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Inheritance Tax Explained 2019 (Gifting Trust Assets While Grantors Alive?) - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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- [Toby] From a tax perspective,
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would it be better to gift a beneficiary
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from trust assets while the
grantors are still alive?
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- [Jeff] What?
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Deja vu?
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- [Toby] Yeah, what?
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(Jeff laughs)
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Same thing?
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- [Jeff] Uh, yeah, so
would it be better to gift
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a beneficiary from the trust assets
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while the grantor is still alive?
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- [Toby] Mm hmm.
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- [Jeff] I have mixed feelings
(Toby laughs)
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on this, 'cause I've
kind of dealt with this.
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If the grantor is
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in poor health
(laughing)
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- [Toby] I know what
you're talking about now.
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It took me a while , I'm a
little bit slow today, guys.
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Jeff's referring to something we were
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talking about earlier.
- Yeah,
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if the grantor's older,
in poor health then, no,
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you don't want to distribute
those assets if you can't.
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There's multiple reasons to
distribute to the beneficiaries.
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You may just want to be able
to, if it's your children,
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to benefit those children
while you're still alive.
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Maybe you'd rather see 'em get some of it
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while you're still alive
than after you pass.
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However, if you wait 'til you pass
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for them to obtain your assets,
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they do get that step up in basis
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and that could be a
considerable benefit to them.
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- [Toby] Mm hmm.
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I just dealt with this, actually,
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on a question that we couldn't
answer a few weeks ago.
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I've been going back and
forth with the client.
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It's was some Oregon clients,
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we were talking about the inheritance tax,
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which Oregon still has an inheritance tax,
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which is called the estate tax there.
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But basically, it's an estate tax
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they call it the
inheritance tax, excuse me.
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It's on a million bucks,
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so anything above that you're
getting hit pretty hard.
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And so, here's the competing interest.
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If you die with an asset
the basis steps up.
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So let's talk about having a house
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and I give the house to
Jeff during his lifetime.
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Let's say I'm Jeff's dad and
I'm giving him the house.
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Then there's no 121 exclusion.
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Jeff is getting my basis on that.
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Let's say that I bought it 30 years ago
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for much, much less than
what it's worth now.
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And he's not getting taxed on it,
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but he's not getting any benefit
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and I'm not getting any benefit.
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Now, if I pass away Jeff owns the house,
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he gets no step up in basis,
I've already given it to him.
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And he could do whatever he wants with it
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during his lifetime. So if I
give him the house and I say,
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here, Jeff, I'm going
to give you the house,
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and he says great, Toby,
you're moving out tomorrow,
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I'm kicking you out, there's
not much I can do about it
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unless I reserve a life estate,
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or put it in a qualified
personal interest trust
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or something like that.
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A QPRT, Qualified
Personal Residence Trust,
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where I get to live in it
for the rest of my life.
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Now, we don't want to
lose that step up in basis
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that you get, so let's make it in reality,
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I'll give you a real life situation
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of somebody who inherited.
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The dad put some buildings
into a limited liability,
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it was actually a limited partnership,
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but it could have just as easily
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been a limited liability company,
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and they gave the interest
to a bunch of siblings.
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And they did not get a step up in basis,
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so when the siblings sold it,
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they end up having tax obligations
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when they started selling off
the buildings, years later.
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And that kind of stunk.
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And the reason they did it was
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because they were worried
about the estate tax
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but there really wasn't an
estate tax to worry about
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that was just some advisor
getting a little jump on the gun
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getting it over his skis,
getting worried about something.
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And it caused tax harm.
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The only time I would actually recommend
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that somebody starts gifting the asset
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is if we know for sure there
is going to be a tax hit.
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So Mom is getting older
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and I am going to pay $140,000 in tax.
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I just did the numbers on one of these
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and this is about the scenario.
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Is that more than I'm giving up
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if I have a step up in basis?
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And so I look at it and say
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if I gave up the step up in basis
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and just transferred
it now, and I sold it,
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what would my tax obligation be?
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And if I ran the numbers
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and it was less than $140,000
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then I might do it,
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assuming that Mom's
old and in poor health.
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'Cause I'd say hey, I'd rather
not get killed in taxes.
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- Right.
- It's not worth it,
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I'd be better off.
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Here's a thought though,
whenever I see those situations
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I always go to 'em and say
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what are you trying to accomplish?
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Why doesn't Mom sell the
house on an installment sale
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with the right to occupy and pay rent?
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And that way we prose the value of it,
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it stepped up at that time,
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Mom has an income stream,
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and then you just gift the
income stream when you pass.
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You kind of get the best
of both worlds there,
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you got it out of your estate,
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you froze the value of it,
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anyway, there's some other little tricks
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up our sleeves, too, that we could use.
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- [Jeff] And as far as
gifting to your beneficiaries
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or to whoever, one
thing I would recommend,
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based on what Toby just said,
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is I don't think it's usually wise to gift
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greatly appreciated assets.
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- [Toby] No.
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- [Jeff] Because you're just transferring
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your tax liability to them.
- To them.
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Absolutely, 100%.
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Three rules of anything
tax or financial related
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which is calculate, calculate, calculate.
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That's where we just get our pencil out.
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And in most states, I
think there's 14 states now
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that still have an estate tax.
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Most of the time, the federal tax is,
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unless you're over 11 million,
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it's not even an issue.
- Right.
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- [Toby] If it's a married couple,
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unless you're over 22 million,
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we're not even worried about it.
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But you may live in a state
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that still has that stupid estate tax.
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So, like, we had the Oregon,
they're at a million.
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Some states are still
floating around out there.
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So, you always just get it out and say,
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what would I be looking at?
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What am I giving up?
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And you don't make a
hair trigger reaction.
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Alright.
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(upbeat music)
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