Avoid The Costly Estate Mistake That Erases Your Step-Up In Basis (118)

We break down a costly estate planning mistake that can cost you six-figures with the IRS! 

A simple change in timing preserves the step-up in basis. A real client story and a simple change that can preserve your gift.

• The risk of gifting appreciated real estate
• What's the step-up in basis?
• Probate, good or bad?
• Simplify gifting
• When and how to consult attorneys and advisors
• Practical steps for rentals, equities, and businesses

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🌐 Paradigm Wealth Partners (website) – Financial planning for career professionals who want to retire and stay retired: https://paradigmwealthpartners.com/
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▶️ YouTube: Paradigm Wealth Partners

If you or someone you care about could use the help of a financial advisor and sees the value in establishing a financial plan, please reach out to me. 

Thanks for Listening! 

Jonathan

Episode Transcript

SPEAKER_00 (00:04):
The estate planning mistake that could cost your
family hundreds of thousands ofdollars.
Imagine this, you spend yourentire life working hard,
saving, investing, acquiringproperties, and then with one
well-intentioned decision, youaccidentally hand the IRS a
six-figure check.

(00:24):
That's money that should havestayed in your family.
This happens every week.
We see it frequently.
And today I got off the phonewith an 87-year-old client who
almost triggered one of thebiggest estate planning tax
bombs I've seen.
She wanted to make things easierfor her son.
And if you own rentalproperties, a vacation home, a

(00:45):
business, or any appreciatedasset, this episode could save
your family a fortune.
Let's dive into it.
I'm Jonathan Bedner, certifiedfinancial planner, owner of
Paradigm Wealth Partners, andhost of the What the Wealth
Retirement podcast.
Today we're talking about amistake that I promise you do
not want to make.

So here's what's happened (01:04):
this conversation with a client 87.
She's sharp, she's independent,she still lives alone, getting
ready to move into a condo acouple miles away.
She's done a great job managingher finances.
She owns four duplexes.
And she wants to simplify herplan.

(01:26):
This is a very normal planningsituation.
And this is what she tells me,Jonathan, I'm going to go ahead
and put all of the rentalproperties in my son's name.
He's already taken care of them,he's collecting the rent, he's
making the repairs.
These are assets that he's goingto inherit anyway.
So I'm going to go ahead andhave my attorneys update the

(01:46):
deeds and go ahead and givethose to him.
And I hear this all the time forclients who want to make these
things more simple for clients.
What they're trying to do isavoid probate.
But in this case, it would beone of the worst financial moves
she could make.
Why?
Because transferring theseproperties while she's still
alive wipes out one of the mostpowerful tax benefits she has.

(02:11):
And that we have here in theUnited States.
The step up in cost basis.
Let me break down what thatmeans for you very simply.
The duplexes that she boughtdecades ago have appreciated
massively over the last 30, 40years.
And if she gifts those to herson today, he gets the original
cost basis that she purchasedthem for, not the value on the

(02:35):
day that she grants or giftsthose to him.
Her cost basis, meaning if heshould he sells one of those
properties for$300,000 that shebought for, let's say,$80,000,
he owes capital gains on$220,000multiplied by four, and those
duplexes are a huge tax bill ifhe chooses to sell them.

(02:57):
If she keeps those properties inher name and in her estate, and
then he inherits them when shepasses, he gets a step up in
basis to the fair market value.
Meaning, if the property isworth$300,000 when he inherits
it, his new cost basis is also$300,000.
If he chooses to sell the assetright away, the tax bill is

(03:21):
basically zero.
Saving hundreds of thousands ofdollars for the family.
And instead of trying to makesimple decisions, we actually
make strategic decisions.
Now she brought up probate.
Nobody likes probate.
It's slow, it's frustrating,it's paperwork, it takes time.

(03:42):
But in this case, probate maycost a few thousand dollars,
probably a little patience aswell, versus handing the IRS a
six-figure tax gift.
Probate is annoying.
This estate tax bomb isdevastating.
So when I explained this to her,she said, Jonathan, I had no
idea this was even existing.

(04:04):
Thank you for telling this.
You just saved my family so muchmoney.
That's why conversations likethis matter.
You don't have to be an expertin tax law.
You just have to have the rightadvice before you make an
irreversible decision.
So here's the takeaway.
Before you retidel property,before you gift real estate or

(04:24):
equities or the house or thebusiness to your kids, before
you simplify your estate, talkwith your trusted professionals,
talk with your attorney, talkwith your financial advisor.
Understand the decisions you'remaking.
A 10-minute conversation couldsave your family a fortune.
If you're not sure who to helpor you're not sure who to call,

(04:46):
we're here to help you.
You can schedule some time withme to chat.
Thank you for your interest inthis video.
Please like and subscribe formore real-world and real life
retirement stories on thisYouTube channel.
Have a wonderful day.
We'll see you in the next one.
Thanks for joining me on anotherepisode of What the Wealth.

(05:07):
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It's about our choices, chances,and changing our financial

(05:27):
futures.
The information in this podcastis informational and general in
nature and does not take intoconsideration the listener's
personal circumstances.
This podcast is not intended tobe a substitute for specific in
financial, legal, or tax advice.
You should consult the approvedqualified professional prior to
making a final decision.
Security is offered through LPLFinancial, member FINRA SIPC.

(05:49):
Paradigm Wealth Partners is theother business name for
Independent Advisor Alliance.
Investment Advice offeredthrough Independent Advisor
Alliance, a registeredinvestment advisor.
Independent advisor alliance,and Paradigm Wealth Partners are
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