Latest / The Financial Exchange Show / Ask Todd: Using trusts to avoid estate taxes

Transcript

Ask Todd: Using trusts to avoid estate taxes · The Financial Exchange Show

• 0:01
  Speaker 1: This is Asked Todd on the Financial Exchange Radio network.
• 0:04
  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.
• 0:28
  Speaker 2: As promised, we are now joined by the one and
• 0:33
  Speaker 2: only Todd Lutsky from the law firm of Cushing and Dolan.
• 0:40
  Speaker 2: Segment is called Ask Todd Bicutt because it is your
• 0:43
  Speaker 2: chance to ask Todd your estate planning questions. And we've
• 0:49
  Speaker 2: got phone lines open at eight eight eight to zero
• 0:52
  Speaker 2: five two two six three. Again that number is eight
• 0:56
  Speaker 2: eight eight two zero five two two sixty three. We
• 1:00
  Speaker 2: get through two to three questions, so make sure you
• 1:02
  Speaker 2: get calling early and often so you can speak to Todd. Todd.
• 1:06
  Speaker 2: How you doing today?
• 1:07
  Speaker 3: I am doing great and you.
• 1:09
  Speaker 2: I'm doing pretty well. I just finished writing a book
• 1:11
  Speaker 2: on penguins.
• 1:13
  Speaker 3: You like penguins.
• 1:14
  Speaker 2: It would have been easier if I wrote it on paper. Yeah,
• 1:16
  Speaker 2: that's true, but you know, we'll do what we can.
• 1:19
  Speaker 2: Todd want to talk to you a little bit about
• 1:21
  Speaker 2: is state taxes when it comes to trusts, how can
• 1:28
  Speaker 2: they help manage estate tax payments or how much is
• 1:32
  Speaker 2: owed on a state taxes both at the federal and
• 1:35
  Speaker 2: state level.
• 1:37
  Speaker 3: So the rule is that if you leave every and
• 1:41
  Speaker 3: this is really the trust by the way, from an
• 1:44
  Speaker 3: estate planning standpoint, and taxes, you know it's they only
• 1:49
  Speaker 3: work to double your exemption if you're married. Right, If
• 1:51
  Speaker 3: you're single, you we all have our own exemption and
• 1:56
  Speaker 3: the goal is to use our exemption either before we
• 2:00
  Speaker 3: die by gifting if that's appropriate for you, or when
• 2:04
  Speaker 3: you die through sheltering in trusts. If you are single,
• 2:10
  Speaker 3: you only have one exemption, so you can't double it
• 2:14
  Speaker 3: as a single person. Just to make that clear. So,
• 2:17
  Speaker 3: as a married couple, when one spouse dies, if you've
• 2:21
  Speaker 3: got the trust in place, right, let's start with. Not
• 2:24
  Speaker 3: having the trust in place might be easier. If you
• 2:27
  Speaker 3: don't have the trust in place, all the assets will
• 2:30
  Speaker 3: simply just pass to the survivor under something called the
• 2:34
  Speaker 3: marital deduction. It's an unlimited marital deduction. What that means
• 2:39
  Speaker 3: is that you can leave as much as you want
• 2:42
  Speaker 3: between spouses and there's no tax, federal or state death tax. Which,
• 2:50
  Speaker 3: of course, if the government's giving us this thing, it
• 2:53
  Speaker 3: can't be good for us, right, It's generally good for them,
• 2:55
  Speaker 3: so we need to figure out how to use it.
• 2:57
  Speaker 3: It's good for them because now the survive has all
• 3:01
  Speaker 3: the assets and has successfully pushed the surviving spouse's estate
• 3:08
  Speaker 3: into as high a possible bracket as it could be.
• 3:11
  Speaker 3: Hoping that when the survivor dies that the value of
• 3:15
  Speaker 3: the survivor's estate exceeds the exemption. We would hope both
• 3:19
  Speaker 3: federally and state. Now sometimes it might not exceed the
• 3:22
  Speaker 3: federal but it would exceed the state. Remember, the state
• 3:25
  Speaker 3: exemption is only two million, and the federal exemption is
• 3:29
  Speaker 3: going to be fifteen million. Come January one. It's thirteen
• 3:33
  Speaker 3: point nine to nine million today. When I tell you
• 3:37
  Speaker 3: what these exemptions are, they are the amount of assets
• 3:40
  Speaker 3: that you can leave to somebody other than a spouse
• 3:44
  Speaker 3: and not pay tax. Go over that and you pay tax. Okay,
• 3:50
  Speaker 3: that's a little bit about the exemptions. If you're married
• 3:53
  Speaker 3: and you have a trust now you put assets in
• 3:57
  Speaker 3: the trust, even if it's a joint trust like we're
• 3:59
  Speaker 3: talking about last month. You put assets in the trust
• 4:03
  Speaker 3: on the first death. You allocate assets to a remainder
• 4:07
  Speaker 3: share and a marital share, and these buckets are designed
• 4:10
  Speaker 3: to hold the assets for the surviving spouse, but subjecting
• 4:16
  Speaker 3: them to tax on the first death in a manner
• 4:18
  Speaker 3: that will never result in tax, never result in an
• 4:21
  Speaker 3: amount more than either the federal or the state exemption. Therefore,
• 4:26
  Speaker 3: no tax is due on the first death, and then
• 4:29
  Speaker 3: on the second death. The assets are held in this
• 4:31
  Speaker 3: trust for the survivor's benefit, but they don't own them. Therefore,
• 4:36
  Speaker 3: when the survivor dies, they are not taxed in the
• 4:39
  Speaker 3: survivor's of state again federal or state based on the
• 4:42
  Speaker 3: remainder share or the marital share numbers. So that you've
• 4:47
  Speaker 3: claimed and sheltered those assets from future taxation. And that's
• 4:50
  Speaker 3: how you use the estate tax exemptions.
• 4:53
  Speaker 2: Talk with Tod Aleutski from Kushingen Dolan Still have room
• 4:56
  Speaker 2: on the phone lines at eight eight eight to zero
• 4:59
  Speaker 2: five two two sixty three. That is the number to
• 5:02
  Speaker 2: call to ask Todd your estate planning questions. Live on
• 5:06
  Speaker 2: air right now eight eight eight to zero five two
• 5:11
  Speaker 2: two six three is the number. We're gonna take a
• 5:14
  Speaker 2: quick break here, but when we return we are going
• 5:19
  Speaker 2: to get right to your questions with Todd. That number
• 5:21
  Speaker 2: is eight eight eight to zero five two two six three.
• 5:26
  Speaker 2: Again it is eight eight eight two zero five two
• 5:29
  Speaker 2: two six three. Quick break, Then your questions with Todd.
• 5:33
  Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
• 5:37
  Speaker 1: only here on the Financial Exchange Radio Network. You're listening
• 5:43
  Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
• 5:46
  Speaker 1: Radio Network.
• 5:59
  Speaker 2: Talk with Todd Lotski from the law firm of Kushinggan Dolan.
• 6:02
  Speaker 2: We got room on the phone lines at eight eight
• 6:04
  Speaker 2: eight two zero five two two sixty three for your
• 6:08
  Speaker 2: estate planning questions. It's your chance to ask them to
• 6:10
  Speaker 2: Todd again. That number is eight eight eight to zero
• 6:14
  Speaker 2: five two two sixty three. Todd. Let's say that you've
• 6:17
  Speaker 2: had legal work done. How do you know if the
• 6:20
  Speaker 2: work that you've had done, the trust that you've had produced,
• 6:24
  Speaker 2: have the necessary components to manage state and federal estate taxes.
• 6:29
  Speaker 3: So you know, you always hope that your trusts are
• 6:33
  Speaker 3: drafted right. You know, I get it that certain lawyers
• 6:36
  Speaker 3: maybe it shouldn't be doing a state tax planning and
• 6:39
  Speaker 3: do it anyway, and maybe they're not right. So I've
• 6:42
  Speaker 3: heard these stories, so you're right to ask the question.
• 6:45
  Speaker 3: I think the way to do it would be when
• 6:48
  Speaker 3: you when you look at your trust, there's going to
• 6:51
  Speaker 3: be a paragraph that says what happens during the donors
• 6:55
  Speaker 3: life or something to that effect. Let's say during the
• 6:58
  Speaker 3: donors' life, and then read it and it'll show you
• 7:01
  Speaker 3: what you can do. So let's assume the trust is
• 7:04
  Speaker 3: revocable for the moment. It'll show you what you can
• 7:07
  Speaker 3: do and what you can't do. Then look and this
• 7:11
  Speaker 3: is whether it's irrevocable or revocable, so either trust. Then
• 7:17
  Speaker 3: look a little further down, and it's usually in the
• 7:19
  Speaker 3: first couple of pages, so you're not digging deep into
• 7:22
  Speaker 3: the document. You know, look a little further down and
• 7:26
  Speaker 3: you're gonna find a paragraph that says, upon the death
• 7:30
  Speaker 3: of the donor or if it's a joint trust, upon
• 7:35
  Speaker 3: the death of the you know, first donor to die,
• 7:40
  Speaker 3: there will be a marital share and a remainder share.
• 7:45
  Speaker 3: Look right after that, it'll say it breaks down into
• 7:48
  Speaker 3: these buckets if it has these two buckets, or or
• 7:52
  Speaker 3: a marital share, a special marital share, and a general
• 7:55
  Speaker 3: marital share. If it has these three buckets broken down
• 7:59
  Speaker 3: without trying to understand the formula, which I don't want
• 8:02
  Speaker 3: you to try to understand, just know that likely with
• 8:06
  Speaker 3: those buckets there, the correct formula will be in there
• 8:09
  Speaker 3: to take care of the estate tax. That's the buckets
• 8:13
  Speaker 3: you're looking for in order to do this. But you
• 8:16
  Speaker 3: know what, folks, that's a great question, because the guide
• 8:19
  Speaker 3: we're giving away this month is balancing asset protection and
• 8:23
  Speaker 3: avoiding estate taxes. It talks about portability, the pros and
• 8:27
  Speaker 3: cons of electing portability, which is exactly the exemptions dealing
• 8:32
  Speaker 3: with the unused exemption of this first spouse to die,
• 8:35
  Speaker 3: which is what we talked about earlier when Chuck asked
• 8:37
  Speaker 3: a question, and it also explains exactly the way to
• 8:43
  Speaker 3: calculate your estate tax. It talks about a revocable trust
• 8:46
  Speaker 3: and all three of these buckets, how they're funded, how
• 8:49
  Speaker 3: they're designed, and you could put your own numbers in
• 8:52
  Speaker 3: and see what tax liability you would have. It also
• 8:56
  Speaker 3: then breaks down into a smaller section dealing with irrevocable trusts,
• 9:00
  Speaker 3: and how the marital shares and remainder shares work in
• 9:04
  Speaker 3: those trusts to shelter estate taxes and at the same
• 9:08
  Speaker 3: time protected from the nursing home. So I think you'll
• 9:11
  Speaker 3: get your answers a little something for everyone in this guide. Folks,
• 9:14
  Speaker 3: call and get it. It's brand new for the month
• 9:16
  Speaker 3: eight six six eight four eight five six nine nine
• 9:21
  Speaker 3: or Legal Exchange show dot com. You can download it
• 9:23
  Speaker 3: right there again eight six six eight four eight five
• 9:27
  Speaker 3: six nine nine or Legal Exchange Show dot com.
• 9:31
  Speaker 2: Todd got a caller on the line for you. Let's
• 9:33
  Speaker 2: go to George in Wuburn. George, what's your question for
• 9:37
  Speaker 2: Tom Lutsky?
• 9:39
  Speaker 4: Hi question on gifting. My wife and I have three
• 9:43
  Speaker 4: adult children, and I was wondering we can give nineteen
• 9:47
  Speaker 4: thousand dollars each thirty eight thousand dollars to each kid annually.
• 9:52
  Speaker 4: I believe if that's not taxed, is that a better strategy?
• 9:57
  Speaker 4: Then at some point, you know it would be in
• 9:59
  Speaker 4: the in their inheritance to do an annual thirty eight
• 10:03
  Speaker 4: thousand gift to each kid.
• 10:06
  Speaker 3: Well, it kind of a function. It's great question because
• 10:09
  Speaker 3: gifting requires a little bit more of an analysis. So
• 10:12
  Speaker 3: let me just ask you a question in terms of
• 10:14
  Speaker 3: your overall estate, real estate, money, IRA's investments, life insurance,
• 10:19
  Speaker 3: death benefit. Give me a round number, what do you
• 10:23
  Speaker 3: think you're worth? Four million? Ish? Okay, So if you're
• 10:28
  Speaker 3: right at four million, and you're a married couple with
• 10:31
  Speaker 3: proper estate planning, we should be able to completely eliminate
• 10:37
  Speaker 3: your Massachusetts estate tax. Remember it's a two million dollar
• 10:42
  Speaker 3: exemption each. I can't say for sure because I don't
• 10:45
  Speaker 3: know exactly the type of assets, like how much are
• 10:47
  Speaker 3: iras and how much are not iras and things like that,
• 10:50
  Speaker 3: but we're pretty close to being able to eliminate your
• 10:55
  Speaker 3: mass estate tax even without making the gift. Even without
• 11:00
  Speaker 3: making the gift. Now, that's the state analysis. The federal
• 11:06
  Speaker 3: analysis is the exemption is thirteen point nine million each,
• 11:11
  Speaker 3: So obviously you're way below that number. So the first
• 11:16
  Speaker 3: thing we would say is there's no tax reason for
• 11:20
  Speaker 3: me to make a gift to save federal estate taxes
• 11:24
  Speaker 3: because I'm way under it. So that forty percent not
• 11:27
  Speaker 3: an issue Massachusetts. We turn our attention back to that
• 11:30
  Speaker 3: and say, well, if we go over the four million,
• 11:33
  Speaker 3: let's say we're at four point five million, well the
• 11:37
  Speaker 3: tax will occur on the amount over the exemption, So yeah,
• 11:42
  Speaker 3: we could have some tax there. The next question would
• 11:44
  Speaker 3: be what's the rate. Well, yeah, it's about ten eleven
• 11:49
  Speaker 3: percent on the amount over the exemption. Okay, well, you know,
• 11:53
  Speaker 3: if it's five hundred thousand, it's you know, fifty grand
• 11:56
  Speaker 3: I mean yeah, I mean it's taxes. I don't want
• 11:58
  Speaker 3: to pay it. I get it. But is it worth it?
• 12:02
  Speaker 1: Right?
• 12:02
  Speaker 3: Is it worth it? Now? For the nineteen thousand dollars apiece,
• 12:06
  Speaker 3: I assume you're giving away. Would it be cash you're
• 12:09
  Speaker 3: thinking about giving?
• 12:11
  Speaker 1: Yeah?
• 12:11
  Speaker 3: Okay, So then if it's cash you're thinking about giving,
• 12:14
  Speaker 3: you're giving it and it's not going to cause a
• 12:16
  Speaker 3: problem at all. Okay. Why it's not going to cause
• 12:19
  Speaker 3: a problem is because cash is cash, and there's no
• 12:22
  Speaker 3: built in gain in the cash, cause you have to
• 12:25
  Speaker 3: think about capital gains tax when you make gifts, and
• 12:29
  Speaker 3: gift tax okay, so, and state tax. So since you're
• 12:34
  Speaker 3: you know, at that realm, if you're giving away the
• 12:36
  Speaker 3: cash and it makes you feel good again, I get it,
• 12:39
  Speaker 3: giving away stuff while I'm alive, letting my kids enjoy it,
• 12:42
  Speaker 3: letting them see it, and I see them enjoying it.
• 12:45
  Speaker 3: While I'm alive. There's a benefit to that. I like it,
• 12:48
  Speaker 3: and we can make that gift. And for the nineteen
• 12:51
  Speaker 3: thousand per year per person that you mentioned, As long
• 12:54
  Speaker 3: as it's cash, there's no problem. There's no filing a
• 12:58
  Speaker 3: gift tax return, there's no reporting anything, and there's no
• 13:03
  Speaker 3: paying any tax. Just write them a check and go
• 13:05
  Speaker 3: about your business and that can work. But again, if
• 13:10
  Speaker 3: you're doing it because it feels good, that's fine, but
• 13:12
  Speaker 3: it doesn't need to be done. So I'm just going
• 13:15
  Speaker 3: to expand the question a little bit for everyone else.
• 13:18
  Speaker 3: You know, folks, if if I was at five million
• 13:21
  Speaker 3: dollars in an estate and I wanted to bring my
• 13:24
  Speaker 3: estate down to four million so that I save the
• 13:27
  Speaker 3: mass tax, it's okay. You can do that by making
• 13:31
  Speaker 3: a gift, but you have to compare what it is
• 13:34
  Speaker 3: you're giving. Like here, George's doing a great deal. Giving
• 13:37
  Speaker 3: us away cash is no problem. But what if I
• 13:40
  Speaker 3: had a million dollar vacation home that I wanted to
• 13:42
  Speaker 3: get out of my estate that's worth five million, and
• 13:45
  Speaker 3: I want to bring it down to four million, so
• 13:47
  Speaker 3: I give away this one million dollar a piece of property,
• 13:49
  Speaker 3: and well, Todd, won't that work? I'll be now at
• 13:52
  Speaker 3: four million and I'll have no estate tax.
• 13:55
  Speaker 1: Yeah.
• 13:55
  Speaker 3: I think ultimately with the new rules it will work. Right,
• 13:59
  Speaker 3: that will reduce your estate. And let's say we saved
• 14:03
  Speaker 3: the estate tax. How much would the estate tax be
• 14:06
  Speaker 3: and MASS on a five million dollar estate, let's call
• 14:09
  Speaker 3: it about one hundred thousand. Right, But what if this
• 14:13
  Speaker 3: vacation home that I'm giving away because that's ten percent
• 14:16
  Speaker 3: of the amount over has a built in gain. Maybe
• 14:19
  Speaker 3: I bought it for two fifty it's worth a million.
• 14:21
  Speaker 3: I got seven hundred and fifty thousand of built in gain. Well,
• 14:25
  Speaker 3: if I give that away, yeah, I saved the one
• 14:28
  Speaker 3: hundred thousand in mass estate tax. Sounds great, But my
• 14:32
  Speaker 3: kids now have a piece of property with a built
• 14:34
  Speaker 3: in gain of seven point fifty. The tax on that
• 14:38
  Speaker 3: is somewhere around two fifty two hundred and fifty thousand
• 14:44
  Speaker 3: dollars of tax because it's built in gain on the
• 14:46
  Speaker 3: seven to fifty. Instead, I might tell that person keep it.
• 14:51
  Speaker 3: I'm happier dying owning it, giving MASS one hundred thousand
• 14:55
  Speaker 3: dollars because then when my family inherits it, they get
• 14:59
  Speaker 3: a brand new base to sequal a fair market value
• 15:01
  Speaker 3: and I save the two hundred and fifty thousand in
• 15:03
  Speaker 3: capital gains tax. So lots to think about when you
• 15:06
  Speaker 3: give folks, what you're giving and how to gift very important.
• 15:10
  Speaker 2: Mister Wutski, thank you so much for joining us today.
• 15:13
  Speaker 3: Always a pleasure. Thank you.
• 15:15
  Speaker 1: This has been Asked Odd on the Financial Exchange Radio network.
• 15:19
  Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
• 15:22
  Speaker 1: and Dolan, serving Massachusetts and New England for more than
• 15:24
  Speaker 1: thirty years, helping families with the state and tax planning,
• 15:27
  Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
• 15:30
  Speaker 1: three four thousand and one or visit Cushingdolan dot com.
• 15:34
  Speaker 1: The views expressed in this segment are solely those of
• 15:36
  Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
• 15:39
  Speaker 1: or tax advice. Please consult with your legal or tax
• 15:41
  Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
• 15:43
  Speaker 1: each other and are not affiliated.