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Should You Gift Assets Before You Die? The Tax Mistakes to Avoid · The Legal Exchange

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  Speaker 1: This is The Legal Exchange with Todd Lutzke from the
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  Speaker 1: law firm of Cushing & Dolan and Susan Powers of
• 0:07
  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,
• 0:13
  Speaker 1: and protecting your money from a nursing home. If you
• 0:16
  Speaker 1: need assistance in any of these areas or have a
• 0:18
  Speaker 1: question about another issue that may affect your future, call
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  Speaker 1: 866-848-5699 to make an appointment. That's 866-848-5699. operators are standing
• 0:30
  Speaker 1: by now here are your hosts todd lutzky and susan powers.
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  Speaker 2: Welcome into the legal exchange with todd lutzky i'm susan
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  Speaker 2: powers a financial advisor with the armstrong advisory group and
• 0:44
  Speaker 2: i'm joined of course by todd lutzky a partner with
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  Speaker 2: the law firm of cushing and dolan with a master's
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  Speaker 2: in taxation welcome todd how are you today i'm never
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  Speaker 2: better than you i am great thank you what do
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  Speaker 2: you have for us this week.
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  Speaker 3: A couple of things uh Kansas, we're going to go
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  Speaker 3: to Kansas where we have an appellate court case. Basically,
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  Speaker 3: how does an anti-lapse 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
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  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
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  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 Kathy in this case.
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  Speaker 3: And basically Kathy ultimately wanted to sell the farm to
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  Speaker 3: Anthony And then after they entered into a contract, they
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  Speaker 3: got a much better offer. Now what do you do?
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  Speaker 3: Is there undue influence here? Was there some hanky-panky going on?
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  Speaker 3: Who knows? So we're going to find out about that.
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  Speaker 3: But again, I think the bigger picture on this case
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  Speaker 3: is how do you deal with getting real estate to
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  Speaker 3: another person? What's the most efficient and effective way to
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  Speaker 3: do that from a planning perspective? And I think that's
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  Speaker 3: what we're going to learn from that case. But Most importantly,
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  Speaker 3: it is a new month.
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  Speaker 2: Brand new.
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  Speaker 1: Welcome.
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  Speaker 3: Welcome to October.
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  Speaker 2: Super fall.
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  Speaker 3: In this case, we are going to be giving you
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  Speaker 3: a guide that's, interestingly enough, making the most of gifting.
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  Speaker 3: And so it's important because in it, it talks about
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  Speaker 3: not only, you know, if you gift, what do you gain?
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  Speaker 3: You lose a step up in basis, but you get
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  Speaker 3: it out of your estate. Is that good? Is that bad?
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  Speaker 3: You know, what about from a Medicaid perspective? If I
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  Speaker 3: own something jointly, is that a gift? Is it protecting half?
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  Speaker 3: Is it not protecting half? Are bank accounts treated differently
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  Speaker 3: than investment accounts? So there's that perspective. Can I give
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  Speaker 3: things away and still enjoy what I gave away through
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  Speaker 3: the use of spousal lifetime access trust for higher net
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  Speaker 3: worth clients? That's in here. So you really need to
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  Speaker 3: figure out what Makes sense. Just because you can gift
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  Speaker 3: doesn't mean you should. And if you're going to gift,
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  Speaker 3: how do we do it? And if we're going to gift,
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  Speaker 3: do we gift outright or not? Folks, so much to
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  Speaker 3: think about when it comes to gifting and the taxes
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  Speaker 3: related to it. Not just gift, but estate and income tax.
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  Speaker 3: All built into this guide. Please get it. 866-848-5699 or LegalExchangeShow.com.
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  Speaker 3: Get the guide before you make the gift. 866-848-5699 or LegalExchangeShow.com.
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  Speaker 3: Heading to Kansas, shall we? Going over the rainbow. So
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  Speaker 3: Larry dies with a will in April of 2022. His parents,
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  Speaker 3: Frank and Clara, are the sole beneficiaries and he intentionally
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  Speaker 3: omits his two kids. I guess it's Azemi and Frank Jr.
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  Speaker 3: We'll call him Jr. Turns out, of course, that the
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  Speaker 3: parents pre-deceased Larry. Typical, usual. Normal. So in May of 2023,
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  Speaker 3: they probated the will. Interestingly enough, a creditor of the
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  Speaker 3: estate named Judy was appointed PR. So now we've got
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  Speaker 3: a creditor of the estate. And so Maddie's the niece
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  Speaker 3: who basically says, we got to file a petition to
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  Speaker 3: determine heirship.
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  Speaker 4: Right.
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  Speaker 3: Who gets what here? Well, the kids, Frank Jr. and Ezemie,
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  Speaker 3: Argue that the gift to the parents had lapsed because
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  Speaker 3: both parents had pre-deceased Larry and there was no residuary
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  Speaker 3: clause in there. So the assets should pass to them
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  Speaker 3: through the intestate succession statute.
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  Speaker 2: But he specifically disinherited the two kids?
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  Speaker 3: Right. But there was no residuary clause as to where
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  Speaker 3: it goes if the parents die. And the parents died first.
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  Speaker 3: Dead end. So the residuary clause, folks, for all of
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  Speaker 3: you that need to know, is a catch-all provision. It
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  Speaker 3: says in the event nobody's around here, it's 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, that yes, the anti-lapse
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  Speaker 3: statute should apply. And so, you know, basically Maddie is
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  Speaker 3: entitled to a share. And of course, the children of
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  Speaker 3: Azemi and Frank were not disinherited. So as grandkids, they
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  Speaker 3: should take what the parents would get and split it up, right?
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  Speaker 2: They're his silo amount, yeah.
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  Speaker 3: Yeah, so they said that's how it should go. Well, Frank,
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  Speaker 3: as you imagine, Frank Jr. and his Emmy appealed. They
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  Speaker 3: didn't like that result at all. They said, no, we're
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  Speaker 3: going to appeal for all the same reasons. Well, the
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  Speaker 3: appellate court affirmed the district court, and I think that's appropriate,
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  Speaker 3: stating basically that the lack of a residuary clause does
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  Speaker 3: not prevent the stated disinheritant language of the donor from
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  Speaker 3: being effective. You are still disinherited kids. That doesn't change
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  Speaker 3: because there's no residuary clause. And therefore, since the kids,
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  Speaker 3: the grandkids of the two kids were not specifically disinherited
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  Speaker 3: by the donor, well, then those kids should take under
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  Speaker 3: the intestate succession statute.
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  Speaker 2: So Junior and Ozemi's kids?
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  Speaker 3: Yes, that's right. Junior and Ozemi, the grandkids.
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  Speaker 2: Yeah, but not them.
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  Speaker 3: Not them. They're the children of Larry. Because remember, he
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  Speaker 3: left it up a generation.
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  Speaker 2: Right.
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  Speaker 3: Crazy.
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  Speaker 2: Yeah.
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  Speaker 3: Anyways, folks, I think that's the right result here.
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  Speaker 1: Yeah.
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  Speaker 3: But we don't want to have to go through this.
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  Speaker 2: Because he didn't want them to get it, so it
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  Speaker 2: 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... What bad drafting. But you make a
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  Speaker 3: good point, Susan. At least... what? I was going to
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  Speaker 3: say this, a will or a trust, both of these
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  Speaker 3: serve to specifically direct how your assets go.
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  Speaker 2: And sometimes more importantly, where you don't want them to go.
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  Speaker 3: Where 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. And you make sure where
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  Speaker 3: they go, where it At least as the next best option. Right.
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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 at play. And that's what was
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  Speaker 3: interesting that a creditor in this case was a PR.
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  Speaker 2: Maybe he owed her some money. It could be a
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  Speaker 2: sister or something.
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  Speaker 1: Yeah.
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  Speaker 2: A sibling or whomever.
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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 probate. And in
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  Speaker 3: many states, only probate assets are at risk for creditors.
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  Speaker 3: So helpful. What about drafting? Remember, whenever you're disinheriting people
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  Speaker 3: and you're leaving assets unequally, always put a no contest
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  Speaker 3: clause in.
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  Speaker 1: Right.
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  Speaker 3: Would have been helpful here too. A no contest clause
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  Speaker 3: is always helpful. And also be clear, right? Don't leave
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  Speaker 3: things open like you did here. Example, if we're disinheriting
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  Speaker 3: a child, ask the, I always ask, okay, well, if
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  Speaker 3: you don't want it to go to the child, do
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  Speaker 3: you also not want it to go to their kids?
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  Speaker 1: 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 have to think that through. So always ask that.
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  Speaker 3: And really the bigger picture here is whenever you're leaving
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  Speaker 3: assets up a generation, you always need to consider where
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  Speaker 3: things go if they die first. Right. Which 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. You've got to be careful
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  Speaker 3: because if you leave it up a generation, then it's
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  Speaker 3: taxed on the way back down, which you don't want.
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  Speaker 3: And then it's taxed again at your generation to go
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  Speaker 3: down to grandkids. But more importantly than that, and it's
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  Speaker 3: okay to take care of parents. I'm not saying not to,
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  Speaker 3: but do it right. If you leave it up a generation,
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  Speaker 3: leave it in trust for them in which discretionary distributions
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  Speaker 3: can be made by the trustee to or for their benefit.
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  Speaker 3: That way, they don't own it.
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  Speaker 2: So like the inheritor's trust that you do.
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  Speaker 3: Like an inheritor's trust, right?
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  Speaker 2: I never thought of that for a generation up.
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  Speaker 3: Generation up. That way, not only do they not own it,
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  Speaker 3: so it's not subject to estate tax when they die.
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  Speaker 3: It's not subject to the nursing home if they go
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  Speaker 3: into a nursing home. Now you've preserved it for the
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  Speaker 3: kids and the grandkids down a generation if, in fact,
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  Speaker 3: you really want to make sure you take care of
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  Speaker 3: your parents in advance of your family. I mean, and
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  Speaker 3: there's nothing wrong with that, but just be careful when
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  Speaker 3: you're doing it as to how you do it and
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  Speaker 3: how you put it together. Like anything, folks, it's like
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  Speaker 3: making a gift. This is the new guide. Be careful
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  Speaker 3: before you make the gift. Figure out the best way
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  Speaker 3: to gift or maybe not to gift. And this guide
• 10:12
  Speaker 3: gives you the estate tax, gift tax, and income tax
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  Speaker 3: issues with gifting. 866-848-GIFT. 5699 or LegalExchangeShow.com.
• 10:22
  Speaker 2: You've been listening to Todd Lutzke, a partner with the
• 10:25
  Speaker 2: law firm of Cushing and Dolan. I'm Susan Powers, a
• 10:28
  Speaker 2: financial advisor with the Armstrong Advisory Group. We've got much
• 10:31
  Speaker 2: more to come when we return to The Legal Exchange
• 10:34
  Speaker 2: with Todd Lutzke.
• 10:36
  Speaker 1: Giving assets to your children during your lifetime may sound
• 10:39
  Speaker 1: like a simple way to pass along your wealth, but
• 10:41
  Speaker 1: the way you make the gift can have important tax consequences.
• 10:45
  Speaker 1: Cushing and Dolan's new guide, Making the Most of Gifting Assets,
• 10:48
  Speaker 1: explains what you should consider before transferring property, investments, or
• 10:52
  Speaker 1: other appreciative assets to your family. If you give away
• 10:54
  Speaker 1: an asset too soon, your children could end up with
• 10:57
  Speaker 1: a larger tax bill when they eventually sell it. In
• 10:59
  Speaker 1: some cases, holding onto that asset and letting your children
• 11:02
  Speaker 1: inherit it later could reduce the capital gains tax they
• 11:05
  Speaker 1: have to pay. That's why gifting isn't just about what
• 11:08
  Speaker 1: you give. When and how you give it can make
• 11:10
  Speaker 1: a big difference. Get Cushing and Dolan's new guide, Making
• 11:13
  Speaker 1: the Most of Gifting Assets, by calling 866-848-5699. That's 866-848-5699.
• 11:16
  Speaker 1: Or you can request the guide online by visiting LegalExchangeShow.com.
• 11:25
  Speaker 1: The proceeding was paid for and the views expressed are
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  Speaker 5: Get your free copy of this new guide today by
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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: your own financial, tax, and estate planning advisors before making
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  Speaker 1: any investment decisions. Armstrong may contact you to offer investment
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  Speaker 1: advisory services. Giving assets directly to your children may create
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  Speaker 1: problems you didn't expect. Cushing and Dolan's new guide, Making
• 12:42
  Speaker 1: the Most of Gifting Assets, explains how giving away property
• 12:46
  Speaker 1: or investments could mean losing control of those assets. Learn
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  Speaker 1: about your options before you give assets away. Call 866-848-5699
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  Speaker 1: You're listening to The Legal Exchange with Todd Lutzke, an
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  Speaker 1: expert in elder life planning and taxation. Need help with
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  Speaker 1: your estate plan? Call Todd right now and make an appointment.
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  Speaker 3: 866-848-5699.
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  Speaker 1: That's 866-848-5699.
• 13:53
  Speaker 2: Welcome back into The Legal Exchange with Todd Lutzke. I'm
• 13:55
  Speaker 2: Susan Powers, a financial advisor with the Armstrong Advisory Group,
• 13:59
  Speaker 2: and I'm joined by Todd Lutzke, a partner with the
• 14:01
  Speaker 2: law firm of Cushing & Dolan with a master's in taxation.
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  Speaker 2: So we're not in Kansas anymore.
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  Speaker 3: You're right. Perfect timing. We're not. Well played. We're in Missouri.
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  Speaker 3: Close by. Yes, we are. Close by.
• 14:14
  Speaker 2: Close enough.
• 14:15
  Speaker 3: Close by.
• 14:16
  Speaker 2: Don't make me point it out on a map.
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  Speaker 1: So.
• 14:19
  Speaker 3: Head over to Missouri, right? What do we got going
• 14:21
  Speaker 3: on here? Something we don't talk a lot about, but
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  Speaker 3: specific performance in a contract and making it enforceable. And
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  Speaker 3: why is that an estate planning issue? And how does
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  Speaker 3: lack of capacity and undue influence even come into play here?
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  Speaker 2: Mm-hmm.
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  Speaker 3: Let's take a peek. Anthony, an individual, began farming Kathy's
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  Speaker 3: farm in 2007. And over the years, they had developed
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  Speaker 3: a professional relationship. Mm-hmm. And actually, over the years, they
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  Speaker 3: became good friends with each other. Anthony would even spend
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  Speaker 3: the holidays over there. And as Kathy got older, Anthony
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  Speaker 3: even started helping out with cutting the grass and picking
• 15:01
  Speaker 3: up meds and taking her to the doctor and doing
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  Speaker 3: things for her. So they're professional and friends. And he's
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  Speaker 3: running the show, running the farm. In 2016, Kathy decided
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  Speaker 3: to ask Anthony if he wanted to buy the farm.
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  Speaker 3: And he said, yeah, I would love to, but I
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  Speaker 3: can't afford it. I can never pay what you could
• 15:20
  Speaker 3: get even at auction for it. But Kathy 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 cost.
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  Speaker 3: So they continued to discuss this idea until about June
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  Speaker 3: of 2022, when they agreed on a purchase price of $ 200, 000.
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  Speaker 3: Anthony prepared the contract, but wanted to wait to have
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  Speaker 3: it signed until Kathy's daughter, Martha, was actually present and
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  Speaker 3: they could talk about it. Nice. Well, in September of 2022,
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  Speaker 3: they did execute the contract. Martha was there. And they
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  Speaker 3: did it right before Kathy moved to Colorado to live
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  Speaker 3: with Martha, the daughter. A week later, one week later,
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  Speaker 3: Martha gets a text from Kathy's neighbor to buy that
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  Speaker 3: farm for $ 450, 000. Remember, they agreed on $ 200, 000. Martha tells
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  Speaker 3: Anthony the agreement's off. Anthony sues for specific performance and
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  Speaker 3: breach of contract. Which makes sense, right? Well, Martha, as
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  Speaker 3: guardian ad litem, which raises a red flag to me,
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  Speaker 3: guardian ad litem for Kathy says that there was undue
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  Speaker 3: influence and lack of capacity as a defense when Kathy
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  Speaker 3: signed this contract.
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  Speaker 2: But Martha was there, wasn't she?
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  Speaker 3: Martha was there. Remember, this June of 22, they agreed.
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  Speaker 3: September of 22, they executed and then moved. Right. And
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  Speaker 3: a week later. So was there lack of capacity at
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  Speaker 3: that time? Well, the court said judgment for Anthony, which
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  Speaker 3: I agree with.
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  Speaker 1: Yes.
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  Speaker 3: And they appealed, of course. The appellate court affirmed. Basically
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  Speaker 3: stating that Kathy understood the nature of what she was doing,
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  Speaker 3: the effect of entering into the contract. And in fact,
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  Speaker 3: she's the one that even asked Martha to invite Anthony
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  Speaker 3: over for the signing contract. Plus, Catherine is the one
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  Speaker 3: who initiated the discussion way back when to sell the farm.
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  Speaker 2: She knew what she was doing.
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  Speaker 3: She did that back in 2016. So I'm pretty sure
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  Speaker 3: that's a good outcome.
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  Speaker 2: Yeah.
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  Speaker 3: But again, it's... And that's what she would have wanted.
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  Speaker 3: It's all about– and again, at this point, she hadn't died.
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  Speaker 1: Right.
• 17:42
  Speaker 3: She's still alive. Yeah, yeah. So that's a whole other
• 17:45
  Speaker 3: kettle of fish. What are you doing here? You don't
• 17:46
  Speaker 3: want to do stuff when I'm alive. That's not good
• 17:48
  Speaker 3: for you, Martha, in general. Yeah. But folks, again, I
• 17:52
  Speaker 3: think what we learned from this is, yes, we understand
• 17:54
  Speaker 3: enforcement of a contract. But there might be better ways
• 17:58
  Speaker 3: to get a piece of property to Anthony than this way.
• 18:01
  Speaker 3: And we're going to have to talk about this. We're
• 18:02
  Speaker 3: going to learn stuff about part sale, part gift. What
• 18:05
  Speaker 3: happened here and how does this work from a tax perspective? Well,
• 18:09
  Speaker 3: taxes come into everything, folks. And the new guide we're
• 18:11
  Speaker 3: giving away this month also deals with taxes, gift taxes,
• 18:15
  Speaker 3: income taxes, and estate taxes. How do we make the
• 18:20
  Speaker 3: most of giving assets? Ideas. Do we give them away outright?
• 18:25
  Speaker 5: 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,
• 18:31
  Speaker 3: but we gain estate tax savings. Got to compare the difference.
• 18:35
  Speaker 3: Am I saving federally or just state estate tax? Is
• 18:38
  Speaker 3: it worth it to save 10% and lose a 30%
• 18:41
  Speaker 3: step up in basis on the capital gains front?
• 18:43
  Speaker 2: Got to do the math.
• 18:44
  Speaker 3: Got to do the math. From a Medicaid perspective, jointly
• 18:48
  Speaker 3: owned bank accounts versus investment accounts, right? Is it half protected?
• 18:53
  Speaker 3: Is it fully protected? Does it protect it at all?
• 18:56
  Speaker 3: That's a protection question from a gift, right? You got
• 18:59
  Speaker 3: to really consider, can we give it away and decide
• 19:01
  Speaker 3: to still enjoy what we gave away with slats for
• 19:04
  Speaker 3: higher net worth clients? All of this is in the guide, folks.
• 19:08
  Speaker 3: Learn how to make the most of your gifting. Get
• 19:10
  Speaker 3: the new guide, 866-848-5699 or LegalExchangeShow.com. Again, 866-848-5699 or LegalExchangeShow.com.
• 19:17
  Speaker 3: So when you have a guardian ad litem, is it
• 19:18
  Speaker 3: only when you're incompetent? I'm just wondering if she started
• 19:32
  Speaker 3: to decline. Yeah, usually it's some kind of incapacity is
• 19:34
  Speaker 3: where you can't make decisions yourself. There's no power of attorney. Remember,
• 19:38
  Speaker 3: if you've got a power of attorney, you can likely
• 19:41
  Speaker 3: act on behalf, at least with regard to money and
• 19:44
  Speaker 3: monetary decisions and paying bills. You might need a health
• 19:47
  Speaker 3: care proxy to deal with. power over the person, right?
• 19:52
  Speaker 3: But yeah, pretty much some kind of incapacity. So what
• 19:57
  Speaker 3: I like to see here is our tips and lessons are, look,
• 20:00
  Speaker 3: contracts are like trusts. They're enforceable.
• 20:04
  Speaker 2: Right.
• 20:05
  Speaker 3: We follow them.
• 20:06
  Speaker 2: Right.
• 20:06
  Speaker 3: There's a sense to carry out the wishes of the individual,
• 20:09
  Speaker 3: whether it's a contract, whether it's a trust. You know,
• 20:13
  Speaker 3: clearly here there was no undue influence. I mean, I
• 20:15
  Speaker 3: don't see it.
• 20:16
  Speaker 2: Right.
• 20:17
  Speaker 3: But but again, what I do think about is, you know,
• 20:20
  Speaker 3: when she moved to Colorado and became guardian, why did
• 20:27
  Speaker 3: she have to become guardian? You know, in June of 2022,
• 20:30
  Speaker 3: she was competent to sign. In September of 2022, suddenly
• 20:37
  Speaker 3: she's under guardianship. Right. So I'm a little strange, a
• 20:41
  Speaker 3: little concerned really about that. And so maybe if there's
• 20:45
  Speaker 3: any undue influence, maybe it's Martha who's unduly influencing mom
• 20:52
  Speaker 3: and saying, mom, you got to avoid this contract because...
• 20:55
  Speaker 3: It'll mean a bigger inheritance for me. It'll mean a
• 20:57
  Speaker 3: bigger inheritance for me. So I'm going to be better
• 20:59
  Speaker 3: off if you... That's exactly right, Susan.
• 21:01
  Speaker 1: Yeah.
• 21:02
  Speaker 3: So I worry a little bit about that. But that
• 21:05
  Speaker 3: didn't come up and it didn't matter because the judge
• 21:07
  Speaker 3: gave the right decision. What about taxes here? I always
• 21:12
  Speaker 3: think about taxes, right? That's what I do. So what's
• 21:14
  Speaker 3: going on here? Can you sell the property for less
• 21:16
  Speaker 3: than fair market value? Do people do that all the
• 21:19
  Speaker 3: time to their children? Do we hear, child, I want
• 21:21
  Speaker 3: to sell you the property. I'm going to sell it
• 21:23
  Speaker 3: to you for half price.
• 21:24
  Speaker 4: Right.
• 21:24
  Speaker 3: Because I love you. Okay. Can you?
• 21:27
  Speaker 1: Yeah.
• 21:28
  Speaker 3: Well, what does the government think about that? Well, it's
• 21:30
  Speaker 3: a part sale. gift, which is okay. So that means
• 21:35
  Speaker 3: that the piece you buy, so in this case, the $ 200, 000
• 21:37
  Speaker 3: that he's getting would be his basis. But it's really
• 21:43
  Speaker 3: worth $ 450, 000 because we got a willing buyer, willing seller
• 21:47
  Speaker 3: telling us that it's worth $ 450, 000. So it would seem
• 21:51
  Speaker 3: to me that we've made a $ 200, 000 purchase and a $ 250, 000 gift.
• 21:53
  Speaker 5: Yep.
• 21:59
  Speaker 3: So then you have to run the numbers and say, really,
• 22:01
  Speaker 3: I have– so from a tax perspective, there will be
• 22:06
  Speaker 3: a capital gain on whatever the $ 200, 000 piece is worth.
• 22:10
  Speaker 3: Let's just say it's close to half. But then there
• 22:13
  Speaker 3: will be a taxable gift, and this is all by Cathy.
• 22:18
  Speaker 2: Wow, it's a big domino effect, right?
• 22:20
  Speaker 3: Yeah, so Cathy is going to have the taxable gift
• 22:23
  Speaker 3: of the $ 250, 000 and a capital gains tax, which will
• 22:25
  Speaker 3: be less because– The gain will be less. It's only
• 22:30
  Speaker 3: on a portion of the overall amount. So that's what's
• 22:35
  Speaker 3: happening on her side. But on his side, he's now
• 22:39
  Speaker 3: got a low basis because he's got a $ 200, 000 cost
• 22:42
  Speaker 3: basis that he paid for it and a carryover basis
• 22:46
  Speaker 3: for the $ 250, 000 piece. So if there's 50% was purchased
• 22:48
  Speaker 3: and 50% was a gift, well, then 50% of the
• 22:55
  Speaker 3: cost basis is his basis plus the 50% he paid.
• 23:01
  Speaker 3: So his basis is lower, which is going to result
• 23:03
  Speaker 3: in capital gains tax liability down the way.
• 23:07
  Speaker 2: When he sells it to the neighbor for 450.
• 23:09
  Speaker 3: Exactly. Exactly. Right. That's a really good point. But in
• 23:14
  Speaker 3: any event, the step up and a better way to
• 23:17
  Speaker 3: do it might've been to use a trust folks, but
• 23:19
  Speaker 3: In most cases, think about it. Think about planning. Think
• 23:22
  Speaker 3: about gifting. Get the guide, making the most of gifting
• 23:25
  Speaker 3: your assets. Please learn how to do it before you
• 23:29
  Speaker 3: do it, or maybe it'll tell you not to do it.
• 23:32
  Speaker 3: 866-848-5699 or LegalExchangeShow.com.
• 23:38
  Speaker 2: You've been listening to Todd Lutzky, a partner with the
• 23:41
  Speaker 2: law firm of Cushing and Dolan. I'm Susan Powers, a
• 23:44
  Speaker 2: financial advisor with the Armstrong Advisory Group. Todd will be
• 23:47
  Speaker 2: answering your listener questions when we return to The Legal
• 23:50
  Speaker 2: Exchange with Todd Lutzky.
• 23:52
  Speaker 1: Giving assets to your children during your lifetime may sound
• 23:55
  Speaker 1: like a simple way to pass along your wealth, but
• 23:57
  Speaker 1: the way you make the gift can have important tax consequences.
• 24:01
  Speaker 1: Cushing and Dolan's new guide, Making the Most of Gifting Assets,
• 24:04
  Speaker 1: explains what you should consider before transferring property, investments, or
• 24:08
  Speaker 1: other appreciative assets to your family. If you give away
• 24:11
  Speaker 1: an asset too soon, your children could end up with
• 24:13
  Speaker 1: a larger tax bill when they eventually sell it. In
• 24:16
  Speaker 1: some cases, holding on to that asset and letting your
• 24:18
  Speaker 1: children inherit it later could reduce the capital gains tax
• 24:21
  Speaker 1: they have to pay. That's why gifting isn't just about
• 24:24
  Speaker 1: what you give. When and how you give it can
• 24:26
  Speaker 1: make a big difference. Get Cushing and Dolan's new guide,
• 24:29
  Speaker 1: Making the Most of Gifting Assets, by calling 866-848-5699. That's 866-848-5699.
• 24:32
  Speaker 1: Or you can request the guide online by visiting LegalExchangeShow.com.
• 24:42
  Speaker 1: The proceeding was paid for and the views expressed are
• 24:43
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 24:45
  Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
• 24:48
  Speaker 1: Cushing and Dolan and Armstrong Advisory do not endorse each
• 24:51
  Speaker 1: other and are not affiliated.
• 24:52
  Speaker 3: Seeing some high volume out there on those roads today, folks.
• 24:56
  Speaker 2: Sound familiar?
• 24:57
  Speaker 1: The Braintree split is backed up.
• 24:59
  Speaker 2: If your commute feels endless, it might be time to
• 25:01
  Speaker 2: ask a bigger question. Are you working because you want
• 25:04
  Speaker 2: to or because you think you have to? At the
• 25:06
  Speaker 2: Armstrong Advisory Group, our financial advisors help individuals and families
• 25:10
  Speaker 2: build retirement income plans designed around their goals, savings, Social Security,
• 25:16
  Speaker 2: investments and overall financial picture. Retirement shouldn't be a guessing game.
• 25:20
  Speaker 2: If you're concerned about what path you're on or have
• 25:22
  Speaker 2: questions about your financial plan, we may be able to help.
• 25:26
  Speaker 2: Visit armstrongadvisory.com and schedule a no-obligation meeting. The Armstrong Advisory Group.
• 25:32
  Speaker 2: We answer only to you. Schedule your meeting today at armstrongadvisory.com.
• 25:36
  Speaker 2: That's armstrongadvisory.com.
• 25:39
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
• 25:41
  Speaker 1: registered investment advisor. Nothing in the ad or in any
• 25:43
  Speaker 1: Armstrong guide is specific financial, legal, or tax advice. Consult
• 25:46
  Speaker 1: your own financial, tax, and estate planning advisors before making
• 25:48
  Speaker 1: any investment decisions. Armstrong may contact you to offer investment
• 25:51
  Speaker 1: advisory services. Giving assets directly to your children may create
• 25:55
  Speaker 1: problems you didn't expect. Cushing and Dolan's new guide, Making
• 25:58
  Speaker 1: the Most of Gifting Assets, explains how giving away property
• 26:02
  Speaker 1: or investments could mean losing control of those assets. Learn
• 26:05
  Speaker 1: about your options before you give assets away. Call 866-848-5699
• 26:08
  Speaker 1: or visit LegalExchangeShow.com. The proceeding was paid for and the
• 26:14
  Speaker 1: views expressed are solely those of Cushing and Dolan. Cushing
• 26:16
  Speaker 1: and Dolan and or Armstrong Advisory may contact your offering
• 26:18
  Speaker 1: legal or investment services. Cushing and Dolan and Armstrong Advisory
• 26:20
  Speaker 1: do not endorse each other and are not affiliated.
• 26:22
  Speaker 4: For many Massachusetts veterans, getting to a medical appointment isn't
• 26:26
  Speaker 4: always easy. That's why the Disabled American Veterans Department of
• 26:29
  Speaker 4: Massachusetts provides free transportation to VA medical appointments through its
• 26:34
  Speaker 4: network of dedicated drivers. Every mile helps a veteran get
• 26:38
  Speaker 4: the care they've earned through their service. You can help
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• 26:47
  Speaker 4: That's DAVMA.org.
• 26:54
  Speaker 1: You're listening to The Legal Exchange, and it's time for
• 26:57
  Speaker 1: Ask Todd, the segment where Todd will answer your questions
• 27:01
  Speaker 1: about anything and everything that's included in the estate planning process.
• 27:05
  Speaker 1: Once again, here's Todd Lutzke and Susan Powers.
• 27:09
  Speaker 2: Welcome back, Todd. We have a few questions from listeners.
• 27:13
  Speaker 2: First question comes from Barbara in Newton, Mass., and Barbara writes,
• 27:16
  Speaker 2: My father is on hospice and not expected to live long.
• 27:19
  Speaker 2: Is there a benefit to gifting any assets to the
• 27:22
  Speaker 2: family now to bring his estate down? His total net
• 27:26
  Speaker 2: worth is $ 2. 5 million, and he has a lot of
• 27:28
  Speaker 2: cash in the bank that he could gift. Should he
• 27:30
  Speaker 2: give away $ 500, 000 to get below the Massachusetts $ 2 million
• 27:33
  Speaker 2: exemption amount?
• 27:38
  Speaker 3: Interesting.
• 27:38
  Speaker 2: Wave your magic wand here, would you?
• 27:40
  Speaker 3: So this is a great analysis that has to be run, right?
• 27:44
  Speaker 3: Because it's not a lot over the $ 2 million exemption.
• 27:49
  Speaker 3: It's only $ 500, 000 over the $ 2 million exemption. So my
• 27:54
  Speaker 3: initial gut reaction would be, why am I trying to
• 27:57
  Speaker 3: save approximately 12% on $ 500, 000? If in fact doing that
• 28:06
  Speaker 3: would result in a capital gains tax with a carryover
• 28:10
  Speaker 3: basis of what I give.
• 28:11
  Speaker 2: Right.
• 28:13
  Speaker 3: At 28.8%. The answer is I wouldn't do that. But
• 28:18
  Speaker 3: your facts are a little different. Your facts say he's
• 28:22
  Speaker 3: got plenty of cash.
• 28:24
  Speaker 2: Yeah.
• 28:25
  Speaker 3: To gift.
• 28:25
  Speaker 2: We like cash. Cash is king.
• 28:27
  Speaker 3: That's right. If we gift away the $ 500, 000 of cash.
• 28:33
  Speaker 3: There is a zero capital gains tax problem because it's cash.
• 28:38
  Speaker 3: So we don't have to worry about the 28% loss
• 28:41
  Speaker 3: of step-up in basis. And we can reduce the estate
• 28:45
  Speaker 3: down to $ 2 million. And in Massachusetts, under the new rule,
• 28:54
  Speaker 3: we don't have to worry about that cliff rule anymore. Remember,
• 28:58
  Speaker 3: if you go a little bit over, you pay tax
• 29:00
  Speaker 3: on everything, and then they reduce the exemption?
• 29:02
  Speaker 2: Yeah.
• 29:03
  Speaker 3: So in this case, we, under the new rule that
• 29:06
  Speaker 3: it's $ 2 million, they will take the 2.5, lower it
• 29:10
  Speaker 3: to two. So now your estate is two and yes,
• 29:14
  Speaker 3: your exemption is technically 1.5, right? So for filing purposes,
• 29:22
  Speaker 3: we now have to file an estate tax in mass
• 29:25
  Speaker 3: because our exemption is 1.5 and our estate is 2 million.
• 29:28
  Speaker 1: Yep.
• 29:30
  Speaker 2: Okay, we're... Doesn't that mean you have to pay taxes?
• 29:33
  Speaker 3: We got to file. Let's make it $ 2, 000, 001. Yeah. You
• 29:35
  Speaker 3: got to file. So we got to file. But the new...
• 29:39
  Speaker 3: calculation under the mass estate tax would be, okay, what's
• 29:44
  Speaker 3: the tax on $ 2, 000, 000? The tax on $ 2, 000, 000, about 10%,
• 29:46
  Speaker 3: it's $ 99, 600.
• 29:46
  Speaker 1: Call it 99.6.
• 29:47
  Speaker 3: That's exactly the tax on $ 2, 000, 000.
• 29:48
  Speaker 5: Yep.
• 29:58
  Speaker 3: But the new calculation gives us a credit of 99.6.
• 30:03
  Speaker 4: Nice.
• 30:05
  Speaker 3: Remember, the $ 2 million is the threshold.
• 30:07
  Speaker 1: Yeah.
• 30:07
  Speaker 3: Well, the tax on $ 2 million is 99.6, and we
• 30:11
  Speaker 3: get a credit for 99.6. So even though we had
• 30:14
  Speaker 3: to file because they lowered the threshold by $ 500, 000 for
• 30:17
  Speaker 3: the taxable gift that you made.
• 30:18
  Speaker 2: Yep.
• 30:22
  Speaker 3: It doesn't matter because you'll calculate the tax on $ 2 million.
• 30:25
  Speaker 3: It's 99.6, and then you get to apply a credit
• 30:28
  Speaker 3: of 99.6, so your tax due is zero.
• 30:32
  Speaker 2: So zero on that. So if they didn't have money
• 30:35
  Speaker 2: in the bank, and let's say they had low-cost basis
• 30:38
  Speaker 2: stocks that they decided to gift away because they didn't
• 30:42
  Speaker 2: get good advice.
• 30:44
  Speaker 3: Then you have to think about it.
• 30:45
  Speaker 2: So then it would have been, you know, for easy math,
• 30:48
  Speaker 2: say it's a third of that 500, right, that they're
• 30:51
  Speaker 2: going to pay tax on?
• 30:52
  Speaker 3: Yeah, so you would say if I've got $ 500, 000 of
• 30:55
  Speaker 3: built-in gain and I give that away, there's 28.8% of
• 30:59
  Speaker 3: built-in gain that would be subject to tax on $ 500, 000.
• 31:02
  Speaker 3: So five times three is $ 150, 000. Close. If I die
• 31:04
  Speaker 3: with $ 2. 5 million in Massachusetts, the tax is probably $ 150, 000.
• 31:15
  Speaker 3: But I get $ 100, 000 credit. So I'm paying 50 grand.
• 31:19
  Speaker 1: Right.
• 31:19
  Speaker 3: Way better.
• 31:20
  Speaker 2: So you cause yourself to pay 100 grand extra by
• 31:23
  Speaker 2: just giving away those.
• 31:24
  Speaker 3: Exactly. That's exactly right. I don't want to give that
• 31:27
  Speaker 3: away because then I'd rather just pay Massachusetts.
• 31:30
  Speaker 2: So you got to be careful and do the math.
• 31:31
  Speaker 3: You really do, folks. And that's exactly what this guide does.
• 31:35
  Speaker 3: It gives you the whole tables. It gives you the calculations.
• 31:39
  Speaker 3: It says, here's what you gift, how you gift, when
• 31:42
  Speaker 3: you gift. Think about it from do I want to
• 31:45
  Speaker 3: give away assets and still retain control? So for higher
• 31:49
  Speaker 3: net worth people, slats are available and you can actually
• 31:53
  Speaker 3: figure out a way to gift and retain control. We
• 31:55
  Speaker 3: just discussed whether to give away and give up a
• 31:58
  Speaker 3: step up in basis or pay the estate tax. From
• 32:01
  Speaker 3: a Medicaid perspective, maybe you think you own things jointly
• 32:04
  Speaker 3: like an investment account or a bank account and you
• 32:07
  Speaker 3: somehow protected half because you made a gift of half.
• 32:10
  Speaker 3: Maybe not. Learn how it is from that perspective. Then
• 32:13
  Speaker 3: it also talks about it from, you know, what about
• 32:16
  Speaker 3: a rental property? Oh, I probably don't want to give
• 32:18
  Speaker 3: that away with a whole bunch of depreciation built in. Folks,
• 32:22
  Speaker 3: so many things to think about. Get the guide. Brand new.
• 32:26
  Speaker 3: Making the most of gifting assets. 866-848-5699 or LegalExchangeShow.com. Again,
• 32:29
  Speaker 3: 866-848-5699 or LegalExchangeShow.com.
• 32:41
  Speaker 2: Well, you're going to be able to talk about that
• 32:42
  Speaker 2: rental property, Todd, because Dawn from Boylston has a question
• 32:45
  Speaker 2: for you.
• 32:46
  Speaker 3: Oh, excellent.
• 32:46
  Speaker 2: And she writes, now that Massachusetts has increased the estate
• 32:49
  Speaker 2: tax exemption to $ 2 million, couldn't I just give my
• 32:52
  Speaker 2: largest assets away while I'm living and die owning less
• 32:56
  Speaker 2: than $ 2 million? I am worth around $ 3. 5 million, and
• 32:59
  Speaker 2: I could gift a $ 1 million vacation home and a
• 33:02
  Speaker 2: $ 1 million rental property to each of my children.
• 33:06
  Speaker 1: Wow.
• 33:07
  Speaker 3: So if she did that, let me see if I'm
• 33:08
  Speaker 3: doing the math right. That would take her $ 3. 5 million
• 33:11
  Speaker 3: down to $ 1. 5 million.
• 33:13
  Speaker 1: Mm-hmm.
• 33:14
  Speaker 3: Yeah. I'm not jumping up and down about this one. So, again,
• 33:19
  Speaker 3: compared to Barbara's question, which we were jumping up and
• 33:21
  Speaker 3: down about. We had cash on.
• 33:23
  Speaker 1: Yeah.
• 33:23
  Speaker 3: Here we don't, right? So here we've got a vacation home,
• 33:28
  Speaker 3: which let's assume it wasn't even rented, but maybe bought
• 33:31
  Speaker 3: 30 years ago. Which is not uncommon. So, I mean,
• 33:35
  Speaker 3: maybe she's got a– maybe she paid– For that million-dollar home,
• 33:38
  Speaker 3: maybe she paid.
• 33:40
  Speaker 2: $ 100, 000.
• 33:41
  Speaker 3: It's now got $ 900, 000 of gain built in it. And
• 33:45
  Speaker 3: that's not uncommon. No, it's not. And more importantly, the
• 33:49
  Speaker 3: bigger issue is what about this rental property? If she's
• 33:51
  Speaker 3: been renting this property for more than 27 1⁄2 years,
• 33:55
  Speaker 3: it's very possible that the basis is zero.
• 33:57
  Speaker 2: Right.
• 33:58
  Speaker 3: Because, folks, what depreciation is is when you rent it,
• 34:02
  Speaker 3: you get a deduction. You take the value of whatever
• 34:05
  Speaker 3: it was you paid for it. So if you paid $ 500, 000,
• 34:08
  Speaker 3: over the next 27 and a half years, you will
• 34:10
  Speaker 3: take that $ 500, 000 basis and reduce it to zero by
• 34:14
  Speaker 3: taking incremental parts of it as a deduction each year
• 34:18
  Speaker 3: against your rent. So you pay less income tax because
• 34:22
  Speaker 3: of this phantom deduction, but they come back and get
• 34:25
  Speaker 3: you later because the basis has been reduced. And so
• 34:28
  Speaker 3: when you go to sell it, they recapture that depreciation.
• 34:33
  Speaker 3: So very important that we understand that. Especially if you're gifting.
• 34:38
  Speaker 1: Yeah.
• 34:39
  Speaker 3: So if for whatever reason we wanted to give away
• 34:42
  Speaker 3: just a million dollar rental. Well, let's say we give away,
• 34:45
  Speaker 3: it says both. So let's do both. And let's say
• 34:47
  Speaker 3: there's a million dollars built-in gain in the rental and 900,000
• 34:53
  Speaker 3: built-in gain on the vacation home.
• 34:56
  Speaker 2: So you have 1.9 million.
• 34:58
  Speaker 3: Of built-in gain.
• 34:58
  Speaker 2: Of gain and 100,000 cost basis. Say she did this
• 35:03
  Speaker 2: in a vacuum without any legal advice at all.
• 35:05
  Speaker 3: That's got to be $ 550, 000 of capital gains tax, somewhere
• 35:10
  Speaker 3: around there.
• 35:11
  Speaker 2: Easily, because you've got the depreciation recapture.
• 35:15
  Speaker 3: If you took $ 2 million times 30%, that's $ 600, 000. I'm
• 35:19
  Speaker 3: using 30, which is a little higher than 28.8 because
• 35:23
  Speaker 3: of depreciation. The other trick with depreciation, folks, is depreciation
• 35:27
  Speaker 3: piece of the gain is taxed as ordinary income. It's
• 35:31
  Speaker 3: not capital gains tax.
• 35:33
  Speaker 2: Got it.
• 35:34
  Speaker 3: So when they recapture that, that piece is taxed as
• 35:37
  Speaker 3: ordinary income. The appreciation is taxed as gain.
• 35:41
  Speaker 1: Right.
• 35:42
  Speaker 3: So it's higher.
• 35:44
  Speaker 2: But at that level, it would be in the 20%.
• 35:47
  Speaker 3: We're looking at $ 600, 000. Easily. Easily.
• 35:49
  Speaker 2: Probably conservatively.
• 35:51
  Speaker 3: So, okay. You need to know that. All right. I'm
• 35:55
  Speaker 3: giving my family a $ 600, 000 tax bill. If I don't,
• 36:01
  Speaker 3: If I do that, then I'm going to have no
• 36:02
  Speaker 3: mass tax. We just went through the calculation on the
• 36:04
  Speaker 3: last one. We get the credit. There's no mass tax.
• 36:07
  Speaker 2: No mass, no federal, easy peasy.
• 36:10
  Speaker 3: But if I don't do it and I die owning it,
• 36:14
  Speaker 3: I get a full step up in basis, eliminating the $ 600, 000
• 36:16
  Speaker 3: in tax, and I got to pay tax in mass
• 36:17
  Speaker 3: on $ 1. 5 million.
• 36:17
  Speaker 5: So on $ 1.
• 36:18
  Speaker 3: 5 million, the tax is about $ 150, 000. Versus $ 600, 000. I'm good.
• 36:30
  Speaker 3: Don't gift. Folks, learn how to gift or not gift. 866-848-5699.
• 36:38
  Speaker 2: If you have a question you would like to ask Todd,
• 36:40
  Speaker 2: visit his website, LegalExchangeShow.com, and click on the Ask Todd tab.
• 36:45
  Speaker 2: Maybe I'll be able to read your question on the air,
• 36:48
  Speaker 2: and hopefully his answer will stop you from becoming one
• 36:50
  Speaker 2: of his next real-life stories. You've been listening to Todd Lutzke,
• 36:55
  Speaker 2: a partner with the law firm of Cushing & Dolan.
• 36:58
  Speaker 2: I'm Susan Powers, a financial advisor with the Armstrong Advisory Group.
• 37:02
  Speaker 2: We'll be back with more after this quick break on
• 37:05
  Speaker 2: The Legal Exchange with Todd Lutzky.
• 37:07
  Speaker 1: Giving assets to your children during your lifetime may sound
• 37:10
  Speaker 1: like a simple way to pass along your wealth, but
• 37:13
  Speaker 1: the way you make the gift can have important tax consequences.
• 37:16
  Speaker 1: Cushing and Dolan's new guide, Making the Most of Gifting Assets,
• 37:19
  Speaker 1: explains what you should consider before transferring property, investments, or
• 37:23
  Speaker 1: other appreciative assets to your family. If you give away
• 37:26
  Speaker 1: an asset too soon, your children could end up with
• 37:28
  Speaker 1: a larger tax bill when they eventually sell it. In
• 37:31
  Speaker 1: some cases, holding on to that asset and letting your
• 37:34
  Speaker 1: children inherit it later could reduce the capital gains tax
• 37:36
  Speaker 1: they have to pay. That's why gifting isn't just about
• 37:39
  Speaker 1: what you give. When and how you give it can
• 37:41
  Speaker 1: make a big difference. Get Cushing and Dolan's new guide,
• 37:45
  Speaker 1: Making the Most of Gifting Assets, by calling 866-848-5699. That's 866-848-5699.
• 37:53
  Speaker 1: Or you can request the guide online by visiting LegalExchangeShow.com.
• 37:57
  Speaker 1: The proceeding was paid for and the views expressed are
• 37:59
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 38:01
  Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
• 38:04
  Speaker 1: Cushing and Dolan and Armstrong Advisory do not endorse each
• 38:06
  Speaker 1: other and are not affiliated.
• 38:08
  Speaker 4: For many Massachusetts veterans, getting to a medical appointment isn't
• 38:11
  Speaker 4: always easy. That's why the Disabled American Veterans Department of
• 38:15
  Speaker 4: Massachusetts provides free transportation to VA medical appointments through its
• 38:20
  Speaker 4: network of dedicated drivers. Every mile helps a veteran get
• 38:24
  Speaker 4: the care they've earned through their service. You can help
• 38:27
  Speaker 4: by volunteering or making a donation. Learn more at DAVMA.org.
• 38:32
  Speaker 4: That's DAVMA.org.
• 38:38
  Speaker 5: Your life changes over time, and the amount you keep
• 38:40
  Speaker 5: in your emergency fund may need to change with it.
• 38:43
  Speaker 5: This is Mike Armstrong from the Armstrong Advisory Group. Our
• 38:46
  Speaker 5: new guide, Building and Sizing Your Emergency Fund, can help
• 38:49
  Speaker 5: you take a fresh look at the money you've set
• 38:52
  Speaker 5: aside for the unexpected. A new job, a move, a
• 38:55
  Speaker 5: growing family, or a sudden change in your income can
• 38:57
  Speaker 5: all affect how much you need in reserve. The guide
• 39:00
  Speaker 5: can help you review your essential monthly expenses, set a
• 39:03
  Speaker 5: target for your emergency savings, and decide where that money
• 39:07
  Speaker 5: should be kept so it's accessible when you need it.
• 39:09
  Speaker 5: Get your free copy of Building and Sizing Your Emergency
• 39:12
  Speaker 5: Fund by calling the Armstrong Advisory Group at 800-393-4001. That's 800-393-4001,
• 39:20
  Speaker 5: or you can request the guide online at armstrongadvisory.com.
• 39:25
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
• 39:27
  Speaker 1: registered investment advisor. Nothing in the ad or in any
• 39:29
  Speaker 1: Armstrong Giving assets to your children can be part of
• 39:40
  Speaker 1: an estate plan, but giving them away directly can create
• 39:44
  Speaker 1: problems you may not expect. Cushing and Dolan's new guide,
• 39:47
  Speaker 1: Making the Most of Gifting Assets, explains what to consider
• 39:50
  Speaker 1: before you transfer assets to your family. Once you give
• 39:53
  Speaker 1: an asset directly to someone else, it's no longer yours.
• 39:56
  Speaker 1: You may lose control over it. And if your child
• 39:58
  Speaker 1: runs into financial trouble or goes through a divorce, that
• 40:01
  Speaker 1: asset could be at risk. This new guide suggests ways
• 40:04
  Speaker 1: to pass along assets while keeping them better protected. So
• 40:08
  Speaker 1: before you give away property, investments, or other assets, make
• 40:11
  Speaker 1: sure you understand your options. Get Cushing and Dolan's new guide,
• 40:15
  Speaker 1: Making the Most of Gifting Assets, by calling 866-848-5699. That's 866-848-5699.
• 40:18
  Speaker 1: Or you can request the guide online by visiting LegalExchangeShow.com.
• 40:28
  Speaker 1: The proceeding was paid for and the views expressed are
• 40:29
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 40:32
  Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
• 40:35
  Speaker 1: Cushing and Dolan and Armstrong Advisory do not endorse each
• 40:37
  Speaker 1: other and are not affiliated. You're tuned to The Legal
• 40:40
  Speaker 1: Exchange with Todd Lutzke. If you or a loved one
• 40:42
  Speaker 1: needs a nursing home stay, call Todd right now at
• 40:45
  Speaker 1: 866-848-5699 and let him make sure your assets are protected.
• 40:50
  Speaker 1: That's 866-848-5699 or visit him online at LegalExchangeShow.com.
• 40:57
  Speaker 2: Welcome back into The Legal Exchange with Todd Lutzky. I'm
• 41:00
  Speaker 2: Susan Powers, a financial advisor with the Armstrong Advisory Group,
• 41:04
  Speaker 2: and I'm joined, of course, by Todd Lutzky, a partner
• 41:07
  Speaker 2: with the law firm of Cushing & Dolan with a
• 41:09
  Speaker 2: master's in taxation. So, Todd, this month we're talking all
• 41:13
  Speaker 2: about gifting those assets, getting ready for, you know, the
• 41:16
  Speaker 2: gifting season.
• 41:17
  Speaker 3: Yes, it's coming.
• 41:18
  Speaker 2: Before you know it.
• 41:19
  Speaker 3: Mm-hmm.
• 41:20
  Speaker 2: Can't even believe it.
• 41:21
  Speaker 5: I know.
• 41:22
  Speaker 1: So.
• 41:23
  Speaker 2: It can be an important tool that you use with
• 41:25
  Speaker 2: your higher net worth clients in their estate planning process.
• 41:30
  Speaker 2: So how do you actually go about reducing your estate
• 41:34
  Speaker 2: taxes by gifting? Because I've heard you say a million times,
• 41:38
  Speaker 2: don't just give it away. So you're not recommending that
• 41:42
  Speaker 2: your higher net worth clients transfer and just put their
• 41:45
  Speaker 2: assets in their kids' names, for example, correct?
• 41:48
  Speaker 3: Right. Yeah, I would never do that. And in fact,
• 41:51
  Speaker 3: when we're talking about higher net worth clients, they're probably
• 41:56
  Speaker 3: not interested in giving it away and not having it.
• 41:59
  Speaker 4: Right.
• 42:00
  Speaker 3: So 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,
• 42:11
  Speaker 3: we're in January one under the big, beautiful bill, the
• 42:15
  Speaker 3: exemption is going to be 15 million.
• 42:18
  Speaker 1: Okay.
• 42:19
  Speaker 3: So we can shelter 30 million. As a married couple.
• 42:24
  Speaker 2: So you're talking about reducing federal estate taxes. You're not
• 42:27
  Speaker 2: on the state level when you're doing this type of.
• 42:29
  Speaker 3: Generally speaking, we're not using spousal lifetime access trusts for
• 42:34
  Speaker 3: people when they're just dealing with state estate tax. I
• 42:39
  Speaker 3: would say never.
• 42:40
  Speaker 2: Got it.
• 42:41
  Speaker 3: Okay. But yeah, these higher net worth clients. And again,
• 42:45
  Speaker 3: they would be thinking about in terms of giving away,
• 42:48
  Speaker 3: you know, 10 million, 20 million, right? I mean, big numbers.
• 42:53
  Speaker 3: And when we give away these big numbers, those are
• 42:55
  Speaker 3: the kind of people that are saying, yes, we want
• 42:57
  Speaker 3: to get it out of our estate. I get it.
• 43:00
  Speaker 3: But wait a minute. I want to have a nice life.
• 43:06
  Speaker 3: I want to have a nice life when I do it.
• 43:09
  Speaker 3: So a couple of things to think about. And so
• 43:13
  Speaker 3: when we talk about giving away 10 or 20 million
• 43:15
  Speaker 3: and moving it out of the estate, why am I
• 43:19
  Speaker 3: not worried about the basis? Right. I'm not worried. I
• 43:24
  Speaker 3: still am. I always worry about basis. If I can
• 43:26
  Speaker 3: do both, I want to. I want to save the
• 43:29
  Speaker 3: step up or give away highly appreciated assets if I can.
• 43:34
  Speaker 3: But here you're dealing with a federal and likely a
• 43:37
  Speaker 3: state tax. Here in Massachusetts anyway, the two combined put
• 43:43
  Speaker 3: you at darn close to 50%.
• 43:44
  Speaker 1: Yeah.
• 43:47
  Speaker 3: Well, if I'm saving 50% on a gift, then I
• 43:50
  Speaker 3: no longer care about the 28.8% that I'm trapping.
• 43:54
  Speaker 2: Because you're still half as much ballpark as it would
• 43:58
  Speaker 2: be if you kept it in your estate.
• 43:59
  Speaker 1: Yeah.
• 44:00
  Speaker 3: So that's a way better savings. And really, there's another
• 44:03
  Speaker 3: thing to think about with that. And that's just one piece.
• 44:05
  Speaker 3: And I know we have more to talk about, but.
• 44:08
  Speaker 3: That's you're right. There's a no brainer. I'm saving it
• 44:11
  Speaker 3: that way. But also remember, even though I'm trapping the
• 44:13
  Speaker 3: capital gains when I do this, even though I say
• 44:16
  Speaker 3: 50 percent on the death tax.
• 44:17
  Speaker 1: Yep.
• 44:18
  Speaker 3: That 50 percent of the death tax, if I didn't
• 44:20
  Speaker 3: give it away, is due hard stop nine months after death.
• 44:25
  Speaker 3: No planning. You got to pay it. Capital gains tax,
• 44:29
  Speaker 3: on the other hand, that I've trapped for the kids,
• 44:31
  Speaker 3: they can have some wiggle room, right? they don't have
• 44:33
  Speaker 3: to pay that capital gains tax till they actually sell.
• 44:37
  Speaker 3: So maybe they can say, well, I've got some losses
• 44:39
  Speaker 3: this year. Maybe I'll sell some and I can offset
• 44:42
  Speaker 3: my sale, my gain with my losses. I can, you know,
• 44:44
  Speaker 3: there's a little bit of tax planning that can be
• 44:47
  Speaker 3: done on the capital gains front, whereas on the estate tax,
• 44:51
  Speaker 3: nine months, hard stop, pay the bill.
• 44:54
  Speaker 2: Okay.
• 44:54
  Speaker 3: So things to think about like that. Now, That gets
• 44:59
  Speaker 3: you back to the guide, folks. This is in here.
• 45:01
  Speaker 3: We're talking this time about spousal lifetime access trusts, giving
• 45:06
  Speaker 3: away and retaining control. There's other kinds. Give away, as
• 45:10
  Speaker 3: you said, Susan, but not to the kids, to a
• 45:13
  Speaker 3: gifting trust for the kids. That's different than slats, right?
• 45:17
  Speaker 3: We need to think about what we give away, like
• 45:19
  Speaker 3: we talked about, rental properties, vacation homes, maybe not. From
• 45:23
  Speaker 3: a Medicaid perspective, do I think if I give it away,
• 45:28
  Speaker 3: am I protecting it from the nursing home? But what
• 45:30
  Speaker 3: are the tax ramifications? If I own property jointly, how
• 45:34
  Speaker 3: is that affected from a Medicaid perspective? So there's nursing
• 45:38
  Speaker 3: home perspectives in here. There's gift estate and income tax perspectives.
• 45:42
  Speaker 3: Learn how to give away your assets or not.
• 45:46
  Speaker 5: 866-848-5699.
• 45:51
  Speaker 3: Or LegalExchangeShow.com, making the most of gifting your assets, 866-848-5699,
• 46:00
  Speaker 3: or LegalExchangeShow.com, new guide for the month.
• 46:04
  Speaker 2: So the Spousal Lifetime Access Trust, Todd, you said that's
• 46:08
  Speaker 2: the type you would use to– I mean the primary
• 46:11
  Speaker 2: goal is to reduce the estate taxes, correct?
• 46:14
  Speaker 3: Yeah, that's definitely a big issue on this one.
• 46:17
  Speaker 2: But you also said that you're giving it away– So
• 46:20
  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?
• 46:26
  Speaker 2: So how are you using these trusts and still making
• 46:30
  Speaker 2: mom and dad, who have given away $ 10 or $ 20 million,
• 46:33
  Speaker 2: feel okay about it?
• 46:34
  Speaker 3: That's exactly right, because that's the first thing they're going
• 46:36
  Speaker 3: to say is, yes, I'm psyched about giving it away
• 46:38
  Speaker 3: to save estate taxes, but hold on, I want to live.
• 46:41
  Speaker 2: Hold the boat, yeah.
• 46:42
  Speaker 3: I want to live. I want to live comfortably. So
• 46:44
  Speaker 3: how do we do that? And remember, folks, a lot
• 46:45
  Speaker 3: of gifting when we're talking about higher net worth gifting
• 46:48
  Speaker 3: is not, just about the amount you gift today. It's
• 46:55
  Speaker 3: the future growth on that amount that really matters. Don't
• 47:01
  Speaker 3: forget that. So I give away 10 million today and
• 47:05
  Speaker 3: I live 20 years and that doubles two times. That's
• 47:09
  Speaker 3: the power of gifting. So I just wanted to bring
• 47:12
  Speaker 3: that to your attention without Forgetting your question, which now
• 47:17
  Speaker 3: I forgot. Oh, how do we get to keep control?
• 47:18
  Speaker 3: How do you get to keep control?
• 47:19
  Speaker 2: Yeah.
• 47:20
  Speaker 3: Got it. Got it.
• 47:20
  Speaker 2: I want to play with that money.
• 47:21
  Speaker 3: So here's how you do it. If you give something
• 47:25
  Speaker 3: away to a spousal lifetime access trust, so let's say
• 47:28
  Speaker 3: we've got the Susan trust and the Todd trust. And
• 47:31
  Speaker 3: I know this is tough. Let's just assume for the
• 47:33
  Speaker 3: moment that we're married. I know it's hard. So, and
• 47:37
  Speaker 3: now what? Well, I can make a gift to the
• 47:41
  Speaker 3: Todd splat.
• 47:42
  Speaker 1: Yep.
• 47:43
  Speaker 3: But remember, in order for it to be a completed
• 47:45
  Speaker 3: gift by me, I have to give up complete control
• 47:49
  Speaker 3: over it. If I give something away and I either
• 47:53
  Speaker 3: retain the right to enjoy what I gave away, like income, interest, dividends,
• 48:00
  Speaker 3: or I'm trustee and I retain the power to control
• 48:05
  Speaker 3: the beneficial enjoyment of what I gave away, the government says,
• 48:09
  Speaker 3: hold the horses and You didn't give it away. You
• 48:14
  Speaker 3: pull it back into the estate when you die under
• 48:18
  Speaker 3: this code section 2036, that most heavily litigated code section.
• 48:22
  Speaker 3: So you got to really cut that string. Got it. So, okay, Todd,
• 48:26
  Speaker 3: how am I going to do that and still enjoy
• 48:29
  Speaker 3: it then? That's a tall order.
• 48:30
  Speaker 2: Because you're not in control of your trust.
• 48:31
  Speaker 1: Right.
• 48:32
  Speaker 3: That's a really tall order. So I'm going to contribute
• 48:35
  Speaker 3: $ 10 million to my SLAT. I am not a beneficiary
• 48:40
  Speaker 3: and I am not trustee. But guess who is trustee? Me. Susan.
• 48:45
  Speaker 2: I'm going to spend your money.
• 48:47
  Speaker 3: And the beneficiaries are Susan and the kids.
• 48:52
  Speaker 4: Yeah.
• 48:53
  Speaker 3: So now there's language in there that allows distributions to
• 48:57
  Speaker 3: come out to the kids or Susan. And hopefully if
• 49:02
  Speaker 3: we're getting along, we can enjoy that money once it
• 49:05
  Speaker 3: comes out of the trust. So while I can't directly
• 49:08
  Speaker 3: enjoy it, I certainly can indirectly enjoy it because it
• 49:11
  Speaker 3: got into the pot with you.
• 49:12
  Speaker 2: Wow, this just seems crazy to me because it just
• 49:15
  Speaker 2: seems like a giant loophole.
• 49:16
  Speaker 3: Well, it's not really. It's actually their rules.
• 49:19
  Speaker 2: I know it's with the codes and you're following all
• 49:21
  Speaker 2: 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
• 49:26
  Speaker 3: trustee on your trust and to make them a little
• 49:28
  Speaker 3: different on yours. on my trust rather, on your slat,
• 49:32
  Speaker 3: you contribute and I would be the sole trustee. And
• 49:34
  Speaker 3: then I can take money out directly for me. So
• 49:36
  Speaker 3: you can spend my money too. Well, if you're nice,
• 49:38
  Speaker 3: we'll take you out to dinner. But you see how
• 49:41
  Speaker 3: that arrangement works. And again, folks, there is this thing
• 49:44
  Speaker 3: called the reciprocal trust doctrine that it is very important
• 49:47
  Speaker 3: that these two trusts are not identical. We put a
• 49:51
  Speaker 3: few differences in there.
• 49:52
  Speaker 2: So if you did this, let's say you gave away
• 49:54
  Speaker 2: $ 10 million, you're saving an incredible amount of taxes.
• 49:59
  Speaker 3: It's it's absolutely phenomenal what can be saved all high
• 50:04
  Speaker 3: net worth it also it's it's generational tax-free building growth
• 50:09
  Speaker 3: wow really what wealth is really what it is and
• 50:12
  Speaker 3: so people need to understand that's how it works and
• 50:14
  Speaker 3: it works for everybody it works and even if you're
• 50:16
  Speaker 3: not giving it away and you use smaller estates and
• 50:19
  Speaker 3: you still shelter it for kids and grandkids folks it
• 50:22
  Speaker 3: can be done even at that level so don't think
• 50:25
  Speaker 3: it's just for high high net worth But you need
• 50:28
  Speaker 3: to learn how to plan. Are we doing estate planning
• 50:30
  Speaker 3: or are we making gifts? The Guide, Making the Most
• 50:32
  Speaker 3: of Gifting Assets. Learn which one's right for you. 866-848-5699
• 50:34
  Speaker 3: or LegalExchangeShow.com.
• 50:42
  Speaker 2: You've been listening to Todd Lutzke from the law firm
• 50:44
  Speaker 2: of Cushing & Dolan. Todd, thank you so much.
• 50:46
  Speaker 3: Thank you, Susan. Always a pleasure.
• 50:48
  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
• 50:54
  Speaker 2: back again next week on The Legal Exchange with Todd Lutzke.
• 50:58
  Speaker 1: Giving assets to your children during your lifetime may sound
• 51:01
  Speaker 1: like a simple way to pass along your wealth, but
• 51:03
  Speaker 1: the way you make the gift can have important tax consequences.
• 51:07
  Speaker 1: Cushing and Dolan's new guide, Making the Most of Gifting Assets,
• 51:10
  Speaker 1: explains what you should consider before transferring property, investments, or
• 51:14
  Speaker 1: other appreciative assets to your family. If you give away
• 51:17
  Speaker 1: an asset too soon, your children could end up with
• 51:19
  Speaker 1: a larger tax bill when they eventually sell it. In
• 51:21
  Speaker 1: some cases, holding onto that asset and letting your children
• 51:24
  Speaker 1: inherit it later could reduce the capital gains tax they
• 51:27
  Speaker 1: have to pay. That's why gifting isn't just about what
• 51:30
  Speaker 1: you give. When and how you give it can make
• 51:32
  Speaker 1: a big difference. Get Cushing and Dolan's new guide, Making
• 51:35
  Speaker 1: the Most of Gifting Assets, by calling 866-848-5699. That's 866-848-5699.
• 51:43
  Speaker 1: Or you can request the guide online by visiting LegalExchangeShow.com.
• 51:47
  Speaker 1: The proceeding was paid for and the views expressed are
• 51:49
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 51:51
  Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
• 51:54
  Speaker 1: Cushing and Dolan and Armstrong Advisory do not endorse each
• 51:57
  Speaker 1: other and are not affiliated. Giving assets directly to your
• 52:00
  Speaker 1: children may create problems you didn't expect. Cushing and Dolan's
• 52:04
  Speaker 1: new guide, Making the Most of Gifting Assets, explains how
• 52:07
  Speaker 1: giving away property or investments could mean losing control of
• 52:10
  Speaker 1: those assets. Learn about your options before you give assets away.
• 52:14
  Speaker 1: Call 866-848-5699 or visit LegalExchangeShow.com. The proceeding was paid for
• 52:20
  Speaker 1: and the views expressed are solely those of Cushing and Dolan.
• 52:22
  Speaker 1: Cushing and Dolan and or Armstrong Advisory may contact you
• 52:24
  Speaker 1: offering legal or investment services. Cushing and Dolan and Armstrong
• 52:26
  Speaker 1: Advisory do not endorse each other and are not affiliated.
• 52:29
  Speaker 4: For many Massachusetts veterans, getting to a medical appointment isn't
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  Speaker 2: You've been saying one more year for the past five years,
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