Ep 17 - Transfer and Death Taxes

GSLAW Ep 17 - Transfer and Death Taxes

Intro-Outro: [: 00:00:00

to the Good Steward Law Wealth Podcast, where host Ledley Jennings explores law and finance to help listeners become better stewards of their wealth. Each episode covers the latest trends and strategies in estate planning, elder law, investment, and wealth management. Tune in for the knowledge and tools for financial success and security.

Ledly Jennings: Back to the Good Steward Law Wealth Podcast, I am your host, Ledley Jennings. Uh, the attorney at L Jennings law, who will say sponsors this podcast, because, uh, you know, that's what I do. But what we're going to talk about today is the transfer tax. And this actually considers really about three different taxes, but a lot of people come to my office and say, I don't want to pay the government anything when I'm gone.

t, but it's a very important [: 00:01:00

And like I said, there's Three different kinds, but really I'd say there's about five different kinds of taxes. You know, you have your income tax and you have your capital gains tax. Those are two taxes that are based on assets and income and that kind of thing. But really the transfer tax concerns gift tax, a state tax, and then here's a new one for you, the generation skipping transfer tax.

eport it on your tax return. [: 00:02:00

So every person, the, the way the number sits this year, and this number is inflation adjusted each year, but in 2024, The number is 18, 000. So I can gift someone else 18, 000 up to 18, 000 and not owe a gift tax. So that's probably why you've never heard of or thought about a gift tax because you're not gifting more than that.

In fact, it's even better than that because you can do that to anyone. So I can gift 18, 000 to my son, to my cousin, to my friend, to the church, you know, Well, church is different, but any, any, anyone I can give 18, 000 to a hundred different people. So it's a tax on the giver per person that they gift to.

gift tax between husband and [: 00:03:00

So, um, another way to think about it is, well, what if you want to give more and why would you give, um, Why would you want to make gifts to people? First off? Well, the first reason that I see that my clients want to make gifts to people is number one, just out of the goodness of their heart. You know, they want to help their kids with a down payment on their house, uh, their first house.

hey could actually say their [: 00:04:00

They could gift them 72, 000 to their son's family for that down payment. And how does that work? Well, you, you know, husband and wife can each gift 18 to the son, but they can also each gift 18 to the daughter in law. And they're married, so that could all go toward that one house down payment. So that's a way that you can give 72, 000, uh, to the same family without a gift tax consequence.

And that's one reason you gift. And a lot of people do it just out of the goodness of their heart, but strategically tax reasons you may do it is one to reduce, um, Your, uh, state tax bill. So maybe you want to make gifts during your life. So you don't owe a state tax when you pass away. So you want to gift it now to get it out of your name.

get qualified for Medicaid, [: 00:05:00

So maybe you want to gift assets today to get them out of your name. So that's a strategic reason that you may gift things is to get it out of your name. But one question as well, what if I gift more than. the exemption more than the 18, 000. Um, do I owe that 40 percent tax? Not necessarily because that's a yearly tax.

So it's per person per year. So you can gift 18, 000 to your son every year, once a year, every year. But also if you give more than that, it comes off your lifetime exemption. So if it's under that doesn't come off your lifetime exemption over that you can then file a gift tax return. I believe it's a form 709 that you file with the IRS.

e exemption? Well, this year,: 2024

Now, for a lot of people, that's not an issue. You may never have 13. 6 million in your name at all. Um, you know, throughout your life, maybe you do, maybe you don't, but for wealthy people, it is a big deal. And where this planning really comes into play, but so that gift tax actually works with the estate tax and I'll explain what the estate tax is now.

So this is a big concern for clients. You don't want to pay a 40 percent estate tax when you pass away. And that's what most people come in to me wanting to do their estate plan. They say, I don't want to pay the government, um, an excessive tax. When I, just because I passed away, I want it to go to my kids.

state tax is a high rate. So [: 00:07:00

So as long as your estate's under that number, no estate tax owed. Now, if you get over that number, you owe a state tax. But the, the concept behind both of these taxes is the government's going to get their money one way or the other. They're going to get it upon death one way or the other. So that's why they say, well, if you make gifts during your life, okay, we're going to tax it on your estate when you die.

If you don't make gifts during your life, then we'll tax it on your state. So that's why it's the same number. So if you make a gift, Over your exemption, then it comes off your lifetime exemption, which comes off your estate tax exemption. So, um, that's kind of conceptually how you think about a state tax.

y about a state tax for most [: 00:08:00

And what portable means is if one spouse passes away, the other spouse can elect portability and get the deceased spouse exemption. So, you know, wife passes away. Husband gets his exemption and her exemption to use. Um, so not many people have to worry about a state tax right now, but that's where the real value with an estate planner comes in because in our lifetime, it's been lower than a million dollars.

amount. So how you plan for [: 00:09:00

With a lot of my clients who are on that edge that we don't really know if they don't need it now, but they may need it when they pass away. We do planning within their revocable trust to avoid the estate tax. And how that works is we set up, say a joint revocable trust. When one spouse passes away, We look at the value of the estate and divide it.

So say we [: 00:10:00

So we put that other 7 million in a exempt trust that meets certain qualifications that It doesn't owe the estate tax. So there's a different power of appointment that you can put in a trust, um, to make it, um, in, in your estate or out of your estate. So when you're thinking about planning for your spouse or next generation, And I won't go into much detail on this, but we talk about powers of appointment is how you consider leaving assets in your estate or out of your estate.

nically not theirs. And it's [: 00:11:00

So not only are you protecting your kids from the estate tax, but you're giving them asset protection as well. So it's a great way to pass something on because maybe in the future you were, the exemption is very low. Or your kids are just really well off. And they're, they're going to have an estate tax problem.

So you don't want what you leave them to be taxed at 40 percent or cause them to have an estate tax problem. So you leave it to them in a trust that meets certain qualifications. And we won't go into the differences of general powers appointment or limited power of appointment, but just know if you meet with an estate planning attorney, it's.

s the gift tax in the estate [: 00:12:00

We can devise a plan to where the rates are set up and certain things are gifts to where you don't owe that gift tax. Now I will hit on one other kind of tax that we talked about is the generation skipping transfer tax. So this is not as common, but it was put into place is basically to ensure that the taxes are paid.

y a generation skipping tax. [: 00:13:00

Now that same exemption applies. Is it's the same number as the estate and gift tax. So you have a 13. 6 million exemption that you can give to a skip person. And by that we mean, uh, grandkids. So say you skip your kids, give straight to your grandkids. You can give them up to 13. 6 million. and not owe that generation skipping transfer tax.

Now, the difference in this, it is the same number and it's adjusted the same each year, but it's calculated differently. So the estate and gift tax are calculated together. The generation skipping tax, they call it GST is calculated separate. So you only have one of those and it is not portable. So you can't transfer it between spouses.

like I said, one way or the [: 00:14:00

But just know those numbers need to be monitored if you're gifting in amounts where you're approaching, you know, 13, 14 million, really, I even consider now if you're approaching 7 million, because it could get cut in half at the end of 2025. So if you're approaching that number and you're making gifts, then we need to start monitoring each of these taxes.

And that is what I wanted to hit on today is just the, um, the three kinds of transfer taxes, all that to say, not many people have to worry about it, but if you do have to worry about it. But we can plan for it. And thank you for listening to the Good Steward Law and Wealth podcast, where we consider everything a gift.

t with what we've been given.[: 00:15:00

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