Trust, Wills & Leaving a Legacy

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Most people spend their whole lives building wealth — and then hand the IRS and the courts a massive cut of it when they die. This session covers exactly how to avoid that. Whether you have a simple estate or a complex portfolio of real estate, retirement accounts, and businesses, this session gives you the legal and tax framework to protect what you've built and pass it on the right way.

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Transcript

SPEAKER_00 0:11

You're going to die one day. Someone needs to get your stuff. You need to be clear to your family and loved ones what you want to happen so that they're not dealing with all of the trauma of mourning your passing and also trying to figure out what you wanted to happen to your assets, who's supposed to get what. I've seen it time and time again that families torn apart, fighting over stuff because they each legitimately thought they knew what mom or dad wanted, and it causes consternation and fighting and broken relationships. So don't let that happen to you. We're going to talk about this. What are the tax ramifications? How do I do this? What are the common instruments and tools I should be using? And what are just some things that I should know of someone who's been through this before, helped clients. I've done the 10,000 consults. So this is part of Wealth Office Hours Live, by the way. If you're just tuning in, this is part four of an eight-part series we have. This is meant for business owners, tax and legal strategies, planning, planning tools and strategies to help you grow and build your wealth. And if you listen to all eight of these and you comment on every video and you want to get a cool certificate, I'm going to think of something cool to give to everyone who's been on this. Let us know. You'll have to reach out to us and want to see your comments. But for anyone on right now, I just want to know who has done an estate plan already? If you have one, did you do a trust? Um, leave any comments here if you already have your estate plan. The fact of the matter is, the vast majority of Americans do not have an estate plan. Well, people buy life insurance and they're paying every month because they know they're going to die one day, but they have not taken the time to write down in a will or a trust what they want to happen to their assets. So my goal today is to give you an outline of it, the tips from a tax planning standpoint, and how you should be thinking about structuring your assets right now before you die. Some common mistakes I see people do when they gift their assets before they die, and why you shouldn't do that. What happens to my retirement account when I pass away? This is a number one asset people have when they pass away. How do those get inherited? What are the tax issues and ramifications there? What about my home? Are there special considerations on my home when I pass away versus a brokerage account versus a traditional IRA versus a Roth IRA? What about my LLCs or rental properties, or if I'm a business owner? How is that gonna pass away? What should I be thinking about? What are the decisions I need to make? And then lastly, does this end up in court? What the hell is a trust, Matt, versus a will? And what should I have set up in my situation? All right, that's what we're gonna go over today. And I call those the winning strategies. And I'm gonna be going over a slide deck as I'm going through that. I'll be sharing slides here. And by the way, to get the slides, get over to mattsorensen.com slash resources. Okay, you can download the slide deck. That link will be in the description below. Matt Sorensen.com slash resources. You'll be able to download the slides because I'm gonna go through them fast, but I do got a lot of checklist items and items you might be interested there. So let's go over the slide deck here. And I'm just gonna go over the six winning strategies. I referenced those just a second ago. And um, and I'm just gonna dive into strategy number one. Uh, and I also want to note too, if you do have a question, feel free to throw it into the chat, into the comments, add it in there. I've got Jordan here who's gonna be monitoring that. He'll be grabbing questions if they're good. Yeah, live questions get priority. We have five or six in in advance already here, maybe uh maybe ten um that I'm gonna hit too. So, but if you've got a question, ask it. That's what I'm here for. And there's probably other people listening right now that are gonna watch this video that are thinking the same thing because we're all going through this together. We're all trying to figure it out. So don't be shy. I'd love to hear your questions if you're on live. And thanks everybody for being on. Okay, item number one. The first thing you need to understand. Trusts, which we're gonna talk about here today, do not save taxes. A lot of people think of a trust for an estate plan and they think, oh, I mean, this is gonna save me on my taxes now, or my income taxes, or the wealthy people have trusts and they pay less taxes right now. No, they don't. Trusts can save you on estate taxes if you have an estate over $15 million. We're gonna talk about that here later. But in general, we're using trusts and these some of these strategies we're gonna talk about here to pass on your assets to your loved ones or the charitable causes you believe in. We're not using trusts to save you taxes today. Okay, they're not gonna help you on your 1040 that you're doing on April 15th this year, right? This trust is about your legacy. What happens when you pass on? And there are taxes when you die. That tax is called an estate tax. We'll be talking about that here in a minute. But for your income taxes and while you're living, this trust does not have an effect. And what 99.9999% of Americans, even the top one percenters, they are not using trust for income tax planning. Okay, in our opinion, that strategy is bunk. You see a lot of it on social media, but I just want to get your head straight here. I'm gonna be talking about some trust strategies here. This is about making sure when you pass on assets to your family, you're minimizing a state tax and being clear on who gets what. All right, so let's talk about some of the tax traps that can occur. The first thing is you need to understand what are the taxes that happen when I die, and what are also some of the tax breaks that I get when I die. Many times my partner Mark and I have joked on our podcast, the Main Street Business Podcast, that dying is like the best tax strategy out there. We just don't have many clients signing up for it. And there's some real truth to that here as I get into it. But the first thing I want to make sure you understand is there is a tax when you die. It's called the estate tax. Some people call it the death tax. Republicans in Congress and the Republican Party that's trying to get rid of this tax, they call it the death tax. Um, but in the tax code, it is referred to as the estate tax. Now, right now, when you die, the IRS takes a snapshot of the assets that you have on the date of your death. So if you had a $2 million estate on the date you died, the IRS is gonna say, all right, Matt Sorensen had a $2 million estate. What is taxable from an estate tax perspective? The nice thing is, from the one big beautiful bill that passed last year, is we now have a permanent estate tax exemption of $15 million per person. So if you have a $2 million estate, you pass away, you have you're not subject to tax. You'd have to have $20 million or really $15 million and $1 until you run into a state tax. Now, let's say that you had a $16 million state, you pass away, you're single. Okay. That first $15 million is going to pass to your kids, no estate tax. That next $1 million to 16, that is subject to a state tax, and it is about a 50% tax. I think it's like 47%. You are going to have half of that, any any amount over the exemption is going to go to the IRS. And by the way, you might have a state that also has a state estate tax that you'll be sending money to. A lot of states follow the federal exemption. Some of them have different amounts here, we'll talk about in a second. But the key here is understanding the exemption. Many of us will fall under that. We're not going to have to stress about it. But some of you need to plan for this. We have many clients in my law firm KQS lawyers that we have to structure around this and plan for this. What are we going to do? If you have the family farm or the family business that has a lot of value in it, are we going to be forced to sell this to pay the taxes? Can the family actually carry it on to the next generation? Or is this going to have to be a forced sell because the family can't afford half of the value to go to estate taxes? All right, now, if you're married, there is a way you can structure your estate so that you can get a $30 million exemption because it is $15 million per person. There is a way where you can structure your trust using what's called an A-B trust provision that essentially says, hey, if a married couple, when the first spouse passes away, we are going to tuck away $15 million of assets in a trust for them that they can be, that can be used for them for their benefit over there until the surviving spouse passes away. But the kids are the beneficiaries when their surviving spouse passes. Anything over that $15 million is in the surviving spouse's trust. The spouse that's still living, they have that trust is in their name. So they're essentially, we take that $15 million exemption that's available, we put the deceased spouse's, we put assets over there to into the deceased spouse's trust effectively, that you get a live off of during your lifetime as the surviving spouse. So you get the benefit of it. And then the remaining assets, maybe let's say there was a $25 million estate, the other $10 million are in the surviving spouse's trust for their lifetime that can be going on. And then when they pass, they'll get up to $50 million that they get a claim. So effectively, you can get up to a $30 million of estate that can pass on to your family and loved ones. Okay, no estate taxes. All right. Now, that's not the only taxes you have to think about. What about assets that we have? What about assets that pass on? What if I have a million dollar estate, Matt, and I pass on a brokerage account worth a million bucks? That's the only asset I had. I had a brokerage account with a million bucks in it. I basically bought stocks for 100 grand and now they're now worth a million. I've had 900,000 of gain. I died, my child inherits it. What taxes do I pay? Well, you're not going to pay any taxes. There's no estate tax. The child that inherits that brokerage account of this stock, and this could be a rental property, real estate business, doesn't matter. What happens is they get what's called a step up in basis. So let's say you have a stock portfolio, you spent 100 grand acquiring that's now worth a million bucks, 900,000 of gain. If you sold that during your lifetime, you would have a $900,000 gain, 20% federal tax, you know, which would have been $180,000 plus any state tax depending on your state. So there have been quite a bit of tax due on that. But if your child inherits that upon your passing, they get what's called step up in basis, meaning their basis, the cost of what it is to the price that you sell, which is how you determine a capital gain, their basis goes up to the fair market value of the asset when you die. So if it was worth a million bucks when you died, they inherited it a million bucks basis, and they can sell it tomorrow for a million bucks, and there's zero capital gain due because it's under the estate tax exemption of 15 million. There's going to be no estate tax due. So your child effectively gets a million dollars of asset. If you would have sold that before you died, and so your kid could inherit cash, you would have paid 180 grand in taxes. Maybe you paid, you know, you would have paid 5% state on that. Another 45 grand in taxes would have gone off the $900,000 gain. So like your kid maybe would have got $750,000 or $800,000 in the broke of cash. Instead, we would rather that they inherit the appreciated asset. So because of this tax dynamic, it's important to think about your estate and to realize if I have highly appreciated assets that if I'm going to have to sell, I'm going to pay tax on them. But I'm otherwise good keeping these assets. I don't need them right now. I think they still have value and appreciation or cash flow on them that's worth holding as an asset. It makes sense to just hold those until you pass away. And then your kids would receive those and benefit from them. Now, maybe you need the you need the wealth out of it. You need to access that growth that you've had. You can take a loan against it. Whether this is a piece of real estate, you take a line of credit against and strip out some equity, that's not taxable to you. Whether this is a loan you're taking against a stock portfolio, same concept, no taxes, you're drawing on the wealth from that. Um, and then when your kids inherit, they get that step up in basis. So um that's it, that is the tax break that you get when you die. Okay. So because of that, think of the assets you have, what's appreciated in value. Now, I want to talk about a big mistake people get. And here's the example. I was just giving another example here, but this step up and basis, you can see in the slide deck there, I gave an example of property you buy for a million that goes up to three. Um, same same principles apply that I was just going over. But here's the problem I see people make. We see a lot of individuals who are like, well, Matt, I want to gift my kids' assets. I've got a $5 million estate. I don't need all of it. I'm 80. I'm gonna be fine. I'd like to give a million of it away while I'm still living. Okay, I like that. Let's think of where, let's look at your estate and where you have a million you can give away. Do you have it in cash, in savings accounts, in places like that where there's no there's no taxable event for you to give it to them? One mistake would be, well, Matt, I own this rental property, it's worth 500 grand. I want to gift it to my one of my kids. Okay. Well, if that rental property is worth 500 grand, let's say you bought it for 200, it's appreciated 300, it's worth 500. They're gonna receive that rental property, it's worth 500 grand. And but they get what's called carryover basis. So you bought it for 200, it's worth 500, it has 300,000 of appreciation, but they get the same basis you had. This step up and basis concept when you die, you do not get. So when you gift assets during your life, they get your cost basis. In other words, if you gave that asset to your child and they then sold it the next day, they're gonna pay capital gains tax of the 300,000 of gain that's there. Okay. They're not gonna pay capital gains tax if they inherit it, though, because they get the step up in basis. So, so one thing that's you have to be careful about is gifting appreciated assets to kids during your life. When you think about the assets you may want to gift during your life, do not gift appreciated assets. It is better from a tax standpoint. Again, if this is your state, you have options here for your kids to inherit that asset rather than you gift it to them and then they sell it and they have to pay the taxes on it. So remember that in terms of gifting. Another important thing to think about here is if you want to be charitable during your life, and I've seen other clients get more strategic about this, rather than gifting to charity when they pass away, they're like, I do want to put a portion of my state to a charitable organization, but I want to gift to charity now. Okay, I'm in my 60s or 70s, or heck, you could be in your 40s, whatever. You've got the estate, you've got the the, you've built the wealth, and you're ready to do something charitable. You have enough to be independent for yourself and give what you want to give to your loved ones. Let's do something charitable. Well, this is where you can gift appreciated assets during your life. If you gift to a charity, and let's go with these appreciated assets. This could be stock, real estate, business interest, I don't care what it is. You acquired that asset for $100,000. Let's say it's worth $500,000, $400,000 of appreciation. I can gift that $500,000 asset to a charity, church, university, nonprofit, whatever it is that you want to support, and they they receive it as a $500,000 asset. You get a $500,000 charitable deduction. Now, when they receive that asset, they're gonna sell it. They don't want to keep stock or real estate. The charity is gonna sell it and they're gonna get the $500,000. But you didn't pay capital gains tax because you gifted the asset to them. The charity sold it. They don't pay tax because they're a charitable organization. So you effectively avoid the capital gain. Now you see a lot of people that are more sophisticated, high net worth people that annually give to their churches or other charitable organizations. They do this every year with their stock portfolio or other assets where they're always gifting their appreciated assets to their charitable organization. Now, usually those charitable organizations will help you with this. They may even pay the accounting and legal fees to help you do some of this stuff if the gifts are at least in the sixth figure or larger amounts. So if you want a gift for charitable purposes during your lifetime, I love that actually. Um be involved with that, see what's happening with it, have a say in what's happening, maybe volunteer as well with whatever that charitable cause is that you're giving to. And let's do something productive with the wealth that we're building. Now, if you're just joining us live, today's topic is trust wills and leaving a legacy. We're talking about your estate plan and the bummer of you are gonna die someday. I know it sucks, but I want to make sure you know the plan and the strategic things to be thinking about as you're growing and building wealth, how you should be thinking about your assets, gifting them during your lifetime, letting your family inherit it, what am I doing with charitable causes, and being a little more strategic about your assets as you understand the tax rules and you understand some of the legal things that you can do and the benefits, frankly, and some of the downsides, you can make better decisions on building your assets and how you're gonna give them once you pass on, and also during your lifetime. Now, we're still gonna hit retirement accounts. I'm basically what I'm gonna hit next is the three biggest assets people have when they pass away in America: retirement accounts, their home, and LLCs, business interests. This could also be stock portfolios, rental properties. Okay. So um let's talk about retirement accounts. Now, in the retirement account space, we have traditional accounts and we have Roth accounts. Now remember, when you have a traditional account, you got a tax deduction for putting the money in. That money you didn't pay any tax on. And as you're pulling the money out in retirement, you get tax as you're pulling the money out. Well, if you pass away, and let's say your child inherits a million dollar traditional IRA or 401k from you, they will receive that account as an inherited traditional IRA or an inherited traditional 40. Well, they'll receive it as an inherited IRA, basically. Whether it was traditional 401k or traditional IRA, they will receive it as a traditional IRA. What happens is when they pull money out of that inherited traditional IRA, they pay taxes on it. Now they could pull the whole thing out all at day one and just take a distribution all on day one. They can receive it in an inherited traditional IRA where they pull it out over a 10-year window. You can keep investing it and then just have it fully distributed within 10 years. Um, you have some options there. But no matter what's happening is when they are drawing that money out to benefit themselves from the inherited traditional IRA, which they can do at any age. They don't have to wait till they're 59 and a half. There's tax due on those distributions. Let's say they're in a 30% federal tax bracket, 5% state. Your kids might be in their highest income earning years when they inherit this thing. What's going to happen? That million-dollar account really is only $650,000 to them. Okay, because you never paid taxes on that traditional IRA. The IRS gave you a tax deduction for all the years you put the money in and you didn't pull the money out. So your kids are going to inherit this $600, this million dollar traditional IRA, but it's really only going to feel like $650,000. So of the retirement accounts or assets to inherit, I would actually put the traditional IRA as the least valuable asset to inherit because there's never been ordinary income tax on it. You do not get stepped up in basis on it. And um, and your child or whoever's the heir to this account is going to be paying it at their ordinary tax rates. All right. Now let's transition to the other popular account out there that you might have, a Roth IRA or Roth 401k. When you pass away, same thing, let's take the million dollar account. They will receive that million dollar account. They can distribute the whole thing all out at once when they get it, and that million dollars can go to them, or they can receive it in an inherited Roth IRA where they can continue investing it for another 10 years, which would be smart. You know, if your kids were smart like that, and hopefully you've taught them, and they're going to be older likely when they get this. But at any rate, it's smart if they keep inheriting this tax-free account for another 10 years. They could probably double the size of it by letting it stay invested for another 10 years. But whatever the case, where they draw all the money out now, they invest it over another 10-year window and doubled the account size, when they take the money out of this old Roth IRA that they received from you, that's now an inherited Roth IRA, they will pay zero taxes on it. That will be a million dollars that they get to receive. It still goes into your calculation on estate tax, which is again as long as your estate's below 15 million single, 30 million married, you don't have to worry about it. But um, but that has a million dollars of value. Okay. So we've got two big ends of the spectrum here a traditional IRA, which kind of sucks to inherit, and a Roth IRA, which Really awesome to inherit because there's no tax on it, and I could even maybe double it over another 10-year window of investing it as an inherited IRA, which it still comes out totally tax free. Now let's talk about the brokerage account. What if it's just Matt? What if my child inherits, or whoever your heir may be here? Um, what if they just inherit my brokerage account? All right. Well, if they inherit a brokerage account from you, they're gonna get step up in basis. Remember that step up and basis I talked about earlier. They get that step up in basis. So whatever gains you might have in there of or appreciation in the stock in your stock portfolio, they get step up in basis so they can inherit it and sell it. Okay, so that's actually better than inheriting a traditional IRA, right? Because they can sell that asset, that stock portfolio. And if it was a million dollars, and let's say you would put in 600 grand of it, that your basis was 600 grand of what you bought stock for, and it's now worth a million, that 400,000 of capital gain evaporates. They can sell it, they get a million dollars of value, no capital gains tax, does not go into their taxable income, no inheritance tax, no estate tax again, as long as they're under a 15 million, you're under a 15 million total estate. So that's kind of like number two. If I'm looking at the numbers there, the best thing to get's a Roth IRA, the worst thing to get's a traditional IRA, traditional 401k. In the middle here is a brokerage account, which is otherwise taxable. And this could be rental property, this could be rental real estate, this could be a small business. All of those assets that might have appreciation and capital gain if you sold them all your life, when your child inherits them, they get this step up in basis. Okay. Then they can sell it and there's no tax. So I kind of put that in the middle. That's really good, but it's not as good as the Roth, because the Roth, they can distribute the whole thing, no tax, or for another 10 years, possibly doubling the size of the account. And then that all the original million dollars they inherited as an example in a Roth IRA could turn into $2 million in 10 years. And then they're pulling that out totally tax-free, $2 million. So um, so it gives them additional compounding. But those would be three big investment account buckets, and I'd also throw rental properties in there in the taxable side. And you could have had rental properties in your Roth IRA, you could have a self-directed Roth IRA, of course, that owns crypto, private companies, all of that stuff. Same thing in your traditional IRA. So, but it depends on what type of account it is. Is it a traditional? Is it a Roth, or is it more just a taxable brokerage account? All right, let's talk about your home. Um, this is a big asset, a lot of people have, but this is also one we see people screw up all the time. Your home has a couple of weird nuances to it. The first is you can always sell your home at any time and you get what's called the sell of home exemption, where as long as you've owned it and lived in it for two years, you can sell it and get up to a $250,000 exclusion on gain or $500,000 exclusion on gain if you're married. So if you bought the property for a million dollars, it's now worth $1.4, and you're a married couple, you can sell it for $1.4 and you pay no capital gains tax. The IRS is like the first $500,000 for a married couple, you don't have to pay taxes on. So you don't have to wait till you die to do that. Now, we run into lots of clients, clients in their 50s, 60s, 70s, 80s. They might have a million or two million of equity in their home. It's far gonna outseed, exceed the sell of home exemption. So maybe I want to hold on to that home. And if I and actually, I actually may want to live in this thing too, you know. Um, maybe we hold on to that, or even let your kids hold on to it or convert it to a rental at some point so that it can pass on. So when you pass on, they can get step up and basis for the full amount, and then they can sell it no tax. Now, another thing and to think about here, and there's all these other considerations. I'm just giving you some of the tax and legal angles here, too. Um, but another thing I see that's a mistake. Oh, I put my daughter on the title to the property, you know. Let's say you're you're single or you're a widow, and you know, I just put one of my kids or, you know, my sister or someone on title to the property because I want them to get it when I die. Okay, well, now they're not getting step up and basis. Okay, you can lift list them as to inherit the property on title when they die. You can put the property in your trust and just say, when I die, here's who gets the property, and they can get it later. But if you put them on during your life, you're gonna miss out on the step up and basis. Also, this is now their asset, too. And do they have creditor issues? We've had a client who put their son on title of their property and the iris threw a lien on it. Why? Because the son had tax problems. All right. So be careful adding your kids or heirs onto title to assets during your lifetime. You usually want it to transfer to them upon death. All right. So, um, so generally, and I'm gonna get to a trust here in just a moment. We're almost there. Is your home should be directly owned in your trust. And then upon your passing, your trust says who gets it? They will get the step up and basis, but they also don't get any legal ownership or control, nor is there any creditor issues that you're gonna have to deal with during your lifetime that only passes upon your death. All right. Last consideration here on in terms of the assets, and I want to talk about structuring your trust and getting that set up is what if you have LLCs or S corporations, or I've got rental properties or a business? You have to be really thoughtful about how this is gonna be received. And I there's a lot of different schools of thought on this. I ran across a lot of clients during my time as a lawyer, where I was advising clients, doing a lot of estate plans. And you run into certain clients who are like, they're entrepreneurs, they've got a business, they've got real estate, and they're like, when I die, it's gotta all be sold. I know that. None of my kids are involved in the businesses, they don't want to be. And um, so we just need to sell everything. Well, you need to say that. That needs to be put into your trust. What's supposed to happen? Now, you might be on the other hand, someone who's like, I have three kids, and one or two of them are actually involved in the business or the investments that I have. And I want them to carry those on. I don't want them to sell them. I want them to keep the family business, to keep the rental portfolio I've built, whatever it might be. And this could be a crypto portfolio, this could be a stock. I don't care what it is. But these assets you don't necessarily want to be immediately sold and simply cash or a stream of income going to your heirs. Instead, you want them to receive the asset and keep the asset going. This is the family business or the rental portfolio being probably the most common, but you need to create succession planning. You can state this in the trust, what you want to happen, any conditions you want. This is not complicated. You just need to say it. You put it in writing. A lawyer helps you. It's not that complicated. And if you think your family's gonna figure this out when you die, they will. It'll just cause them heartache and headache. I'd say one of the most common clients that comes to our office at KQ Sawyers to set up their own trust or estate plan is someone who just went through the process of dealing with this when their parents passed away. That is the most common person that comes in here to set up an estate plan because they don't want their kids to go through what they just went through dealing with when their parents passed away and with their siblings and all the infighting and problems that happened of like, what did they really want? Crap, what do they even have? So in the trust, you can be specific about some of these assets, about what you want to happen, who gets what, what conditions do I want on it. And for those of you that have LLCs and businesses and rental properties and crypto portfolios and stock portfolios and all those things, it's even more important that you be clear about who's going to get your assets and what conditions you want on them. Now, the key here is setting up a revocable living trust. We're not fans of irrevocable trusts. I don't want you to go set something off offshore or any of this crazy stuff you might hear on social media. I'm just talking about a plain old revocable living trust, some called, sometimes called a family living trust. This is simply a trust document that says, hey, here's my assets. I'm married, I'm single, here's my kids, here's who I want to get these assets when I die. Here's what conditions I have. Here's some specific assets that I have specific instructions on. The boat I own with my brother when I die, I want my brother to get that. The rental property that I've, you know, own with this partner, the partner's gonna get. The the guns that I use with my son, my son's gonna get the musical instruments that I do with my daughter, whatever. You know, you can be specific about things and then say, everything else is going in this way. This could be charitable, this could be your family just getting a certain percentage of the estate, which would be most common. Um, but you outline that. And then you can put restrictions on it. You can say, if my kid has a drug or alcohol addiction or one of my heirs, this could be a niece or a nephew listed in there. They don't get anything. If they have a creditor chasing them down and they have judgments against them, I'm not distributing anything to them because their creditor is going to seize that asset, that money that drops into their bank account, or this asset that they inherit from me. So you can put kind of protections in there that kind of protect them from the wealth they're inheriting and also protect your wealth from going to purposes you don't want it to go. So this is about ensuring your legacy carries on so that all the work you've put into building and growing wealth goes to productive places, people that you love, and under the right conditions and restrictions. You can also put in there stages of how the trust passes on wealth. You might be, you might be in your 50s or your 40s or so, and you might, your kids might be teenagers now. And you're like, well, they they're not ready to inherit this when they're 18. All right. Well, you might need to say in there that, hey, if I pass away before they reach age 25, they get nothing. If I pass away, maybe up until they're 25, they get enough to cover like college or starting a business or certain needs for their health or education or maintenance or support. There's certain things that they can get. And at 25, then they can get a distribution from the estate. And maybe at 30, they get another, and at 35, they get another. You know, you can stage it out as well. Um, now you might be like, Matt, my kid, I have two kids. They're in their 30s or 40s, they're well off, they're smart, I trust them. I'm not too much worried about them when I pass away. I want it to go outright to them. Cool, we can say that. You might still want some restrictions on creditors or drugs or alcohol or whatever restrictions are important to you. You can add those into the trust. All right. Now I do have a lot of questions here. I'm gonna turn to Jordan if there's anybody live that has questions.

SPEAKER_01 33:21

We do have some questions and for the OGs from the Wellbox Hours OGs. Okay, good. We've got to give them some priority.

SPEAKER_00 33:28

Okay, let's give them priority here. And thank you guys for being on. I appreciate it. Um, let's hit the live questions.

SPEAKER_01 33:34

All right. Um, well, first let's let's hit a comment because I thought this was a good one. Uh, we had someone just set up a trifecta. I just set uh set up my trifecta with KKOS. That was six Gnostic nine.

SPEAKER_00 33:47

All right. So yeah. Okay, all right. So that's by the way, the trifecta, for those of you that don't know, is how we structure clients in my law firm, KQS lawyers. We look at what's your operational assets, your job, your business, your main hustle, your side hustle. We look at your assets and investments. This could be your retirement accounts, stock portfolio, rental portfolio, other investment. These are assets. So we got operations and income, we got assets. And then the third piece of the trifecta is what we're talking about now: your estate plan and having your trust in place. So, and that's what, by the way, you can get done through my law firm, KQS Lawyers. Just get your estate plan done. I got a lot of incredible lawyers that can help you get that done and get it done affordably. So thank you for the shout out.

SPEAKER_01 34:32

Yeah, welcome to the family. Yeah. All right.

SPEAKER_00 34:34

So today's show, by the way, is brought to you by the law firm of KKOS Lawyers. Okay.

SPEAKER_01 34:39

Natural segue.

SPEAKER_00 34:40

Yeah.

SPEAKER_01 34:40

All right. The YTEB has a question. I have a life insurance policy. People advise to set up a life insurance trust. Number one, do I need to do tax filing while I'm alive? Number two, do you combine living trust with a life insurance trust? Thanks in advance.

SPEAKER_00 34:58

Okay, great question. I like life insurance. You should probably have life insurance, particularly if your assets when you pass away aren't enough to support your kids, your spouse, or whoever you might leave behind, if particularly if you're the primary income earner or something in your family. And I think term and term life insurance can be done very affordably. Now, there's other types of life insurance, more whole life or permanent life, or there's stuff that has cash value to it. That turns into some more of an insurance and investment product, a little more complicated, not my wheelhouse, I'll just say. But I've definitely had term life insurance and I've had it for my spouse, my benefit, my kids. I have term life insurance with business partners and businesses I have, where I have life insurance policies if I pass away, that they can buy my business interest out from my estate. And so definitely like life insurance, great planning tool that can be used, solves a lot of problems. Now, a trust specific for life insurance, there's something called an islet, irrevocable life insurance trust. What an islet is used for is for someone that has a large estate. Someone that's gonna have an estate tax exemption, for example, $15 million. If your estate is over $15 million, you can put the life insurance product in an in its own separate trust and it is not part of your estate when you die. So let's say you have a policy of a million dollars when you die, and you have a $15 million estate. Well, when you die, you're below the life, you're below the estate tax exemption. And this million dollar policy over here doesn't put you to $16 million because it's outside your estate. It's an irrevocable trust. It was put outside of your estate, and you're effectively gifting money to the heirs of the trust here, because you can gift a certain amount per year. Let's put that in the comments. What's the annual gifting amount where that you can gift without tax? Um, if someone could throw that in. It's around 15 to 20 grand. It adjusts for inflation every year. I lose track of it. Um, but essentially what you're doing is you're gifting the amount to cover the policy premiums to your kids that are typically the beneficiaries of the life insurance trust. And so because of that, it's not part of your estate. But the kids are still gonna get the million dollars when you die, and they're still gonna get your 15 million. And so they effectively get 16 million there, but they just still don't have to pay estate tax. So if you're someone that's not even close to the estate tax exemption, don't worry about that. Now, the estate tax exemption, it sometimes in my life as a business and tax lawyer was it's been a million, two and a half million, five, ten, zero, no estate tax. It's bounced around. Finally, it was made permanent in the one big beautiful bill at 15 million. So from here on out, really, unless I mean Congress could always change the tax law, but from here on out, it is uh uh the state tax exemption is 15 million. That's permanent in the tax code. Now that gifting amount, by the way, is 19,000 per person. So let's say there's two beneficiaries on the life insurance policy. You could technically be gifting 38 grand a year to cover the premiums. I I don't know what the premiums are. Maybe if you're 80, the premiums might be that expensive. If you're 45, it's not going to be that much, of course. So um, but that's what the that's the only time I would see using a life insurance trust is that ILET, irrevocable life insurance trust. Probably took a lot a little too long answering that, but it is quite a complicated structure. I want to put it in context.

SPEAKER_01 38:41

Per our chief of research, Jared, it is 19,000 per recipient. Okay. There we go. There we go. Thank you, Jared.

SPEAKER_00 38:48

And by the way, we've got a camera on Jordan. Yeah, today, yeah. I like it. Okay. Very cool.

SPEAKER_01 38:52

The profile shots. Looks very cinematic. Yeah. Um good. All right, Shondi 2000. We have a question. I met some investors earning over 100,000 in their RLT from dividends. They're saying they don't have to pay taxes because it's in their RLT. Doesn't the earnings in an RLT uh end up on the 1040 return?

SPEAKER_00 39:13

Yes. You are absolutely correct. You saw bullshit and you called it out, and you are right. Okay. So a revocable living trust, because it is revocable, means that the beneficiary, the person who set up the trust and put their assets into it, this would be you, when you create a trust for your assets that's going to go to your kids when you pass away or to your spouse or charitable causes or whoever your heirs are. When you set up a trust, if it's revocable, that means the income goes directly to you on your tax return. It's going to hit your 1040. So setting up an RLT, revocable living trust, is going to do absolutely nothing from a tax standpoint. In fact, the IRS says we look through the trust and pretend like it's not even there for tax purposes. So the whole purpose of the trust is to organize your estate. You're going to avoid probate so your family doesn't have to go to probate court to get a judge to say who gets what assets. Even if you have a will, you still have to have a judge approve it. It's a public process. People can contest it and people can see what your estate is with a trust, a revocable living trust. You can list who the trustee is. This is the person who's going to distribute your assets upon your passing, or carry out your wishes if the trust is going to continue on. So a trust is private, but it does not affect any of your taxes while you're living. So that friend of yours or whoever you were that were you were talking to that says they're not going to have to pay taxes because this income is going to the Revocal Living Trust. Just tell them that they hope, tell them, I hope you like the color orange and that you've packed a toothbrush because, you know, you're going to be wearing orange and you're going to need a toothbrush. And prison will be rough, but they'll get through it. You know. That's true though. People do go to prison for not, you know, Wesley Snipes for not paying their taxes. And I'll bet oh, those are actually a great, great little segue. We do you remember Wesley Snipes from movies like White Men Can't Jump? What else is Wesley Snipes in?

SPEAKER_01 41:20

Blade?

SPEAKER_00 41:21

Blade?

SPEAKER_01 41:21

Yeah.

SPEAKER_00 41:22

What else? Come on. He's been in uh US Marshals. Oh, yeah. That's a good one. Um Blade 2. Blade 2. Okay. That's a good one. All right. So um, okay, Wesley Snipes. Okay. What did he do? He some some idiot accountant that was not licensed, zero credentials, no certifications, knew nothing of what he was doing, said, Hey, Wesley, do you know if you put your assets in a trust that though that those assets will be outside the jurisdiction of the United States and not subject to the Constitution? And it's a constitutional trust. And if you put your assets in them, they're not subject to tax. So what did he do? He followed this guy's advice. He went and set up this trust. He put all of his assets in a trust. And then he filed his tax return to the IRS. And he said, and in fact, he amended his return to priors when he paid taxes and said, Hey, IRS, I had zero income. Send me a refund for what I already paid you. And then he started filing returns to the IRS saying I got zero income. The guy's name, Wesley Snipe, Uber famous, is on his tax return. He's starring in movies that we all know. And we know he's not doing it for free. So what's going on here? I mean, even the IRS sniffed that one out pretty quick. So of course they audited him. And it was not just a civil audit, it was criminal. It was tax fraud. He went to jail, literally, for this. Okay. All because some bozo pitched him on in this trust structure to avoid paying taxes. Okay. So the lesson there is don't be like Wesley Snipes on taxes. Just be like him, like the cool people he has in his movies. Just not the tax Wesley Snipes. Anyways. All right. What else we got? Anything else live?

SPEAKER_01 43:20

So I'm going to track down. Uh Stormbreaker said that uh they had a question, and I'm going to track that down. They uh posted it before the live started. Okay. So uh in the meantime, let's hit some prepared questions.

SPEAKER_00 43:31

All right, sounds good. Um, all right. This was at Rebecca Chambers 419 asked, Do I need both a will and a trust? My attorney said yes when I had my trust drawn up. So that means my beneficiary still has to go to probate. So do I really need a will? Okay, great question. Yes. You do need a will and a trust. But what happens is your will basically becomes a stop gap. So your trust is going to own all of your assets. When we set up a trust, we want your trust to own your asset. It's going to be on the deed to your home. It should be listed as the owner of your LLCs or your corporations. It should be listed as the payable upon death or the beneficiary on your retirement accounts or checking accounts or investment accounts that says, when I die, I don't want my spouse to get it. I mean, you can list your spouse and then list your trust second too, but you just list your trust as the beneficiary on all your beneficiary designations with your investment accounts. So we're going to put your trust on the assets or to be receive the assets upon your death. All right. Now, you'll still have a will, and the will's done for a couple of purposes. One, for any of you that have kids under the age of 18 or you have adult children with disability, we want to use a will to designate a guardian. Okay, you still need to do guardian designation that says, if I pass away, here's how I want to raise my kids. And that happens in a will. Now that guardian designation is not mandated. The guardian designation is like optional. All right. The courts will take that under advisement, but it still is goes in your will. The second thing the will does is it says, hey, I'm putting all of my assets into my trust. So if there's anything that wasn't in my trust, I'm just being clear here that there's nothing to probate. There's nothing that I own. Everything that I own is supposed to be in the trust. So it's kind of like this, some people call it a pour over will. So a will is much more meaningful and will have actual content in it in terms of who gets what, if you just have a will. But when you have a trust, the trust says everything. So then your will turns into like a one or one and a half page thing that basically says, hey, I've got a trust. If I've got kids under age 18 or adult kids with disabilities, I'm designated guardian. Otherwise, whatever my trust says is what controls. And that's what your will is going to be. So you'll still have a will, it's just going to be very abbreviated. The trust is going to be the main driver and control your assets. And you do not need to probate that will. Okay. So don't worry about it. Um, you will still have both. All right. User Dr. Joe Joe Future asked, Can I write my own trust and have it reviewed by an attorney? Yes, you could. And I'm sure the attorney will charge you more than if they just wrote one for you. So um I would not recommend that. Um if you're gonna go that route, maybe use some software or other provider. There are some out there to do that. Um, but what we found is, and this is the same thing with doing your taxes on your own or changing your oil on your own or whatever you're doing is, unless you do this a lot, you're probably gonna spend more time and frustration and you're gonna have stress about did I actually do this right? When we're talking about who's gonna get your entire estate and assets, you built your entire life building. Do you want to hack this out on your own, or do you maybe want to talk to someone who's done it a hundred or a thousand times? Okay, so I would recommend having an attorney do it. You should be able to get this done, certainly under 10 grand, most likely under five grand, unless you have a more significant estate. Our firm charges between three and seven, depending on the size of your estate. So um, if you're not having us do it, I don't, you know, just get some lawyer do it. Just the experience of someone to do this is valuable. Now, if you're like, Matt, my estate's worth 100 grand or it's worth 50 grand, okay. Maybe hack it out on your own. And maybe you might actually like it and get it right. But if you have something of significance, you have hundreds of thousands, millions of dollars, I would make the small investment to get it done right. So you don't have to stress about it, you don't waste more time than is necessary, and your family's gonna get the benefit of all the things and the strategy and planning and have confidence in it when they receive it. Plus, by the way, someone who knows what the heck you put in it when you died. So sometimes that's been helpful. All right. Um, next question was from Lori Kagayama, 1590, who says, Um, I have a casita on my personal residence that I rent out to midterm guests, three, six, nine months. My home is in my revocable family trust. How do I protect myself? Personal property trust, how do I register that? Personal property trust with the county, for example, Maricopa County. Okay, great question. I would what I would probably do in your situation, and this is very nuanced by the way, is I would have your home in an LLC. Usually we do not put your residence in an LLC. There's zero reason to do that. All right. But what I would do is I would have your home, which includes this casita, because it's presumably it's all on one deed, so you're gonna have to put the whole thing into an LLC. That LLC is gonna be owned 100% by your revocable living trust. And then you're of course the owner of the revocable living trust. Now, the reason I would do that is if something happens on that rental, that tenant is forced to sue the LLC, and they can get it the equity in your home, the whole thing. That's gonna be exposed. There's nothing really to do about that. I mean, you'd have insurance and stuff to help protect that, but but all your other assets get protected. So I've at least isolated that risk with the LLC. Now, generally, we don't put homes in an LLC because I'm not worried about liability on the property. It's like me or my family that's not gonna sue me. Um, but if it's a I got a rental property on there or a business on there, customers coming to it, tenants, their guests, now it's some liability. I know that my that home itself is at risk and the equity in it, but I don't need to have all my assets at risk. Because if I leave it in my personal name or just in my trust, they can sue me or sue my trust, and all of my assets are exposed and at risk. Now, one little consideration here from a tax standpoint. Generally, you don't want to put your home in an LLC because you can lose the sell of home exemption. When you owned a property for two years, you can sell it for no tax, up to 250,000 of gain single, 500,000 married. That's a huge tax benefit when you sell your home. Married couple, their first 500 grand of gain, they don't have to pay any taxes on it. It's massive. I've used that multiple times over my life. Many, many Americans end up using that tax perk. But you can lose it when you put it in LLC. However, if the LLC is a single member LLC and a disregarded entity, which it would be in this example where your trust owns the LLC 100%, excuse me, you can still get the sell of home exemption. So I get the benefit of the asset protection, I don't lose the sell of home exemption. And that's what I would do in your situation, Laurie. That would not be what I would do. That's not what I do with my home. It's simply owned in the trust because I don't have rent tenants or customers there. Um, but if you have business operations at the home, or you have like where there's customers or like employees or tenants or like stuff like that, then it may make sense to put that in an LLC. If you can do single member, you want to kind of talk through the issues with the lawyer in your specific situation. But then in that case, Lori, the deed is to the LLC, your trust owns the LLC, and of course you're the beneficiary of the trust.

unknown 51:28

All right.

SPEAKER_00 51:28

Any other live questions here? As we're getting to the end of the hour. Yeah.

SPEAKER_01 51:31

And and Lori's question last week came in at the buzzer. So I hope Lori's on today because we're able to get it like right at the very end uh last wealth office hours. So uh we have a question from Jesus. We were able to track that question down. Um, on a revocable living trust, do step up or do stepchildren and step-grandchildren also get step-up basis? Thank you.

SPEAKER_00 51:53

Yes, great question. Anybody gets step up and basis? So um doesn't have to be your kids, could be stepkids, grandkids, niece, nephew, neighbor kid, your favorite YouTube channel, Matt Sornson. Anyway, we all get step up and basis when you list us in your you know, estate plan. So um, yep, doesn't have to be your kids. I use that as the example over and over again. So it might have been confusing, but doesn't have to be. Um, also, a lot of assets are gonna, I was always giving the example of your kids inheriting the asset, but your spouse is gonna inherit a lot of assets, like your retirement accounts. When if you have a surviving spouse, you pass away first, you have a surviving spouse who lives longer than you. That's what surviving spouse means. Your retirement accounts just go to a retirement account in their name. And then when they pass away, you know, the heirs that are listed on their account will receive it. And you can have different things here, you know. You don't have your assets don't have to go to your spouse. You might have a yours, mine, and ours scenario in your estate. That's much more common now. So, um, but also even like real estate or stock portfolios or stuff, you would also have those assets going. And the step up and basis rules are a little more tricky there with spouses. It depends on whether you're in a community property state or not. But at the end of the day, when your kids inherit it or next generation um who never own the asset before, um, this can even be your siblings, your parents, doesn't matter. Um they can get step up and basis.

SPEAKER_01 53:29

All right. Last live question. All right. From Jane of Holmes. Wouldn't you pay more in taxes if you list your trust as a beneficiary on retirement accounts? Sorry, read that one again. Wouldn't you pay, wouldn't you pay more in taxes if you list your trust as a beneficiary on retirement accounts?

SPEAKER_00 53:48

Um, no. The trust is just neutral. The trust doesn't cost you anything um in terms of taxes. So um, and the trust doesn't file any return. This you're gonna file an estate tax return, or your surviving family will when you pass away. I'm just talking like this is you here and you're thinking about your estate. So um, no, the trust. So what we do recommend a lot of clients do with retirement accounts specifically is if you're married, list your spouse first and your and your trust second if you have one. Because what happens is when you pass away, your spouse can simply inherit the account and do what's called a spousal rollover, where that account just rolls into their own account. So if you're you have a Roth IRA, you pass away, your spouse has a Roth IRA, the surviving spouse just gets to roll the deceased spouse's Roth IRA into theirs. And they just have one Roth IRA. They don't have to do an inherited Roth IRA or anything like that. That's a spousal rollover rule in retirement accounts. Could be the same with traditional or 401ks, all those, all those things are the same. Um, and then the trust is second. Now, the trust probably says your spouse gets your stuff first when they pass away. So that's going to be duplicative, but the trust really kicks in if your spouse predeceased you. If your spouse passed away before you did, then the trust automatically kicks in as the contingent beneficiary. And whatever you said in your spouse about who gets after your spouse, they would inherit it. And that let's say you listed you had two kids and you listed your two kids. You had a million dollar Roth IRA, each of them will get a $500,000 Roth IRA. No, there's no difference in taxes if you listed them directly or you listed the trust. No different tax outcome. Um, now this assumes they are readily identifiable beneficiaries, and you specified who the in your trust who this is, the trust becomes what's called a see-through trust, and we just pick up the beneficiaries immediately. Now, if the trust was going to continue on, then there are some more nuanced tax rules here. I don't have time to get into today. And maybe that's where she was going with the question.

SPEAKER_01 55:53

We did get a clarification on it a little bit. Okay. I guess I'm thinking about the beneficiaries paying the tax.

SPEAKER_00 55:59

Nah. No, that's not going to matter because the trust doesn't cause tax or save tax. Just think of it as the revocable living trust, you got under $50 million, stay single or $30 million married. The trust is not doing anything tax-wise. It's the same as if you just listed the kids directly. So what the trust is doing is it's avoiding probate court. And certain assets have to go to probate court, real estate, business interests. Here's a great question. This is from at Jesse. Sorry, at Jess. Sorry. Here's a great question from at Jess Invest R E. It says I own a few rental properties in LLCs. Do those automatically avoid, do those automatically avoid probate, or do I still need a trust? You still need a trust, Jess. The LLCs will have to be probated. And if you have LLCs in multiple states, you're going to probate in multiple states. You're going to multiple, or I should say your heirs are, going to multiple state probate courts to get ownership of the LLCs to effectively get ownership of the rental properties that the LLCs own. So LLCs are subject to probate, S corporations are subject to probate, your real estate's subject to probate. You've all got to go to a court to get an order about who has ownership of these assets. So the trust avoids that. We will have the trust own the LLC. The LLC owns the rental property. That one then when you pass away, the trust takes over as the ownership of the LLC. They can appoint whoever they want as the new manager of the LLC. They can sell the assets, the real estate in it, or continue to carry them on, whatever was your wish in your trust. So um, so yes, the you still need a trust, even for your LLCs, obviously for your rental property or any of your business settings. It will help you avoid probate. Plus, again, the trust is going to have more specificity of what you want and who gets what. All right. Well, thank you everybody for tuning in today. Thank you for the questions that came in. I appreciate those. If you had questions we didn't get to, we'll maybe try to catch them at the next Wealth Office Hours Live. Remember, you can download the slides in the deck that I was going through today. There's some stuff I actually didn't get to here, but you can download those in the deck below. And if we go to the slides here just on the last page, I just want to make one last important uh uh note here, which is if you need an estate plan and you don't have one yet, get to my law firm KQS lawyers. We can help you get an estate plan set up. I'm just saying this because I this you've got to get this done. This isn't like do this if you want to save taxes, do this if you want asset protection. Guys, everybody needs an estate plan. We will all die one day. And I know this is one of the things you're gonna put off, but be proactive about it. Get it done. Once it's done and it's set up, you put it in a drawer. You don't need to stress about it. When you add new assets, you can update it. When you want to cut out one of your kids because they're pissing you off, you do an amendment to the trust. It's not that hard. Okay. It's a revocable living trust. You can change it if you want. All right, not a big deal. So get it done. Um, my law firm, we can help at KQS Lawyers. Um, so get over there. And then, of course, make sure you're subscribed to the channel. Okay, I'm coming live every Thursday. I've got new videos coming out every week. I want to make sure I'm giving you the best tips on how to grow and build wealth in America today, whether it's tax strategies, legal and asset protection strategies, how to grow and build your small business, what to do with the legacy and everything you're trying to build and who's going to get that, and being strategic about it, as we discussed today. So please make sure you're subscribed. We'll see you next time.