you give
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  Speaker 3: them away. There are Medicaid income only trust the kind
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  Speaker 3: we talk about a lot on the show when you
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  Speaker 3: give those away, so you know, you know, there's there's
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  Speaker 3: gifting trust, there's irrevocable life insurance trust. So when you
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  Speaker 3: say they're the same, I'm not sure what you've read
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  Speaker 3: that makes you think that one irrevocable trust should have
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  Speaker 3: the same language as the other. And secondly that our
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  Speaker 3: trust anyway are god But they're not nineteen twenty pages.
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  Speaker 3: They're sixty or fifty.
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  Speaker 4: You know.
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  Speaker 3: But that isn't what we don't charge based on the page.
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  Speaker 3: That isn't That isn't how you do it. It's it's like
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  Speaker 3: someone thinks it's simple. But then so I have this
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  Speaker 3: it's a great question because I have a real life
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  Speaker 3: story on it where I the client come in and
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  Speaker 3: say well, I need to set up this irrevocable trust,
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  Speaker 3: and and I'm going to be giving assets away to
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  Speaker 3: my to my family, and and so how does this work?
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  Speaker 3: And then I started asking them, well, do you want
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  Speaker 3: it to be a completed gift for gift tax purposes?
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  Speaker 3: Yes or no? Do you want it do you want
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  Speaker 3: to retain control? Yes or no? Well what about for
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  Speaker 3: income tax purposes? Do I want to make it a
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  Speaker 3: grand tour trust for income tax purposes? Which means that
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  Speaker 3: while I don't own it and it's out of my
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  Speaker 3: estate for a state tax purposes, which is great, I
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  Speaker 3: don't want to pay income tax on what's in there
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  Speaker 3: growing at a much higher rate because remember, taxation at
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  Speaker 3: the trust level after about fourteen thousand dollars is taxable
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  Speaker 3: at the top rate, whereas humans we have a much bigger,
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  Speaker 3: you know, rate structure, so we don't have to pay
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  Speaker 3: tax like that. So the answer is, you got to
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  Speaker 3: make it a grand tour trust for income tax purposes.
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  Speaker 3: So even though it's an irrevocable trust and out of
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  Speaker 3: your estate, it can still be taxed in your state
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  Speaker 3: for income tax purposes. You know, then you have to
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  Speaker 3: think about, well do I want it to be a
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  Speaker 3: gift so that it's protected from perhaps like the nursing
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  Speaker 3: home and creditors. But I want to keep control over it.
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  Speaker 3: I want to be able to enjoy it. I want
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  Speaker 3: to be able to control it. Maybe get the income. Well,
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  Speaker 3: that's important because if I do that, then I'm including
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  Speaker 3: it in my estate and I'm going to get a
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  Speaker 3: step up in basis for capital gains tax purposes on
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  Speaker 3: the item that's in there, say my home that might
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  Speaker 3: be worth a lot of money, or a rental property
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  Speaker 3: that I put in there. Oh, I certainly want to
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  Speaker 3: get to step up in basis when I die so
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  Speaker 3: that I don't have capital gains tax for my beneficiaries
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  Speaker 3: to pay when they get it. But I also want
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  Speaker 3: to reduce my estate taxes. And then you have to
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  Speaker 3: run those numbers and see what works. So, in terms
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  Speaker 3: of this simply being a simple thing that somebody does
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  Speaker 3: is absolutely incorrect, and so there's a lot to think
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  Speaker 3: about that goes in there, and the way we draft
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  Speaker 3: it changes based on that. Now, it is true that
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  Speaker 3: there are some people, some attorneys that go out and
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  Speaker 3: just buy a package off the internet somewhere and then
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  Speaker 3: sell it. We don't do that we've drafted our document,
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  Speaker 3: so our intellectual property, Like when I started our trust
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  Speaker 3: was twenty five pages long, it's now fifty Why because
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  Speaker 3: we add to it. We put our own intellection, vitual
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  Speaker 3: property into it. As laws change, as revenue rulings come out,
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  Speaker 3: as issues we see with clients in terms of how
• 11:07
  Speaker 3: they get it come out, how you leave the assets
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  Speaker 3: to the children to prevent fighting. So I think there's
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  Speaker 3: an awful lot involved in there and when you're doing this,
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  Speaker 3: and so I think you need to figure out all
• 11:17
  Speaker 3: of that when you're trying to come up with what
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  Speaker 3: the cost is. And that cost is unfortunately going to vary.
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  Speaker 3: It's a flat fee at least at our firm, but
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  Speaker 3: it's going to vary based on what kind of trust
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  Speaker 3: you're doing. What you know, whether it's a cupert, whether
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  Speaker 3: it's an irrevocable life insurance trust or a medicaid trust.
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  Speaker 3: So I think that's the safest and from everybody listening,
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  Speaker 3: you should get a flat fee from your attorney before
• 11:41
  Speaker 3: you would go forward. I think flat fees are the
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  Speaker 3: way to go. That way you know exactly what you're
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  Speaker 3: getting into. Before you would you would actually, you know,
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  Speaker 3: do this kind of trust. So I hope that helps
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  Speaker 3: a little. But folks, the newest guide that's out there
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  Speaker 3: that we're doing for this month, which is not just
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  Speaker 3: about estate planning, it's more about gifting, which is exactly
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  Speaker 3: what some of the issues we were talking about with
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  Speaker 3: this caller, and that is that when you're gifting assets,
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  Speaker 3: you know, do I want to gift it? Do I
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  Speaker 3: want to make something a gift one way or another?
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  Speaker 3: Do I want to give it outright to my kids?
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  Speaker 3: Do I want to hold it in espousal Lifetime Access
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  Speaker 3: trust so that I can enjoy what I gave away?
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  Speaker 3: Remember I said, you got to figure out how can
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  Speaker 3: I enjoy what I gave away and keep it outside
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  Speaker 3: my estate first date taxes. So that's where spousal Lifetime
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  Speaker 3: Access trust comes in. You always got to think about
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  Speaker 3: what kind of asset you're giving away, high basis assets
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  Speaker 3: versus low basis assets. Think about it from a medicaid
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  Speaker 3: nursing home perspective. You know, if I own an account
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  Speaker 3: jointly with a non spouse, is it half protected already?
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  Speaker 3: Is it not half protected? If I own my house
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  Speaker 3: with somebody that's a non spouse, is it half protected?
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  Speaker 1: Is it not?
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  Speaker 3: Half protected, So you got to think about it from
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  Speaker 3: every angle when you're gifting folks. The guide getting the
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  Speaker 3: most out of gifting assets is eight six six eight
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  Speaker 3: four eight five six nine to nine or Legal Exchange
• 13:04
  Speaker 3: Show dot com New Guide for the Month eight six
• 13:07
  Speaker 3: six eight four eight five six nine nine or Legal
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  Speaker 3: Exchange Show dot com.
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  Speaker 2: Todd talking more about the gifting side of things there,
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  Speaker 2: how does one make the decision on what are kind
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  Speaker 2: of good assets to gift versus poor ones?
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  Speaker 1: Like?
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  Speaker 2: How do you decide when it makes sense to gift
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  Speaker 2: versus not?
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  Speaker 3: Yeah, and that's uh. And again, I know with our caller,
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  Speaker 3: I gave a lot of information really fast, but this
• 13:35
  Speaker 3: would be break it down. One of the things I
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  Speaker 3: was trying to explain to the caller was, you know, okay,
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  Speaker 3: I do want to make an irrevocable trust. Now I
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  Speaker 3: want to know if that irrevocable trust is going to
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  Speaker 3: be a completed gift or not a completed gift. And
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  Speaker 3: then once we determined from your question, Chuck, that it
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  Speaker 3: is going to be a completed gift, now we have
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  Speaker 3: to determine what asset should we gift? Easy, easiest one
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  Speaker 3: cash cash is all always good? Why because there's no
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  Speaker 3: basis problem with cash, right, Cash is cash. There is
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  Speaker 3: no built in gain that I need to worry about. Whereas, Oh,
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  Speaker 3: I've got this rental property that I bought thirty years
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  Speaker 3: ago and fully depreciated it over time, meaning my basis
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  Speaker 3: in the property is now a zero because I've rented
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  Speaker 3: it for more than twenty seven and a half years.
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  Speaker 3: If I give that away, let's say it's a million
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  Speaker 3: dollar property and my basis is zero, now I've trapped
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  Speaker 3: for my family twenty eight point eight percent capital gain
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  Speaker 3: on a million dollars. Not just twenty eight point eight percent,
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  Speaker 3: but the depreciation piece of the gain is taxed at
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  Speaker 3: ordinary income, So the rate is not just capital gain,
• 14:47
  Speaker 3: but the appreciation portion of the gain is taxed as
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  Speaker 3: ordinary income. I mean, it's tax as capital gain. So
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  Speaker 3: then you have to figure out that the rate we're
• 14:56
  Speaker 3: trapping is actually higher than that. So great question, Chuck.
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  Speaker 3: I think that's just the beginning the tip of the
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  Speaker 3: gifting Iceberg, if you will as to what you need
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  Speaker 3: to think about before you make a gift.
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  Speaker 2: Mister Lutsky, thank you so much for joining us today.
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  Speaker 3: Are always a pleasure.
• 15:12
  Speaker 1: This has been asked odd on the Financial Exchange Radio network.
• 15:15
  Speaker 1: Ask Todd with Todd Lutsky has been presented by Cushing
• 15:18
  Speaker 1: and Dolan, serving Massachusetts and New England for more than
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  Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
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  Speaker 1: The views expressed in this segment are solely those of
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  Speaker 1: Cushing and Dolan Armstrong advisor. He does not provide any
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  Speaker 1: legal or tax advice. Please consult with your legal or
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