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Ask Todd: Issues that arise when gifting property · 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: Visit Cushingdolan dot com. Now here's Todd Lutsky.
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  Speaker 2: As promised, we are now joined by the one and
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  Speaker 2: only Todd Lotski from the law firm of Cushing and Dolan.
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  Speaker 2: to zero five two two sixty three. That is the number.
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  Speaker 2: One more time, it's eight eight eight two zero five
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  Speaker 2: two two sixty three to ask your question to a
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  Speaker 2: state planning attorney Todd Lutzky. Mister Lutsky, how are you
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  Speaker 2: doing today?
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  Speaker 3: I am doing great. How about yourself? Pretty well myself.
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  Speaker 2: I'm really excited about, uh, this year's upcoming Fibonacci convention.
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  Speaker 4: Actually Fibonacci Fibonacci. Yeah, I don't know if I know
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  Speaker 4: that Fibonacci numbers.
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  Speaker 3: Yeah.
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  Speaker 2: Yeah, this this convention is going to be as big
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  Speaker 2: as the last two put together. Okay, I get it.
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  Speaker 2: There you go, I get it. I knew you'd get there.
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  Speaker 2: I knew you would, Todd. I want to talk a
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  Speaker 2: little bit about gifting since we are in you know,
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  Speaker 2: the holiday season of giving mood, you know, all.
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  Speaker 3: All that you know stuff.
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  Speaker 2: Yeah, when it comes to gifting, and specifically a gifting strategy,
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  Speaker 2: a long term one for in a state, when is
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  Speaker 2: the right time to start considering that such that you're
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  Speaker 2: a able to actually use it to manage the size
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  Speaker 2: of your estate, but that you're not causing problems by
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  Speaker 2: gifting too much too early?
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  Speaker 3: Yeah?
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  Speaker 4: And I think I think why why tax attorneys like
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  Speaker 4: ourselves are always busy in the year end is November
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  Speaker 4: and December. Like, let's say we've done planning for clients
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  Speaker 4: years ago, right, and you know they generally depending on
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  Speaker 4: the size of their estate. Of course, if it's a
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  Speaker 4: smaller estate, they might not be overly concerned about about
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  Speaker 4: gifting because it's not designed or needed. I should say
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  Speaker 4: to you know, reduce the estate tax. But for larger estates,
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  Speaker 4: you know, and again you could be thinking both for
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  Speaker 4: Massachusetts or your state estate tax and federal you know,
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  Speaker 4: they tend to call, you know, November December, right, it's
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  Speaker 4: a year end deal. Should we make any gifts?
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  Speaker 3: Sure?
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  Speaker 4: For two reasons. One, they can check and see how
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  Speaker 4: the estate has done over the years. What have they
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  Speaker 4: has the estate grown much this year? And and do
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  Speaker 4: we need to make a gift? And you know what,
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  Speaker 4: for some people, it's just that year end present interest
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  Speaker 4: exclusion gift. Maybe I don't need to make a ton
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  Speaker 4: of gifts. But remember one of the ways to make
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  Speaker 4: a gift is a present interest exclusion gift, which today
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  Speaker 4: is I believe eighteen thousand dollars per year per person
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  Speaker 4: that you can give away and it's per year. So
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  Speaker 4: as you approach your end, you might say, hey, should
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  Speaker 4: I use my exclusion before I lose it. I know
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  Speaker 4: I get it every year, but why not use it?
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  Speaker 4: If I can write a check any way you want
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  Speaker 4: to anybody you want for that amount or less eighteen
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  Speaker 4: thousand or less, and there is no filing requirement and
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  Speaker 4: no gift tax to be paid, no reporting requirement of
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  Speaker 4: any kind.
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  Speaker 3: Just easy. So that might be why.
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  Speaker 2: Talking with Todd Lutski from the law firm of Cushing
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  Speaker 2: Todd live on air.
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  Speaker 3: Again.
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  Speaker 2: That number is eight eight eight to zero five two
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  Speaker 2: two sixty three. Todd, what kind of issues come up
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  Speaker 2: when someone starts talking about gifting property? Just quick summary
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  Speaker 2: of them?
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  Speaker 4: Yeah, so property is a is a tough one to
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  Speaker 4: give away. You're mentioning property, which begs the question that
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  Speaker 4: there's many kinds of assets that you can gift. When
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  Speaker 4: you're thinking about gifting property might not be on the forefront,
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  Speaker 4: depending on how quickly you think it might grow. I mean,
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  Speaker 4: if it's gonna balloon in value and you can get
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  Speaker 4: it out of your estate when it's low in value
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  Speaker 4: and have all the growth occur outside the estate, well
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  Speaker 4: that might be helpful. But if it's low basis and
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  Speaker 4: I'm giving away that property, I'm trapping capital gains tax
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  Speaker 4: liability at twenty eight point eight percent at a bare minimum,
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  Speaker 4: not counting depreciation recapture. If in fact it was rental
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  Speaker 4: property that I gave away number one and number two.
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  Speaker 4: If I do that, I might be saving on the
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  Speaker 4: estate tax, but I better be saving more than twenty
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  Speaker 4: eight point eight percent. If it's state tax, I'm saving
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  Speaker 4: state estate tax. It's only ten percent here in mass
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  Speaker 4: But if it's federal in state, it's forty and ten.
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  Speaker 4: It's fifty percent.
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  Speaker 2: Ah.
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  Speaker 4: Well, now I'm starting to see the leverage between twenty
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  Speaker 4: eight percent versus fifty percent. And that's because by keeping
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  Speaker 4: a highly increased basis asset our low basis asset, excuse me,
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  Speaker 4: you eliminate the built in gain when you die.
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  Speaker 2: Talking with Todd Lotski from the law firm of Cushing
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  Speaker 2: and Dolan can still a little bit of room on
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  Speaker 2: two two sixty three. We're going to take a quick
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  Speaker 2: break right now, but when we come back, we're gonna
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  Speaker 2: three Again eight eight eight two zero five two two
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  Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
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  Speaker 1: only here on the Financial Exchange Radio Network. You're listening
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  Speaker 2: All right, Todd, right to the callers. You want to
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  Speaker 2: chat with your number one? We got Steve in Watertown. Steve,
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  Speaker 2: you are on with Todd Lutsky. What's your question for him?
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  Speaker 5: Hi, Todd, I'm going of my house and I wanted
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  Speaker 5: to know how we how can she pay me without
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  Speaker 5: me getting screwed? It back one hundred dollars.
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  Speaker 4: So I gotta ask you a couple of questions because
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  Speaker 4: it sets us a great question and if it was easy,
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  Speaker 4: I would answer it.
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  Speaker 3: But let me see. So you bought this house together, yes.
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  Speaker 5: But nothing was on the book. But because I wasn't
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  Speaker 5: working at the time, and we've made a deal where
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  Speaker 5: I paid it down payment. I bought all the furniture, you.
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  Speaker 4: Know, and then yeah, so hold hold on, hold on,
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  Speaker 4: are you on the deed at all? No, so you're
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  Speaker 4: not on the deed. So when this sells, you are
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  Speaker 4: going to have no taxable event because it's.
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  Speaker 5: Well, she's not selling, it's just buying my share out.
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  Speaker 4: So I and how much are you are? Are you
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  Speaker 4: technically owed? Let's call it that way. It's kind of
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  Speaker 4: like you're owed something because you put money into.
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  Speaker 3: This house, right about one hundred thousand.
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  Speaker 4: Okay, So again, I'm not sure that's going to be
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  Speaker 4: structured as a sale, right, that's just simply going to
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  Speaker 4: be her writing you a check for one hundred thousand
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  Speaker 4: dollars because she's not selling her house, correct, right, So,
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  Speaker 4: so this is not going to be structured as a
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  Speaker 4: sale in any way. It's not going to even be
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  Speaker 4: reportable to me. It's almost like you could structure it
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  Speaker 4: as a gift. Say, she's just giving you back the
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  Speaker 4: one hundred thousand that you gave her earlier, right, because
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  Speaker 4: in essence, that's what you did. You didn't get the deed,
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  Speaker 4: you didn't buy into her house. You simply gave her
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  Speaker 4: money and she bought furniture, so I would say, at
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  Speaker 4: the end of the day, she's giving it back to you. Now, remember,
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  Speaker 4: is it a taxable gift? Arguably it is. Arguably it
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  Speaker 4: was a taxable gift when you gave it to her,
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  Speaker 4: But at the you know, probably nobody thought it was that.
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  Speaker 4: Nobody filed a seven h nine gift tax return. I
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  Speaker 4: think you should have at the and but don't worry
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  Speaker 4: because either way there's no tax due because each of
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  Speaker 4: you have a thirteen point six million dollar gift tax
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  Speaker 4: exemption to use once in a lifetime thirteen point nine
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  Speaker 4: million come twenty twenty five January one. So I'm gonna say,
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  Speaker 4: tell her to give you the money back, and arguably
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  Speaker 4: it's a gift. You can inform her that she should file,
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  Speaker 4: but no gift taxes will be due. So I think
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  Speaker 4: that's the easiest way to take care of business folks.
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  Speaker 4: That's an easy gift idea, But making gifts in general
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  Speaker 4: is not always so easy. So even here, no one
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  Speaker 4: really thought that this was a gift. But you know what,
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  Speaker 4: sometimes you throw a person's name, on a child's name
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  Speaker 4: or something on a joint broke at your bank account.
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  Speaker 3: Did you make a gift.
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  Speaker 4: What if I put a name on a piece of
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  Speaker 4: property like a rental property or a home.
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  Speaker 3: Have I made a gift?
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  Speaker 4: Are there any income tax ramifications associated with that gift
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  Speaker 4: now that it's a rental property in a child's name? Wow,
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  Speaker 4: you know these are all what about creditor issues? So, folks,
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  Speaker 4: there's so many ways that there's so many things that
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  Speaker 4: can be impacted when you make a gift.
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  Speaker 3: You really need to.
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  Speaker 4: Understand how to make it and if you should make it,
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  Speaker 4: and again, maybe not putting it in the hands of
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  Speaker 4: children is a better way to do it. Put it
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  Speaker 4: in the hands of a gifting trust. Folks, lots to
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  Speaker 4: think about. Figure out what's the best way for you
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  Speaker 4: to make a gift or not to gift eight six
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  Speaker 4: six eight four eight five six nine or Legal Exchange
• 10:02
  Speaker 4: Show dot com. Get the guide Making the Most of
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  Speaker 4: Gifting Assets eight six six eight four eight five six
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  Speaker 4: nine nine or Legal Exchange Show dot Com.
• 10:13
  Speaker 2: Todd, I've got another one here for you. Let's go
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  Speaker 2: to Jeff on the Cape. Jeff, what is your question
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  Speaker 2: for Todd?
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  Speaker 6: Good morning, Todd, Really enjoy the show.
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  Speaker 3: Thank you.
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  Speaker 5: Wanted to ask you a question about the gift asset.
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  Speaker 5: Is that tax deductible? Well, the person that is giving
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  Speaker 5: the gift to a family.
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  Speaker 3: Member, so great, great question.
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  Speaker 4: Not only is it not tax deductible. I'm sure you're
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  Speaker 4: familiar with the phrase, no good deed goes unpunished. Right,
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  Speaker 4: So here's the story. It is the giver, the giver,
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  Speaker 4: not the recipient who has to pay a gift tax.
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  Speaker 4: The recipient never has a gift tax when they receive it,
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  Speaker 4: and the recipient doesn't have an income tax when they
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  Speaker 4: receive it. But the giver once again has to pay
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  Speaker 4: potentially subject to gift tax.
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  Speaker 3: Not only do.
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  Speaker 4: They are they subject to gift tax. There is no
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  Speaker 4: income tax ramification associated with a gift ever, so it's
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  Speaker 4: not income taxable, but it's also not income deductible.
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  Speaker 3: So there you go. No good deed goes unpunished.
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  Speaker 2: Keep moving for you here, Todd, Let's go to Casey
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  Speaker 2: in Plymouth. Casey, you are now on with Todd Lutsky.
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  Speaker 6: Hi, Todd, I just have a question. So my husband
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  Speaker 6: and his siblings inherited a property from their mom when
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  Speaker 6: she passed away. His sister has lived in the property
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  Speaker 6: and now years, you know, several years later, is buying
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  Speaker 6: the siblings out well below market value. I'm just wondering,
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  Speaker 6: with what he makes on that property from the sister,
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  Speaker 6: how does he avoid any type of tax if possible,
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  Speaker 6: considering they're making a lot less than they would have
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  Speaker 6: if it was on the market.
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  Speaker 3: What's the value of the property?
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  Speaker 6: Probably four hundred and call.
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  Speaker 3: It four to fifty.
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  Speaker 4: So if it's four fifty, so here's here's the deal.
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  Speaker 4: How long ago did did the individual die that they
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  Speaker 4: caused them to inherit the property.
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  Speaker 5: It's been.
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  Speaker 4: Roughly three years three years great, So here's the story
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  Speaker 4: on the date of death. And there's a lot going
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  Speaker 4: on here because it's going to be treated technically as
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  Speaker 4: a part sale, part gift because it sounds like they're
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  Speaker 4: buying it for way under fair market value. So a
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  Speaker 4: couple of things going on. One on the date of
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  Speaker 4: death three four years ago, all the siblings that inherited
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  Speaker 4: this got it with a step up in basis, which
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  Speaker 4: is wonderful. Right, So if the property back then was
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  Speaker 4: worth three hundred and fifty thousand dollars three years ago,
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  Speaker 4: then they were to sell it right then and there
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  Speaker 4: their gain would be zero because their base would be
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  Speaker 4: three point fifty. So he got a one third step
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  Speaker 4: up in basis, so one third of the value on
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  Speaker 4: the date of death is his cost basis. Now, if
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  Speaker 4: he sells it to her or to the sister now
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  Speaker 4: and he gets more than what his cost basis was
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  Speaker 4: for his peace, so his one third of the proceeds,
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  Speaker 4: if it exceeds his cost basis, which was one third
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  Speaker 4: of the value on the date of death, then that
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  Speaker 4: difference will be treated as a taxable a capital gain,
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  Speaker 4: and since he hasn't been living there, then he has
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  Speaker 4: to pay capital gains tax on that piece. Now, I
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  Speaker 4: suspect that it's very possible, since they're buying it at
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  Speaker 4: less than fair market value, that the piece that he
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  Speaker 4: gets his one third, if you will, might be less
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  Speaker 4: than or equal to the fair market value his basis,
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  Speaker 4: which was again one third of the fair market value
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  Speaker 4: on the date of death, because it wasn't that long ago,
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  Speaker 4: So it may end up being a wash for him.
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  Speaker 4: He probably won't be able to generate a loss, but
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  Speaker 4: he might not have a large capital gain, so that's
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  Speaker 4: good for him. On her end, however, you may not
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  Speaker 4: care about this, but just for educational purposes for the radio.
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  Speaker 4: On her end, she's buying the property, but she's buying
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  Speaker 4: it for less than fair market value, so arguably she's
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  Speaker 4: not going to have much of an issue at all
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  Speaker 4: because she's the buyer. But I wonder if on his end,
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  Speaker 4: actually back on his end, he's making a part gift,
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  Speaker 4: so he might have no capital gains tax, but because
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  Speaker 4: he's selling it for less than fair market value, he
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  Speaker 4: might have a gift tax associated with it. Part sale,
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  Speaker 4: part gift. Sorry for that rush, but there's a lot
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  Speaker 4: going on in this case.
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  Speaker 3: Gifting's not easy.
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  Speaker 2: Mister Lutsky, thank you so much for joining us today.
• 14:57
  Speaker 3: Always a pleasure.
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  Speaker 1: This has been Ask Todd on the Financial Exchange Radio network.
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  Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
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