Latest / The Financial Exchange Show / Ask Todd: When does gifting assets make sense for your estate plan?

Transcript

Ask Todd: When does gifting assets make sense for your estate plan? · The Financial Exchange Show

• 0:01
  Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
• 0:05
  Speaker 1: If you have an existing estate plan or in the
• 0:07
  Speaker 1: market for one, Todd Lutsky is here to answer your
• 0:09
  Speaker 1: questions and help you plan for a later life. Ask
• 0:12
  Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
• 0:15
  Speaker 1: New England for more than thirty five years, helping families
• 0:18
  Speaker 1: with a state and tax planning, medicaid planning, and probate law.
• 0:22
  Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky Ask Problems.
• 0:28
  Speaker 2: We're now joined by Todd Lutsky from Cushing and Dolan.
• 0:32
  Speaker 2: It's your chance to ask Todd your estate planning questions.
• 0:35
  Speaker 2: That's why the segment is named Ask Todd. Phone lines
• 0:39
  Speaker 2: wide open right now at eight eight eight to zero
• 0:42
  Speaker 2: five two two six three, So get calling early and
• 0:45
  Speaker 2: often to make sure you've got a chance to ask
• 0:47
  Speaker 2: Todd your estate planning questions. That number is eight eight
• 0:51
  Speaker 2: eight to zero five two two six three. Remember we
• 0:55
  Speaker 2: can only get through two to three of these, so
• 0:57
  Speaker 2: make sure that you get your calls in again. Eight
• 1:00
  Speaker 2: eight eight two zero five two two six three. That
• 1:04
  Speaker 2: is the number to call to ask Todd your estate
• 1:06
  Speaker 2: planning questions. Live on air, mister Lutsky, how are you
• 1:10
  Speaker 2: doing today?
• 1:11
  Speaker 3: I am doing great? How about you doing well?
• 1:14
  Speaker 2: Do you know what's green and lightweight?
• 1:17
  Speaker 3: Green and lightweight? Yeah? No, like green? Yeah, that's true,
• 1:22
  Speaker 3: that would be true.
• 1:23
  Speaker 2: Todd, want to talk to you a little bit about
• 1:25
  Speaker 2: gifting as part of an estate planning strategy.
• 1:28
  Speaker 3: Okay, A lot of times we talk about the perils
• 1:31
  Speaker 3: of gifting assets. There's plenty.
• 1:34
  Speaker 2: I want to be optimistic today. Yeah, when can gifting
• 1:38
  Speaker 2: actually fit into an estate plan and what tools are
• 1:42
  Speaker 2: needed in order to make it as effective as it
• 1:45
  Speaker 2: can possibly be?
• 1:47
  Speaker 4: So I'd say gifting when you're there's there's so many
• 1:50
  Speaker 4: things entwined in that question that people don't even realize
• 1:54
  Speaker 4: how many issues you just brought up.
• 1:55
  Speaker 3: But gifting can make sense. We do have a time limit.
• 1:59
  Speaker 3: There is a lot to think about. You're absolutely right.
• 2:01
  Speaker 4: So one I think you got to look at the
• 2:03
  Speaker 4: size of your state, right sure do I you know
• 2:06
  Speaker 4: right now with the federal exemption come January one being
• 2:09
  Speaker 4: fifteen million dollars each if you're married, So now you
• 2:12
  Speaker 4: can shelter thirty million dollars without doing any gifting at
• 2:16
  Speaker 4: all from mistate taxes. So That kind of eliminates the
• 2:19
  Speaker 4: need for a lot of people to say I need
• 2:21
  Speaker 4: to gift away assets to what to save federal death taxes?
• 2:26
  Speaker 3: Right, that takes a lot of people off the table.
• 2:28
  Speaker 3: I don't need to because I'm under that.
• 2:30
  Speaker 4: Well, if I'm under that, then I only want to
• 2:32
  Speaker 4: gift away assets because I have what a Massachusetts let's say,
• 2:36
  Speaker 4: or your state, but a Massachusetts estate tax that I
• 2:40
  Speaker 4: have to worry about.
• 2:41
  Speaker 3: Why do I worry about that? Because that's over.
• 2:43
  Speaker 4: If I'm married, I can only shelter four million dollars
• 2:47
  Speaker 4: in assets with the same basic estate planning that can
• 2:51
  Speaker 4: shelter thirty million dollars federally. Okay, well, maybe I should
• 2:55
  Speaker 4: start thinking about gifting away some assets to save Massachusetts taxes.
• 3:00
  Speaker 4: H But hold the horses. Why because what am I
• 3:03
  Speaker 4: going to give away? Well, I don't want to give
• 3:06
  Speaker 4: away anything with a very low cost basis, which translates
• 3:11
  Speaker 4: into a large built in capital gain associated with that asset.
• 3:17
  Speaker 4: Why Well, if I give away any of those assets
• 3:20
  Speaker 4: like stock portfolios, like real estate that I've rented over
• 3:24
  Speaker 4: the years and maybe depreciated it to zero, or even
• 3:28
  Speaker 4: a vacation home that just has grown in value over
• 3:32
  Speaker 4: the years. If I give that away, then what am
• 3:35
  Speaker 4: I saving? Oh well, Massachusetts is about ten twelve percent
• 3:39
  Speaker 4: on average for the estate tax. Okay, well, I'll lower
• 3:43
  Speaker 4: my estate and save ten twelve percent. But I've given
• 3:47
  Speaker 4: away an asset that has a built in gain associated
• 3:50
  Speaker 4: with it, which will be taxed at almost thirty percent,
• 3:54
  Speaker 4: not factoring in depreciation recapture. Well, I don't want to
• 3:59
  Speaker 4: give away something to save ten percent, but trap thirty
• 4:02
  Speaker 4: percent tax capital gains tax doesn't make sense.
• 4:06
  Speaker 3: So there's a lot to think.
• 4:07
  Speaker 4: About in what you're giving. Now, if I have cash,
• 4:10
  Speaker 4: that's different, Okay, well, cash is cash. I can give
• 4:12
  Speaker 4: that away and it won't hurt me as much. And
• 4:16
  Speaker 4: remember there's no gift tax in the state, but there's
• 4:19
  Speaker 4: a federal gift tax if you exceed the present interest
• 4:22
  Speaker 4: exclusion of nineteen thousand dollars per year per person. So
• 4:26
  Speaker 4: those are freebies and you can just give those away.
• 4:28
  Speaker 4: And as you might imagine, we are limited in time.
• 4:31
  Speaker 4: But there's also how do we gifted? Do we use
• 4:33
  Speaker 4: gifting trusts to?
• 4:34
  Speaker 1: You know?
• 4:35
  Speaker 4: So many things to think about, Chuck, But I'm glad
• 4:38
  Speaker 4: you at least you know sort of sparked that curiosity
• 4:42
  Speaker 4: for people talking.
• 4:43
  Speaker 2: With Todd A Lotski from Kushingan doan. We still got
• 4:45
  Speaker 2: a little bit of room on the phone line, So
• 4:47
  Speaker 2: get calling at eight eight eight to zero five two
• 4:50
  Speaker 2: two six three so you can ask Todd your estate
• 4:53
  Speaker 2: planning questions. That number again is eight eight eight to
• 4:57
  Speaker 2: zero five two two six three. Let's take a quick
• 5:01
  Speaker 2: break here, and when we come back, we are going
• 5:03
  Speaker 2: to get right to your questions with Todd Lotsky. That
• 5:05
  Speaker 2: phone number one more time eight eight eight two zero
• 5:09
  Speaker 2: five two two sixty three.
• 5:13
  Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
• 5:16
  Speaker 1: only here on the Financial Exchange Radio Network. You're listening
• 5:22
  Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
• 5:26
  Speaker 1: Radio Network.
• 5:33
  Speaker 2: All right, right to your calls with Tod Letsky. First up,
• 5:35
  Speaker 2: we got Dan in PVD. Dan, you're on with Todd.
• 5:41
  Speaker 5: Good morning, Todd. I have a revocable trust right now? Okay,
• 5:45
  Speaker 5: if I switched to an irrevocable trust the two thousand
• 5:51
  Speaker 5: two million dollar exemption, what does zecho do I get
• 5:58
  Speaker 5: an exemption for that too million if I put it
• 6:01
  Speaker 5: in that irrevocable trust.
• 6:03
  Speaker 4: Well, sure, it would depend on the type of irrevocable
• 6:05
  Speaker 4: trust that we do. So let me just ask you this.
• 6:08
  Speaker 3: Are you married, well?
• 6:11
  Speaker 6: I was?
• 6:12
  Speaker 3: And do you do you have children?
• 6:15
  Speaker 6: Yes? Three?
• 6:16
  Speaker 3: Okay?
• 6:17
  Speaker 4: So is the value of your estate way over that
• 6:20
  Speaker 4: two million dollar number or under it?
• 6:24
  Speaker 5: No, it's over how.
• 6:25
  Speaker 3: Much over.
• 6:27
  Speaker 5: I would say another two?
• 6:29
  Speaker 4: All right, so you're at four million. Was there any
• 6:31
  Speaker 4: planning done when your wife passed?
• 6:35
  Speaker 2: No?
• 6:35
  Speaker 1: All right.
• 6:36
  Speaker 4: So that's part of the problem, is the fact that
• 6:38
  Speaker 4: we weren't able to shelter anything on the first death.
• 6:41
  Speaker 4: Now with a four million dollar estate, just for everybody
• 6:43
  Speaker 4: else's edification as well as yours, if it was a
• 6:46
  Speaker 4: four million dollar estate and planning had been done, meaning
• 6:50
  Speaker 4: trusts were in place, like that revocable trust that you
• 6:52
  Speaker 4: mentioned that you have.
• 6:53
  Speaker 3: Did your wife have one of those when she passed?
• 6:56
  Speaker 6: Or no?
• 6:57
  Speaker 5: Yes she did?
• 6:58
  Speaker 4: Oh okay, so you did have planning done. So now
• 7:02
  Speaker 4: you need to say how much of that four million
• 7:04
  Speaker 4: is sheltered in your wife's trust so that it's not
• 7:07
  Speaker 4: going to be taxed when you die?
• 7:10
  Speaker 3: Do we know?
• 7:12
  Speaker 4: So let's assume that your wife's trust had roughly two
• 7:15
  Speaker 4: million dollars in it. Well, that two million dollars would
• 7:18
  Speaker 4: be sitting in now an irrevocable trust for the benefit
• 7:21
  Speaker 4: of you, in what was called a remainder share, and
• 7:24
  Speaker 4: there would be no tax due when your wife died
• 7:26
  Speaker 4: because it was two million or less. And that two million,
• 7:29
  Speaker 4: no matter what it grows to, would not be taxable
• 7:32
  Speaker 4: in your estate when you pass. So if you pass tomorrow,
• 7:35
  Speaker 4: assuming my hypothetical fact pattern is accurate, you'd be worth
• 7:40
  Speaker 4: two million. If you're worth two million and you have
• 7:43
  Speaker 4: either the revocable trust that you are currently speaking about
• 7:47
  Speaker 4: or the newly created irrevocable trust, you'd still be able
• 7:51
  Speaker 4: to shelter your two million thereby eliminating Massachusetts estate tax entirely. Now,
• 7:59
  Speaker 4: to your point, regardless of what your wife has done,
• 8:03
  Speaker 4: at least your two million probably should be put into
• 8:07
  Speaker 4: an irrevocable trust so that you can get it protected
• 8:10
  Speaker 4: from the cost of long term care at the same
• 8:13
  Speaker 4: time not giving up your two million dollar exemption, so
• 8:17
  Speaker 4: you will keep your two million dollar exemption to shelter
• 8:21
  Speaker 4: it for a state taxes. And you also might want
• 8:23
  Speaker 4: to get some guidance on thinking about your wife's trust
• 8:27
  Speaker 4: and see how you can change that to make it
• 8:31
  Speaker 4: also nursing home protected without creating an estate tax problem
• 8:37
  Speaker 4: for you. So you're on the right track. You absolutely
• 8:40
  Speaker 4: could get stuff done there and go ahead and make
• 8:42
  Speaker 4: that change. Folks, that was interesting because that's more about
• 8:48
  Speaker 4: estate planning. But some people do gifting to try and
• 8:51
  Speaker 4: reduce their estate for a state taxes. As Chuck had
• 8:53
  Speaker 4: asked me earlier. You know, gifting is not easy. There's
• 8:56
  Speaker 4: so many things. As we talked about it, whether there's
• 8:59
  Speaker 4: a gift tax and we have estate taxes we have
• 9:02
  Speaker 4: to consider, We have to consider income taxes and basis.
• 9:05
  Speaker 4: We have to consider if we want to give away
• 9:07
  Speaker 4: an asset and retain control over it, enjoy it. So
• 9:10
  Speaker 4: those are spousal lifetime access trusts, you know, do we
• 9:14
  Speaker 4: want to understand what owning assets jointly do from even
• 9:17
  Speaker 4: a medicaid perspective, a nursing home perspective. So so much
• 9:21
  Speaker 4: to think about when you're giving away assets. So get
• 9:24
  Speaker 4: the guide Learning about Making the Most of Gifting Assets
• 9:28
  Speaker 4: eight six six eight four eight five six nine nine
• 9:33
  Speaker 4: or Legal Exchange Show dot com again eight six six
• 9:37
  Speaker 4: eight four eight five six nine nine or Legal Exchange
• 9:41
  Speaker 4: Show dot com to get your guy.
• 9:43
  Speaker 2: Todd got another one for you here, let's go to
• 9:45
  Speaker 2: Rick in Foulmouth. Rick, what's your question for Todd Alotski?
• 9:49
  Speaker 7: Hey, good morning, Todd.
• 9:50
  Speaker 6: How were you good?
• 9:52
  Speaker 7: Hey?
• 9:52
  Speaker 5: Todd?
• 9:52
  Speaker 7: About a year and a half ago you set up
• 9:54
  Speaker 7: a near revocable trust for my wife and I and
• 9:57
  Speaker 7: did a great job.
• 9:58
  Speaker 3: Well, thank you.
• 9:59
  Speaker 7: We we were talking about it the other day and
• 10:01
  Speaker 7: she her and I have a little misunderstanding on part
• 10:04
  Speaker 7: of it. And it's got to do with the savings account. Okay,
• 10:09
  Speaker 7: we put it in my name, and you had gotten
• 10:11
  Speaker 7: me a sa duly day.
• 10:13
  Speaker 3: We put it in your trust, not your name, that's correct,
• 10:16
  Speaker 3: it might trust. Okay, your trust got it?
• 10:19
  Speaker 7: Now can I withdraw funds from that?
• 10:23
  Speaker 3: So give me a let's use a number, like how
• 10:25
  Speaker 3: much is in there?
• 10:26
  Speaker 7: Okay, it's like three hundred thousand.
• 10:28
  Speaker 4: So you got three hundred thousand and basically a bank
• 10:30
  Speaker 4: account in the name of the trust.
• 10:32
  Speaker 3: Correct, correct, So you can invest that money anyway you want.
• 10:36
  Speaker 4: If you don't like the bank, you can put it
• 10:37
  Speaker 4: in an investment account, earn interest in dividends. Any interest
• 10:40
  Speaker 4: and dividends that it earns, you can take directly.
• 10:45
  Speaker 3: So you can have it.
• 10:45
  Speaker 4: And let's say you went to a brokerage house, set
• 10:47
  Speaker 4: it up, invested it. You can take that money directly
• 10:50
  Speaker 4: and put it into your personal bank account, not the
• 10:53
  Speaker 4: trust bank account, anytime you want. It's the three hundred
• 10:56
  Speaker 4: thousand dollars principle that's protected and you can't take it directly.
• 11:01
  Speaker 4: There is a way to get it in directly. But
• 11:03
  Speaker 4: before you start accessing it indirectly, I would tell you
• 11:08
  Speaker 4: please spend money that you have outside the trust first,
• 11:12
  Speaker 4: like IRA money either you or your wife, or any
• 11:15
  Speaker 4: other investments that you left outside the trust, because we
• 11:18
  Speaker 4: never put everything in right, so spend those first. Why
• 11:23
  Speaker 4: because those are at risk for the nursing home, whereas
• 11:26
  Speaker 4: what's in the trust is not. So if you do
• 11:29
  Speaker 4: need to access that money though, there is a way
• 11:31
  Speaker 4: to get it and certainly happy to help you with that.
• 11:34
  Speaker 4: You can give me a ring off air and we
• 11:35
  Speaker 4: can get you that information. So hopefully that helps clarify
• 11:40
  Speaker 4: your situation.
• 11:41
  Speaker 2: Tod got another for you with Tony in Falmouth. Tony,
• 11:45
  Speaker 2: you are on with Tom Lunsky. Tony are you there,
• 11:52
  Speaker 2: lost Tony?
• 11:52
  Speaker 6: Hello?
• 11:53
  Speaker 3: Oh there's Tony.
• 11:55
  Speaker 6: Yes, yes, Scott, thank you for your time. My sister
• 11:58
  Speaker 6: and I recently inherit at mother's condo, and we've already
• 12:02
  Speaker 6: sold it and we're going to end up with roughly
• 12:05
  Speaker 6: two hundred thousand dollars each. And my question is is
• 12:09
  Speaker 6: this a taxable event?
• 12:11
  Speaker 4: So when you say you inherited your mother's condo, she
• 12:16
  Speaker 4: did not need it to you folks while you were alive. Correct, well,
• 12:21
  Speaker 4: she is alive.
• 12:23
  Speaker 6: She had it in her will that we would get it.
• 12:26
  Speaker 3: Great, that's exactly what I want to hear.
• 12:28
  Speaker 4: So if if she died owning it, and then the
• 12:32
  Speaker 4: deed went from her at death or from her estate
• 12:36
  Speaker 4: to you and your sister, then you inherited the property
• 12:40
  Speaker 4: and it was not gifted to you during life, which
• 12:43
  Speaker 4: is all about this guide, right, don't just give things away.
• 12:46
  Speaker 4: It sounds like your mom did the right thing. She
• 12:48
  Speaker 4: didn't give it away, and so she passed away owning it.
• 12:52
  Speaker 4: Then you then it was included in her estate for
• 12:56
  Speaker 4: estate tax purposes, passed to the kids. So if the
• 13:00
  Speaker 4: property at the date of your mom's death was worth
• 13:03
  Speaker 4: four hundred thousand dollars and you sell it for four
• 13:07
  Speaker 4: hundred thousand dollars, you kids will have gotten something known
• 13:11
  Speaker 4: as a step up in cost basis, which means that
• 13:14
  Speaker 4: your cost of that property is four hundred thousand dollars
• 13:19
  Speaker 4: even though you paid nothing for it. So now if
• 13:22
  Speaker 4: you sell it for four four hundred fair market value
• 13:26
  Speaker 4: minus four hundred thousand dollars stepped up cost basis equals
• 13:31
  Speaker 4: a capital gain of zero. And so their answer, the
• 13:35
  Speaker 4: long winded answer to your question, is no capital gains
• 13:38
  Speaker 4: tax on the sale.
• 13:41
  Speaker 3: So hopefully that's helpful.
• 13:43
  Speaker 2: Todd appreciate you joining us today. I know you gave
• 13:45
  Speaker 2: a bunch of information there on gifting and answered some
• 13:48
  Speaker 2: great questions from our listeners. There anything else on the
• 13:54
  Speaker 2: gifting side that you want to touch on? We got
• 13:56
  Speaker 2: about a minute or so still to go here.
• 13:58
  Speaker 4: Yes, yes, I think back to you know, to Tony's
• 14:01
  Speaker 4: point is that the everything was done, you know, good
• 14:05
  Speaker 4: for the mother the way she did it, although the
• 14:07
  Speaker 4: one thing that maybe we could have improved on there
• 14:10
  Speaker 4: was I guess we're fortunate and happy that she didn't
• 14:13
  Speaker 4: end up in a nursing home, but you know, if
• 14:15
  Speaker 4: she did, then there might not have been any you know,
• 14:19
  Speaker 4: house left to get a step up. So people always say,
• 14:21
  Speaker 4: how come on, I put assets in an irrevocable trust,
• 14:23
  Speaker 4: I get a step up in basis. Well, I can
• 14:25
  Speaker 4: get the same step up by just dying owning it.
• 14:27
  Speaker 4: That's true, But why is there still a benefit. Why
• 14:31
  Speaker 4: do I mention that as a benefit with the irrevocable trust. Well,
• 14:34
  Speaker 4: because at least in the irrevocable trust, I know there
• 14:37
  Speaker 4: will be a house there to pass on to the
• 14:42
  Speaker 4: family to get that step up in basis, so they
• 14:45
  Speaker 4: can sell it with capital gains tax. Whereas here if
• 14:48
  Speaker 4: unfortunately Tony's mother, if she had gone into a nursing home,
• 14:52
  Speaker 4: you know, there could have been a very different outcome
• 14:55
  Speaker 4: because there may not have been that house you know,
• 14:57
  Speaker 4: still there.
• 14:58
  Speaker 2: Mister Lutski, Thank you so so much for joining us today.
• 15:01
  Speaker 2: We appreciate the time.
• 15:03
  Speaker 3: Always a pleasure. Thank you.
• 15:05
  Speaker 1: This has been Asked Todd on the Financial Exchange Radio Network.
• 15:09
  Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
• 15:11
  Speaker 1: and Dolan, serving Massachusetts and New England for more than
• 15:14
  Speaker 1: thirty years, helping families with the state and tax planning,
• 15:17
  Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
• 15:20
  Speaker 1: three four thousand and one or visit Cushingdolan dot com.
• 15:24
  Speaker 1: The views expressed in this segment are solely those of
• 15:26
  Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
• 15:28
  Speaker 1: or tax advice. Please consult with your illegal or tax
• 15:30
  Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
• 15:33
  Speaker 1: each other and are not affiliated.