Kelly Financial: Saturday, November 25, 2023

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Episode Transcript

(00:00):
This is the Legal Exchange with ToddLutsky from the law firm of Cushing and
Dolan and Susan Powers of the ArmstrongAdvisory Group. Each week, Todd and
Susan will discuss many topics, includingestate planning, how to avoid probate,
and protecting your money from a nursinghome. If you need assistance in any
of these areas, or have aquestion about another issue that may affect your
future, call eight sixty six eightfour eight five six ninety nine to make

(00:24):
an appointment. That's eight sixty sixeight four eight five six ninety nine.
Operators are standing by. Now Hereare your hosts, Tod Lutsky and Susan
Powers. Welcome into the Legal Exchangewith Todd Lutsky. I'm Susan Powers,
a financial advisor with the Armstrong AdvisoryGroup, and I'm joined by Todd Lutsky,

(00:46):
a partner with a law firm ofCushing and Dolan with a master's in
taxation. Welcome Todd. How areyou today? I'm never better in you.
I am great? Thank you.What do you have for us this
week? Well, we've got acase out of Indiana and one out of
New York. Interesting This first onein Indiana is a deed transferred by intimidation.

(01:11):
That doesn't sound good now. Infact, on September of twenty twenty,
Robert signed a deed transferring the hometo son Jimmy and his wife who
was living with I'm sorry to ROBERTAtransferred the deed to was living with her
at the time. With the deed, I'm not even going to get into
any more facts. That's bad enoughas it is gifting a house to children

(01:37):
or children and a spouse. Nothinggood can come from this. So stay
tuned and learn about all the badthings that happen in this case, because
it just goes downhill from there.Well, then we head over to New
York and we have a situation wherethere's a failure to mention a child in
a will. So there's a willprepared in twenty sixteen that basically treats the

(01:57):
kids equal. Well. In twentytwenty, Dad died and Melanie, his
fiance, produced a will in twentysixteen, four years before his death,
showing that he disinherited one child,forgot to mention the other child, and
left everything to Melanie. That doesn'tsound suspect at all, So little concerned

(02:22):
about how this might happen and wherewe head from this, and whether this
is a good thing or a badthing, or maybe we should do more
planning. But folks, before wego back to the Indiana case, which
was all about gifting a house away, that's in fact what our guide is
about this month. In fact,it's the last chance. We are at
the end of the month. Ihope everybody had a nice Thanksgiving and we

(02:42):
are going to talk about giving assetsaway and how best to do it or
should we do it. There's incometax issues, there's gift tax issues,
there's estate tax issues. You haveto figure out whether or not you give
away something with a high basis versusa low basis. You have to decide
whether you want to even give itaway at all or put it into a
separate gifting trust. Folks, giftingsounds easy, but it's complicated. Get

(03:08):
the guide Making the most of giftingassets last chance to get it this month
eight six six eight four eight fivesix nine nine, or go to Legal
Exchange Show dot com again eight sixsix eight four eight five six nine nine
or Legal Exchange Show dot com.Just keep your stuff, Just keep your

(03:30):
stuff. I'm with you. Susan, just keep your stuff. Well,
this person didn't, so let's goback to Indiana. So in September again
of twenty twenty, Roberta signs adeed over transferring the house to son Jimmy
and his wife. Jimmy was livingwith her at the time, and Jimmy
got a little legal help to makesure the deed was done right now.

(03:53):
Interestingly enough, it was not recordeduntil November two, two months later.
It was recorded well in between thattime. September twenty fourth, the daughter
has a power of attorney signed,naming daughter Niela as the power of attorney.
That means the power to transfer propertyor sign checks or pay bills.

(04:16):
Well, interestingly enough, on Octoberninth, still before the other deed was
ever recorded, Nila signed a newdeed transferring the property to all the kids
and reserving a life estate for Roberta. So everybody's treated equally, and Roberta
gets a life estate so the rightto live there. Okay, Well,

(04:36):
needless to say that on August twentytwenty one, they wanted a quiet to
title action because we obviously have twodeeds floating around, and you know,
do we have a problem which deedis valid? Which deed is not valid?
What was that You just said,a quiet to title? Quiet title?
Yeah, you want to quiet thetitle. In other words, the
title is the problem. Yeah,figure out the problem. We we gotta
that. They call it a quiettitle action and so so okay. So

(05:01):
then they file an action saying thatJimmy violated the Consumer Protection Act when he
took this property from mom. Andthe trial court agreed and they invalidated the
deed. Well they Jimmy didn't likethat, I'm sure, so he appealed
and NILA argued that the court usedthe wrong standard of undue influence anyway or

(05:25):
no. They argued that they usedthe wrong standard of undue influence, and
the court agreed, saying the wrongstandard was used. The appellate court said
the wrong standard was used, butwent ahead and looked further at the facts
and the testimony of the case.Turns out that Jimmy threatened Roberta, putting
her in a nursing home, throwingher out of the house, preventing her
from family members from visiting her ifhe didn't get the deed, and so

(05:48):
he got the deed. Wow,Well that's intimidation and so on those facts,
the court said, we don't careabout what standard was used. You
can't get a deed through intimidation,and so they invalidated the deed. Well,
at the end of the day,I think that's the right answer.
But really, folks, what canwe learn from this? Don't give away

(06:09):
your stuff is your stuff, andif you're going to keep it, own
it the right way. Yeah,I mean you said it in the beginning,
right, So here, you know, whenever you give away stuff,
you lose complete control over that item, right, and you risk yourself even
being thrown out or whatnot. Solet's run through some of the pros and
cons here of what happened and whyI would never want to give away cons

(06:33):
than pros. Yeah, I mean, if you give it away, first
of all, you've lost control.You could get thrown out like she was
being threatened before to be thrown out, but in reality she should have known.
Well, of course you don't knowwhen you're old. But if you
own it, nobody can throw youout. But if you give it away,
yeah, you certainly can get thrownout. Say you wanted to sell
it down the road, Well,if you don't keep any right to your

(06:57):
house, and you give it allaway. You can't sell it right because
you don't own it, so theowners the kid, would have to sell
it. So you need his permissionto sell it. And if you have
someone who's threatening to throw you outof your home, likely he's not going
to give you the money back.But even if you're absolutely right, even
if you don't set this up andeverything is going well, you would never

(07:18):
do this, even if you trusta kid, because of that very thing,
Susan, you're not sure that ifyou do sell it, you ever
get the money back. But let'splay out the string. If you do
sell it and the kid doesn't livethere, you're living there, which is
more likely than not the case.Well, well, if you're living there,
then when he gets the money,he's got to pay the capital gains

(07:39):
tax because he doesn't get a capitalgains exclusion on the sale of a primary
residence. Why because it's not hisprimary residence. So now we're paying unnecessary
taxes on the sale. And then, as you said, you got to
beg the kid to give your moneyback because you don't have the money you
need as a parent to buy yournew downsized home. So hopefully the kid

(08:01):
gives it back, and then ifhe does give it back, there's potential
gift tax ramifications on top of thecapital gains tax ramifications that you just incurreg
it's coming back with a haircut.So this is a bad idea. And
let's just say everything worked out swimminglyand you never really wanted to sell it,

(08:22):
but you die and then the childsays, well, I don't need
it. I got my house.I want to sell it. Now you've
stuck him with a carryover basis.You've given him your cost basis. And
so if there's a lot of builtin gain in the property because you bought
it a long time ago, thenhe's stuck with that gain and he's going

(08:43):
to pay the capital gains tax.So even if everything works out well,
you still harm your children by givingaway a house to children. So,
folks, nothing good comes from this, right, don't give it away.
Even if you retained a life estateand gave the remainder interest of the kids
much like the daughter did, youstill have the problem. Right, what

(09:03):
if you wanted to change your mindafter you set up a life estate arrangement
that you keep so at least nowyou can't be thrown out, you get
to live there, but you decidethat you want to take care in this
case Nila who starts to take careof you and you want Nila to have
the house. Well, good luckasking the other kids that are remainder interest
to give up their interest. Youcan't do it. This is why I

(09:26):
tell people irrevocable trusts. They soundlike you give up control, but you
keep way more control than if youput it in the trust, because then
if you give it away, ifit's in the trust, folks, you
can sell it when you want.You can remove the trustee. There's no
adverse capital gains, tax consequences.You'll have use of the money. If
you want to buy another house,it's still protected because it's still inside the

(09:50):
house. Folks. There's so muchyou need to know when you give away
assets. Learn how to make giftingwork for you and how to make gifting
fit into your estate plan situation correctly. The end of the month, call
and get the guide Making the mostof Gifting your Assets eight six six eight
four eight five six nine nine,or you can go to our website and

(10:13):
download it right there. Legal ExchangeShow dot Com eight six six eight four
eight five six nine nine or LegalExchange show dot com. You've been listening
to Todd Lutsky, a partner withthe law firm of Cushing and Dolan.
I'm Susan Powers, a financial advisorwith the Armstrong Advisory Group. We've got
much more to come when we returnto the Legal Exchange with Todd Lutsky.

(10:37):
Legacy planning is incredibly important if youwant to make sure you keep your assets
in your family, but if itisn't done properly, you can create significant
problems. Gifting assets to your childrenis admirable, but may not always be
the best course of action, especiallyif they're financial difficulties or a divorce proceeding.
Learn how to protect yourself and yourfamily by calling Cushing and Dolan and

(10:58):
asking for their brand new guide calledMaking the Most of Gifting Assets. In
it, you'll learn about information relatedto the gifting process, what tax issues
may arise from a major gift likea home or vacation property, and what
happens to the asset if a childhas creditor issues. Call eight sixty six
eight four eight five six ninety nine. That's eight sixty six eight four eight
five six nine nine, or requestedonline from their website Legal Exchange show dot

(11:22):
com. The proceeding was paid forand the views expressed are solely those of
Cushing and Dolan. Cushing and Dolanand or Armstrong Advisory may contact you offering
legal or investment services. Cushing andArmstrong do not endorse each other and are
not affiliated. If you're looking foran incredible vacation filled with sun, fun
and no need for a passport,look no further than the United States Virgin

(11:43):
Islands. Saint Croix, Saint Thomas, and Saint John were voted the number
one vacation destination to visit this December, according to US News and World Report.
December is the start of the dryseason in the islands, so you
can expect perfect temperatures, beautiful beaches, a wide variety of water sports,
world class cuisine, and a vibrantnightlife. From the moment you arrive,

(12:03):
you'll fall naturally in rhythm with theheartbeat of the islands. There's no money
to exchange, and travel from NewEngland could not be easier. Make your
plans now before Old Man Winter comescalling. Had to visit USVII dot com.
Learn about all three islands and planthe ideal vacation for you and your
family. America's Caribbean paradise is waitingfor you. So had to visit USVII

(12:26):
dot com for more information and toreserve your trip today. That's visit USVII
dot com. Veterans Development Corporation isa proud partner of the DAV five K
Boston. Let's meet their CEO,Mark Vonner. I'm no stranger to the
military community. My late uncle AlbertWarner, Sir. Probably in the First

(12:48):
Marine Division in World War Two andgave the ultimate sacrifice for his country.
I am surrounded by a family ofdisabled veterans, including my father Victor and
brother Timothy. I am a veteranand I have dedicated my business and my
life to helping veterans. My company, Veterans Development Corporation, works to help
disable veterans every day, and it'sone of the key reasons why I'm such

(13:11):
a big supporter of Dan Stack andthe Disabled American Veterans Department of Massachusetts.
I am so thrilled to be probablypartnered with this year's DAV five K.
Veterans Development Corporation is proudly partnered withthe Disabled American Veterans Department of Massachusetts and
the presenting sponsor of the DAV fiveK Boston. If you'd like to help
our great American heroes by making adonation, visit DAV five K dot Boston.

(13:35):
You're listening to the Legal Exchange withTodd Lutsky, an expert in elder
life planning and taxation. Need helpwith your estate plan? Call Todd right
now and make an appointment. Eightsix six eight four eight five six ninety
nine. That's eight six six eightfour eight five six ninety nine. Welcome

(13:56):
back into the Legal Exchange with ToddLutsky. I'm Susan Power as a financial
advisor with the Armstrong Advisory Group,and I'm joined by Todd Lutsky, a
partner with the law firm of Cushingand Dolan with a master's in taxation.
Where are we headed now, Todd? We are headed over to New York
where we have an appellate court case. In this case, it's you know,
failure to mention a child in awill. Does that make the will

(14:22):
invalid? Listen to these facts.So, prior to April twenty sixteen,
there was a will dividing all ofthis client's assets in his estate equally to
his two kids. His name wasJohn twenty twenty John dies Melanie, his
fiance, produced a will signed inApril of twenty sixteen, So there was

(14:48):
one prior to April of twenty sixteen, and then there's one signed in April.
Now remember it was four years beforehis death, so it's not a
close in time. Sure problem doesseemed like that necessarily was the issue that
this particular will disinherited one child,specifically by name, and just failed to

(15:09):
mention the other child, but wenton to say that I leave my entire
estate to Melanie, my fiance.Mm hmmm, well that sounds suspectious.
Well, Jennifer, the one whowas just not mentioned, argued that the
failure to mention her in the willwas evidence that he lacked capacity and therefore

(15:31):
the will should be invalid just becausethey you know, you mentioned one,
you didn't mention the other, andthen you left everything to this fiance,
So that means that you have alack of capacity. Well maybe not so.
During the testimony of the attorney thatprepared the will, who I will
come back to in a minute,who I'm not overly happy with here,

(15:54):
and the paralegal testified that you know, he did not mention that daughter during
his entire time in preparing the will, because if he was mentioning that daughter,
I would have put it in thedocument, is what this attorney said.
However, we did ask the seriesof competency questions, and I know

(16:15):
what those are, making sure thathe has capacity, and he passed all
of those. So he's clearly competentbased on what we can tell. And
so we think that there's a presumptionof capacity here that Jennifer has not overcome.
Okay, Well, the court concludedthat if the only evidence that Jennifer

(16:36):
had was this omission of her inthe will, and there's but other evidence
in that case, that wasn't enough, I don't think to turn this make
it an invalid will. But thecourt looked further and said, we happened
to notice that after the divorce,Jennifer and Jennifer's mother ended up suing John,

(16:56):
so the relationship deteriorated and John wonthat lawsuit. So we kind of
conclude and justify that she was probablygoing to be expelled from the will,
and her failure to be mentioned whenyou leave everything to somebody else isn't enough
to make the will invalid. Itend to agree because you're not required to

(17:18):
leave acids to your children. Noyou are not. You're absolutely not,
in fact, so you don't haveto. In other words, you could
say I leave everything to Melanie ifliving, you know, otherwise to charity,
and never mention any children. Youdon't have to specifically disinherit somebody to
disinherit them. I mean, ithas more force when you do. It's

(17:41):
more you know. Again, it'sall about drafting. It's clarity. I
like it. But you don't haveto and that's what this case stands for.
So but I'm going to talk alittle bit more about what happens when
you have divorces or second marriage isor really what's going on here? What
do you do in those situations andwhat should the lawyer have done? And
learn a little bit more about that. But folks, before I do,
I want to remind you that it'sthe end of the month and we have

(18:04):
our guide. It's the last chanceto get it. Making the most of
gifting assets as we end the Thanksgivingseason. You know, it seems like
an easy thing to do, butit really isn't. You should figure out
what to gift, how to giftit, especially worry about whether or not
you're creating a capital gains tax liabilitygreater than the estate tax you think you're

(18:26):
saving by making the gift. Youreally need to run some numbers and figure
out how to gift and whether ornot you want to gift it into someone's
name or do you want to giftit to a separate gifting trust and control
it even from the grave, andof course after you make the gift.
So get the guide eight six sixeight four eight five six nine nine or

(18:48):
Legal Exchange Show dot com again eightsix six eight four eight five six nine
nine or Legal Exchange Show dot com. So let's let's get back into what
we can learn from this New Yorkcase. So in this case, you
know, first of all, whenyou have a second marriage, it should
be incumbent upon the attorney to aska lot more questions. I know,

(19:11):
I do, right. I startto say, listen, do you have
kids from both sides of the marriage. If you do, let's say you
each have two. I say,do you feel like you actually have four
children? I mean, if youdon't feel that way, tell me,
because that means the relationship between thekids isn't so good. And then that
spirals into more questions about how specificallyto draft it to make sure we take

(19:33):
care of both sides of the marriageand both sides of the kids without,
you know, but take care ofeach other at the same time. In
other words, that will lead meto questions about whether or not I want
to put a power of appointment inyou know, do I want to allow
the surviving spouse to change the beneficiariesof the deceased spouse's trust amongst children of

(19:56):
all generations? Now, you wouldnever think that was the first marriage,
right. You want that power,You want that flexibility. You might not
want it if there's a second marriageand not everybody gets along, you know,
if the answer is you know,oh, Todd, Yeah, we've
been married for forty years. That'sthe second marriage. We practically raised both
kids. Yes, I feel likeI have four kids. Oh, well,

(20:18):
that's different. Then that's almost likea first marriage, right, And
so this lawyer should have been asking, well, I notice you're disinheriting one
child. Do you have any otherchildren? I mean, it's a natural
question, right, as a lawyerin conversation, you ask how many kids
do you have? I don't knowhow he could have even started this estate
planning meeting without asking that question.You're just start saying, I've got two

(20:41):
kids, Okay, well, whyare you only mentioning one? Why are
you specifically excluding only one? Yeah, I mean yeah, it's so I'm
a little upset at the lawyer herefor not making it more clear, which
would have prevented this litigation altogether.I'm back to that idea of drafting.
Drafting, drafting makes such a bigdifference. So just make sure when you
do this, and again, trustplanning is going to be needed. Right.

(21:04):
When you do these kinds of things, you want to make sure that
you and your wishes are taken careof, and a trust can really help
you do that. Right. Andagain, if even in this case,
right, you could have set itup as an irrevocable trust if you wanted
to to make sure that these assetsare protected for whoever you want, even

(21:25):
your fiance. Right. And Ijust want to reiterate a little bit about
irrevocable trusts because I have a reallife story that I want to share that
was interesting because so many people,even like with our last case, right,
you feel like you hear the wordirrevocable, and you give scary This
was a case that's not even amedicaid case, right, And I just
want to help people understand that youcan keep a lot of control with them.

(21:49):
I keep the parent in charge.In this case, the parent has
a business with a lot of money, gives away three and a half percent
to a gifting trust. Again,are going to put it in a trust,
not just give it to the kids. The two kids are the general
trustees. And life goes on.He comes back in, has He comes

(22:14):
back in and he says, Ihave not spoken to one of my kids
for two years, Like what's goingon. He gives me a letter and
he says. The kid says,I noticed that you've given me an ownership
of three percent of the business andlots of distributions are being made, and
I'd like to get my distribution.So how do I respond to this?
And everybody was in the room.We had the attorney, we had the
CPAs, the financial planners. Isaid, well, this is really interesting.

(22:37):
Let's pull out the thing. Firstof all, we said, I
have to write an email. Firstof all, children, you don't own
anything. The trust owns it,number one, not you number two.
Well, you are the trustee andcan make distributions out in that you think
distributions can come out, Those distributionscan only come out in the discretion of
an independent trustee, of which youare not and your father in fact choose

(22:59):
chose who the independent trustee would be. Oh, and lastly, you are
the general trustee, but only untilyour father doesn't want you to be the
general trustee, and then you're notgoing to be. So now not only
are you not the owner, you'renot going to get any distributions, and
you're no longer going to be thegeneral trustee. So, folks, you
can keep control when you give thingsaway. And that was a gifting trust.

(23:21):
So if you want to make themost of your gifting and you think
that's an option for you, thenset up a gifting trust and keep control
of the stuff during life like thisclient did. Learn how best to do
it? Get the guide eight sixsix eight four eight five six nine to
nine or Legal Exchange show dot com. It is the end of the month,
folks, you've been listening to ToddLutsky, a partner with the law

(23:42):
firm of Cushing and Dolan. I'mSusan Powers, a financial advisor with the
Armstrong Advisory Group. Todd will beanswering your listener questions when we return to
the Legal Exchange with Todd Lutsky.Legacy planning is incredibly important if you want
to make sure you keep your assetsfamily, but if it isn't done properly,
you can create significant problems. Giftingassets to your children is admirable,

(24:06):
but may not always be the bestcourse of action, especially if their financial
difficulties or a divorce proceeding. Learnhow to protect yourself and your family by
calling Cushing and Dolan and asking fortheir brand new guide called Making the Most
of Gifting Assets. In it,you'll learn about information related to the gifting
process, what tax issues may arisefrom a major gift like a home or
vacation property, and what happens tothe asset if a child has creditor issues.

(24:30):
Call eight sixty six eight four eightfive six ninety nine that's eight sixty
six eight four eight five six ninenine, or requested online from their website
Legal Exchange Show dot com. Theproceeding was paid for and the views expressed
are solely those of Cushing and Dolan. Cushing and Dolan and or Armstrong Advisory
may contact you offering legal or investmentservices. Cushing and Armstrong do not endorse

(24:52):
each other and are not affiliated.Veterans Development Corporation is a proud partner of
the DAV five K Boston. Let'smeet their CEO. Mark I served probably
in the Marine Corps from nineteen eightyone to nineteen eighty four and was honored
to receive the US Marine Corps ExpeditionaryMedal, one of the oldest decorations still
issued to active duty personnel. Istarted Veterans Development Corporation to give back to

(25:14):
the veteran community. Many of myemployees are former veterans. It is my
distinct pleasure to work with them eachand every day. This is why I'm
so excited to be partnering with theDisabled American Veterans Department of Massachusetts on this
year's DAV five K. If notfor the DAV many of our disabled veterans
would not have access to critical servicesthat they need to live comfortably. I
hoped out by telling my story,many more of our veterans will achieve their

(25:37):
goals in dreams post service. VeteransDevelopment Corporation is proudly partnered with the Disabled
American Veterans Department of Massachusetts and thepresenting sponsor of the DAV five K Boston.
If you'd like to help our greatAmerican heroes by making a donation,
visit DAV five K dot Boston.If you're looking for an incredible vacation filled
with sun, fun and no needfor a passport, look no further than

(26:00):
the United States Virgin Islands. SaintCroix, Saint Thomas, and Saint John
were voted the number one vacation destinationto visit this December, according to US
News and World Report. December isthe start of the dry season in the
islands, so you can expect perfecttemperatures, beautiful beaches, a wide variety
of water sports, world class cuisine, and a vibrant nightlife. From the

(26:21):
moment you arrive, you'll fall naturallyin rhythm with the heartbeat of the islands.
There's no money to exchange, andtravel from New England could not be
easier. Make your plans now beforeOld Man Winter comes calling. Had to
visit USVII dot com. Learn aboutall three islands and plan the ideal vacation
for you and your family. America'sCaribbean paradise is waiting for you, so

(26:42):
had to visit USVII dot com formore information and to reserve your trip today.
That's visit USVII dot com. Forforty years, Cancer Support Community has
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(27:07):
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You're listening to the Legal Exchange,and it's time for Ask Todd,

(27:29):
the segment where Todd will answer yourquestions about anything and everything that's included in
the estate planning process. Once again, here's Todd, Lutsky and Susan Powers.
Welcome back, Todd. Have afew questions from listeners for you.
First question comes from Ed and Miltonmass And Ed writs, I set up
several LLCs from my rental properties withyour firm. I'm considering selling some of

(27:52):
them and considering a ten thirty oneexchange for one of them. How should
this be handled? If the propertiesare in in LL's. So the real
question here, I think that's beingbig, is can you do a ten
thirty one exchange in an LLC?Yeah? Because what changes when you move
those properties? So that's a goodquestion and the answer is yes you can.

(28:15):
Why because ten thirty So because LLCis a flow through entity for income
taxes. What that means in Englishis it does file an income tax return
of its own called a Form tensixty five, or it's really a partnership
return, whereas we humans file Formten forty. So it the ten sixty

(28:41):
five itself at that entity level,pays no tax. It kicks out K
one saying, here's what the ownersof that LLC get, either the interest,
the dividends of rent, the expenses. All that flows out of there,
even though it doesn't physically come outdoesn't have to physically come out of

(29:03):
the LLC, but it gets reportedon the owner's personal ten forty. So
it's like this corporation is issuing atten ninety nine to its owners. I
think that's a fair not that affairanalogy, Ye if you will, And
so yeah, so that's how thatwould work. And it's because it's a
flow through you're really considered the owner, and so the ten sixty five.

(29:27):
Then so the LLC, excuse me, can actually enter into the like kind
exchange. But the LLC itself wouldhave to sell the entity, not the
entity, the property, and themoney would come in to the LLC,
and then the money would go outand a new property would come into that

(29:48):
same LLC. Remember it has tobe the same buyer and the same seller.
So if he had several LLCs,he's got to make sure it's only
happening within that one, that onethat's doing it, and that would qualify
for the ten thirty one capital gainstax exclusion. So I like that that

(30:11):
that possibility, And just so everybodyknows what a ten thirty one is,
it simply means that you are goingto defer the capital gains tax. Right,
So if I sell something with amillion dollars of gain and I buy
something else, that million dollars ofgain remains built in to the new property

(30:33):
that I bought. I didn't didn'tgo away, but I don't have to
recognize it kicked it down the road. Yeah, I don't have to pay
the tax on it now. Andif I die owning it, I could
get a step up and eliminate thatgain altogether. So Todd it sounds like
from a tax perspective, nothing changeswhen you have your things in an LLC.
Does it change like if you havean LLC, can you still do

(30:55):
trust planning? Do you like,are there restrictions to what you can do
with your properties? Yeah? No, oh, no, none really at
all, because the shares of theLLC will still be in your family trust,
so you're avoiding the probate by notowning the shares of the entity personally.
You put those in the trust,and of course if it's a revocable
trust, you control everything in therevocable trust. So no, I would

(31:18):
say you do estate planning and LLCplanning they go hand in hand. Okay,
great, But some things that don'tgo hand in hand is gifting.
Although you kind of give it yourhouse in your hand and give it your
kids, you kind of do giftfrom one hand to the other or from
one child's handswers, But don't giveaway your assets without at least thinking about

(31:40):
what you're doing. And that's whatour guide is about. It's the end
of the month, folks, it'sthe last chance. The guide is called
making the most of gifting assets,How do we do it? First of
all, do we do it?Lots of negatives go along with gifting assets,
and so don't just give things awaywilly nilly? But am I going
to save significantly on the estate taxfront? Then I make a gift?

(32:01):
If I'm not, Maybe I don't. If I'm gonna incur a huge capital
gains tax and not save as muchon the estate tax, you have to
analyze that because of something called acarryover basis. Folks learn how best to
make your gifts or not. Getthe guide eight sixty six eight four eight

(32:21):
five six nine nine or Legal ExchangeShow dot com once again eight six six
eight four eight five six nine tonine or Legal Exchange Show dot Com.
Our last question comes from down inBoylston, mass And she writes, now
that Massachusetts has increased the estate taxexemption to two million, couldn't I just

(32:44):
give my largest assets away while I'mliving and die owning less than two million?
I am worth around three and ahalf million and could gift a one
million dollar vacation home and a onemillion dollar rental property to each of my
two children. Don's looking for loopholehere? Yeah? Well, don This
is the exact loophole that the governmentwalks you down the garden path to do.

(33:07):
That doesn't sound good. Yes,So the reason is I'm going to
say this, Well, first andforemost, let's let's analyze the new Massachusetts
a State tax law, which isa little different than the old one.
So the new Massachusetts A State taxlaws exemption is two million dollars, and
it appears that you will get thisability to do what they're saying here if

(33:29):
you had four million, just changethe facts to make it equal to the
two million dollar exemption. If Ihad four million and I give away two
million and keep two million, haveI effectively eliminated my mass to state tax?
I think the answer now is yes, whereas before the answer was no,

(33:50):
really you didn't. The reason theanswer is yes is because of this
thing called a credit that they're givingyou. It's a ninety nine two hund
undred dollar credit, which happens tobe the tax on two million dollars.
So if you give away two milliondollars, right, there's no gift tax
in mass but you have to reduceyour MASS exemption by the taxable gift,

(34:14):
So my MASS exemption goes down.To zero because I gave away two million
dollars. But that exemption being atzero just means that that's my filing threshold.
I have to file an estate taxreturn if I'm over zero dollars because
I reduced my exemption, Whereas ifI had a two million dollar exemption and

(34:34):
I had less than two million dollarsof assets, I don't even need to
file. It's a filing threshold.Right. But since I reduced my exemption
by making the gift of two milliondollars to zero, but I kept two
million dollars, well, now Ihave a two million dollar estate and that's
more than zero. So I haveto file a death tax return in Massachusetts

(34:57):
with me. But when I filethe death tax return, the tax on
two million dollars in Massachusetts is ninetynine thousand, six hundred dollars. Oh,
thankfully, I have a credit forninety nine thousand, six hundred dollars,
so I have zero tax due.So it sounds like someone drafted the
laws unintentionally correct in our favorite Ithink they did. I think they made

(35:20):
a mistake. The way I readthe law currently not doesn't mean they're not
going to change this. But oh, they'll find it right away. But
that's the way that this law isset up. You get this credit for
ninety nine thousand, six hundred dollars, which is the tax on two million
dollars, so home run. Wedid not have that credit in the old
days. Okay, So so yes, I think the answer is yes to

(35:40):
that part one question, Susan.But the answer is really no, because
Sean, we were all set.Well we are, But then you have
to think about what it is you'regiving away. Right, Even if we
did that, and we gave awaythis rental property right on a million dollar
rental property and a million dollar vacationhome, right, I'll bet you they

(36:05):
bought these properties long ago. Yeah, let's assume they did. Let's assume
there's at least a five hundred thousanddollars gain in each one. Sure,
so that's a million dollars of capitalgain built into these built into these properties.
Probably there's more on the rental becausethey depreciated it. It's probably zero
on the rental, but I'm beingconservative. Let's say there's just a million

(36:29):
dollars of gain built in combined inthese properties. If you give that property
away, yeah, you're going toreduce your mass estate tax. I get
that, maybe even eliminate it.Yeah right, But what did I create
on the other side, million dollargain tax at least three hundred thousand dollars

(36:50):
in tax at a bare minimum.Whereas if you die owning it, you
eliminate the capital gains tax and youpay a little bit of mass tax,
or in this case, you'd paynone because the estate's only three point five
million. Do your planning, folks, you can shelter four million and there's
no tax there. Get the guidefolks, learn how Not to gift eight
six six eight four eight five sixnine to nine or Legal Exchange Show dot

(37:13):
com. If you have a questionyou would like to ask Todd, visit
his website Legal Exchange Show dot comand click on the ask Tod tab.
Maybe I'll be able to read yourquestion on the air, and hopefully his
answer will stop you from becoming oneof his next real life stories. You've
been listening to Todd Lutsky from thelaw firm of Cushing and Dolan. I'm
Susan Powers, a financial advisor withthe Armstrong Advisory Group. We'll be back

(37:36):
with more after this quick break onthe Legal Exchange with Todd Lutsky. Legacy
planning is incredibly important if you wantto make sure you keep your assets in
your family, but if it isn'tdone properly, you can create significant problems.
Gifting assets to your children is admirable, but may not always be the
best course of action, especially ifthey're financial difficulties or a divorce proceeding.

(37:59):
Learn how to protect your yourself andyour family by calling Cushing and Dolan and
asking for their brand new guide calledMaking the Most of Gifting Assets. In
it, you'll learn about information relatedto the gifting process, what tax issues
may arise from a major gift likea home or vacation property, and what
happens to the asset if a childhas creditor issues. Call eight sixty six
eight four eight five six ninety nine. That's eight sixty six eight four eight

(38:21):
five six nine nine, or requestedonline from their website Legal exchange show dot
com. The proceeding was paid forand the views expressed are solely those of
Cushing and Dolan. Cushing and Dolanand or Armstrong Advisory may contact you offering
legal or investment services. Cushing andArmstrong do not endorse each other and are
not affiliated. If you're looking foran incredible vacation filled with sun, fun

(38:45):
and no need for a passport,look no further than the United States Virgin
Islands. Saint Croix, Saint Thomas, and Saint John were voted the number
one vacation destination to visit this December. According to US News and World Report.
December is the start of the dryseason in the island, so you
can expect perfect temperatures, beautiful beaches, a wide variety of water sports,
world class cuisine, and a vibrantnightlife. From the moment you arrive,

(39:08):
you'll fall naturally in rhythm with theheartbeat of the islands. There's no money
to exchange, and travel from NewEngland could not be easier. Make your
plans now before old Man Winter comescalling. Had to visit USVII dot com
learn about all three islands and planthe ideal vacation for you and your family.
America's Caribbean paradise is waiting for you, so had to visit USVII dot

(39:31):
com for more information and to reserveyour trip today. That's visit USVII dot
com. Veterans Development Corporation is aproud partner of the DAV five K Boston.
Let's meet their CEO, Mark Vonner. I enlisted in the Marine Corps
when I was eighteen years old,joining a long line of family members who

(39:52):
also serve DOT country. After myservice, I connected with the VA Healthcare
Systems, where I attended meetings withdisabled otter and learned for the first time
about the DAV. I was soimpressed with the work they do to help
millions of veterans, including providing necessaryservices like transportation, education, and financial
opportunities. Today I stand a probbpartner of the DAV and the twenty twenty

(40:14):
three DAV five K. My company, Veterans Development Corporation, is a general
contracting farm working with many disabled veterans, and I hope that by sharing my
story, many other disabled veterans willbe able to reach their goals once they
include their service. Veterans Development Corporationis proudly partnered with the Disabled American Veterans
Department of Massachusetts and the presenting sponsorof the DAV five K Boston. If

(40:35):
you'd like to help our great Americanheroes by making a donation, visit DAV
five K dot Boston. Your tuneto the legal Exchange with Todd Lutsky.
If you are a loved one needsa nursing homestay, call Todd right now
at eight sixty six eight four eightfive six ninet nine and let him make
sure your assets are protected. That'seight six six eight four eight five six
nine nine, Or visit him onlineat Legal Exchange show dot com. Welcome

(41:00):
back into the Legal Exchange with ToddLutsky. I'm Susan Powers, a financial
advisor with the Armstrong Advisory Group,and I'm joined, of course by Todd
Lutsky, a partner with the lawfirm of Cushing and Dolan with a master's
in taxation. So, Todd,we're talking about gifting assets this month,
and you mentioned earlier in this showthe gentleman who owned a corporation owned a

(41:22):
company and he did a gifting trust. These gifting trusts can be a very
valuable tool as part of higher networth estate planning process. Sure, what
level of net worth do you haveto have before you should consider this kind
of planning. I think it's reallydriven by the federal estate tax exemption for

(41:46):
two reasons. One, not everystate even has an estate tax. Remember
there's only about fifteen states that evenhave an estate tax. Luck, yes,
and mass we are the leaders ofthe pack and so so that's one
reason. And the federal and two, the federal estate tax is forty percent

(42:06):
of the amount over your exemption,so we want to make sure that we
have that all covered. And solet's start with that premise. So what
is the federal exemption? Well,let's not think so. Well, two
things you have to think about.One what is it today? And two
what's it going to be in twentytwenty six? Today, So let's go

(42:28):
to twenty twenty six. First,twenty twenty six, let's say it falls
to roughly six and a half million. If you're married, that's thirteen million.
So I'm thinking I can do basicestate planning and if I'm worth today
or thinking where I'm going to bein twenty twenty six around thirteen million or
less. Gifting takes on another ideaof maybe maybe I don't need to gift.

(42:52):
Yep, maybe I take a secondcloser look at this and not gift
look closer. Okay, Todd,what if I'm worth twenty or thirty million
today, say twenty million even right? And up? Well, if I
don't do anything I'm only going tobe able to shelter with basic a state
planning in twenty twenty six thirteen million, So that means I have seven million

(43:15):
dollars at forty percent. That's twopoint eight million dollars in tax that I
will owe automatically. If I don'tgrow this a penny and I die after
twenty twenty six, maybe I shoulduse those exemptions before I lose them.
So this would mean hurry up?Yeah, right, And how do you

(43:36):
use exemptions before you lose them?There's only two ways one die. That's
not very helpful advice. That's reallynot going to be anybody's first option,
especially not this time of year.So what else? Gift? So you
can gift and eat up your exemptionwithout paying a gift tax by making these

(43:58):
gifts. And to your point,that was that point with the high networth
climb out of business? Can youonly do this with business assets? Could
you do it with like investments orreal estate or something like that home?
You sure can, So you haveto think about what kind of item you
want to gift. That's a wholeother part of gifting. So once you've
made this determination that yes, I'min the gifting world. Then you have

(44:22):
to step back and say, whatis it that I'm going to gift real
estate or business or investment portfolios?And folks, that's where we're at with
you today. You need to decidewhether or not gifting makes sense for you.
And the new guide it's the lastchance to get it. It's not
new, it's the last chance giftmaking the most of gifting assets because you

(44:44):
need to think about whether or notit's going to create an adverse capital gains
tax to your family by giving away, as we said earlier, very low
basis assets creating gain later, howmuch does it actually save me on the
estate tax fronts? Which you yougot to pick your poison, which one
is better? Uh? And thenwhen you are high net worth and you

(45:04):
want to give assets away, don'tjust give them to the kids. By
putting it into a gifting trust,you not only are getting it out of
your estate, but you could possiblybe getting it out of their estate,
skipping in a state for generation,skipping tax purposes, and protecting it from
the kids' future divorces and creditors.Get the guide Learn how best to gift

(45:27):
in your situation eight six six eightfour eight five six nine nine or Legal
Exchange Show dot com One more timeeight six six eight four eight five six
ninety nine or Legal Exchange Show dotcom. So I know you have told
all of us many times you're notan advocate of actually giving away your assets.
So you're not going to just transferthese assets to your kids. They're

(45:52):
going to go in some kind ofa trust. Probably, yeah, yeah,
you don't know my kids. Okay, So they go into this gifting
trust. How does that operate?Is it different than like the medicaid trust
we talk about the revocable trusts thatwe talk about. Yeah, yeah,
these gifting trusts are are very differentthan the medicaid trust. So the Medicaid

(46:15):
trust, I you know, notonly just with a medicaid trust, is
it an incomplete gift for gift taxpurposes? The giver you can actually remain
an income beneficiary a beneficiary of thetrust. I'll be an income only beneficiary,
but still a beneficiary of the trust. So that's good, and you
keep a lot of control over it. Like we've talked about living there,

(46:37):
selling houses, doing things. Witha gifting trust, it's a little different.
You're making a completed gift, meaningyou've cut the string. You're no
longer a beneficiary of that trust incomeor principle. Income or principle. You've
got to make sure that you cutthat string so that it doesn't get pulled

(46:59):
back into your estate. In orderto do that, you need to not
be a beneficiary and not really beable to directly control the beneficial enjoyment of
the property. But as I saidin my story, you can still keep
a lot of control over removing andreplacing the trustee, making sure you have
independent trustees that are not the kids. You can, you know, so

(47:20):
you you still get to ensure andthe kids are not owners of the assets.
So yeah, so you're still sowhat do you how much control you're
actually giving up? I know you'resaying it you can't control directly, but
it's kind of hard to quantify itin this case. But you know,
the fact that you're not a beneficiaryis you know, you got to say,
this isn't mine anymore. It maynever come back to me. Could

(47:44):
a kid get it and give itback? I guess they could, but
not implicated to in your mind thatthis is stuff that I've that I've actually
given away and that I'm not actuallycontrolling anymore. Now, mind you,
with a business, when we giveit away, we only give into that
business non voting shares. So itmight be great that the company is owned

(48:05):
by this irrevocable trust that I don'town anymore. But guess what I kept
all the voting shares of the underlyingbusiness. Of the underlying business. Remember,
non voting shares. They can't sellthe business, they can't make any
managerial decisions, they can't make adistribution from the business to the shareholders.
They can't complain about not getting incomedistribution. Clearly, the man at the

(48:30):
voting shareholder runs the show. Andyou could give away, and we do
it lots of times. You couldgive away ninety percent of the business,
all non voting, out of myestate growing outside my estate, beautiful.
I kept ten percent all voting.I'm running the show. Can you give

(48:53):
us an example, Todd of whatkind of money you're talking about being able
to say, like if you showone of those gifting trusts, Yeah,
I actually have a real life story. Oh excellent. So it's an older
one, but it's won back whenthe same thing was happening. So back
in twenty twelve, we had thisthing called the fiscal cliff, that's what
they were talking about. And theexemption back then was five million dollars.

(49:17):
And this younger couple walks in inthere. I don't know if they were
in their late thirties. They hadstarted a business and they they were worth.
The business was worth about four million, and that house worth a million.
They didn't have a lot of otherassets, but that's five million,
and it was going to go downto one million the exemption. And so

(49:37):
they said, well, we don'twant to lose four million dollars of our
exemption. What do we do?So we did their company into voting and
non voting shares, gave away ninetypercent to spousal lifetime access trusts, which
are actually different than outright gifting trustsbecause they can each enjoy what's in that
trust. For the other one,oh, espousal lifetime access trust back,

(49:59):
I'll scratch, so they can stillenjoy what's in that ninety percent piece.
They kept ten percent to run thebusiness. Yeah. Then when Biden got
in office and they were worried theexemption was going to fall, they came
in, We said, what's goingon here? Their business was now worth
forty million, dollars. Good forthem. We had gifted away ninety percent

(50:19):
of forty million dollars ten twelve yearsago, and that translates into a savings
of seventeen million dollars in tax becauseall that growth occurred outside the estate.
Folks in that in the espousal lifetimeAccess trusts. Learn how to make the
most of your gifting eight sixty sixeight four eight five six ninety nine or

(50:42):
Legal Exchange show dot Com. ToddLutsky from the law firm of Cushing and
Dolan, thank you so much.Thank you, Susan, always a pleasure.
I'm Susan Powers, a financial advisorwith the Armstrong Advisory Group. We
thank you for listening and we'll beback again next week on the Legal Exchange
with Todd Lutsky. Legacy planning isincredibly important if you want to make sure

(51:02):
you keep your assets in your family, but if it isn't done properly,
you can create significant problems. Giftingassets to your children is admirable, but
may not always be the best courseof action, especially if their financial difficulties
or a divorce proceeding. Learn howto protect yourself and your family by calling
Cushing and Dolan and Asking for theirbrand new guide called making the Most of

(51:23):
Gifting Assets. In it, you'lllearn about information related to the gifting process,
what tax issues may arise from amajor gift like a home or vacation
property, and what happens to theasset if a child has creditor issues,
call eight sixty six eight four eightfive six ninety nine. That's eight sixty
six eight four eight five six ninenine, or requested online from their website

(51:43):
Legal exchange show dot com. Theproceeding was paid for and the views expressed
are solely those of Cushing and Dolan. Cushing and Dolan and or Armstrong Advisory
may contact you offering legal or investmentservices. Cushing and Armstrong do not endorse
each other and are not affiliated.Looking for an incredible vacation filled with sun,
fun and no need for a passport, look no further than the United

(52:06):
States Virgin Islands. Saint Croix,Saint Thomas, and Saint John were voted
the number one vacation destination to visitthis December, according to US News and
World Report. December is the startof the dry season in the islands,
so you can expect perfect temperatures beautifulbeaches, a wide variety of watersports,
world class cuisine, and a vibrantnightlife. From the moment you arrive,

(52:27):
you'll fall naturally in rhythm with theheartbeat of the islands. There's no money
to exchange, and travel from NewEngland could not be easier. Make your
plans now before old Man Winter comescalling. Had to visit USVII dot com
learn about all three islands and planthe ideal vacation for you and your family.
America's Caribbean paradise is waiting for you, so had to visit USVII dot

(52:50):
com for more information and to reserveyour trip today. That's visit USVII dot
com. Veterans Development Corporation is aproud partner of the dav five K Boston.
Let's meet their CEO, Mark Vunner. I'm no stranger to the military
community. My late uncle Albert Warner, Sir, probably in the First Marine

(53:10):
Division in World War Two and gavethe ultimate sacrifice for his country. I
am surrounded by a family of disabledveterans, including my father Victor and brother
Timothy. I am a veteran andI have dedicated my business and my life
to helping veterans. My company,Veterans Development Corporation, works to help disable
veterans every day, and it's oneof the key reasons why I'm such a

(53:34):
big supporter of Dan Stack and theDisabled American Veterans Department of Massachusetts. I
am so thrilled to be proudly partneredwith this year's DAV five K. Veterans
Development Corporation is proudly partnered with theDisabled American Veterans Department of Massachusetts and the
presenting sponsor of the DAV five KBoston. If you'd like to help our
great American heroes by making a donation, visit DAV fivek dot Boston.