Should I Name My Kids Joint, Individually as Trustees, or What Options Do I Have? |Weekly Wednesday Wisdom Webinars

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Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm to register or give our office a call at 844-885-4200.

Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

In this week’s webinar, Attorney and Advisor Chris Berry of answers the below questions.

  • 0:00 Introduction / Positive Focus
  • 2:56 What is the latest now with the proposed tax plans?
  • 13:59 Should I name my kids joint, individually as trustees, or what options do I have?
  • 18:43 We are trying to finish a home equity loan on our property, it is the 2nd property in an LLC and the mortgage company will not lend to us via the LLC, what are our options.
  • 22:25 If I want to sell stock and want to take advantage of not paying capital gain tax for people making under $40,000 a year. How much can I sell and remain under $40,000? I was told by tax preparers that if I sell $50,000 that would be put on a higher bracket and negate the zero percent capital gain tax I’m trying to avoid. Should I sell a smaller amount?

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Episode Transcript

My name’s Chris Berriy with Castle Wealth Group, and we do these Weekly Wisdom Webinars every week and we actually stream them to YouTube when we’re done. And so really, these are just for you. So I’ve clients or potential clients submit questions that they want us to answer and alive, and we go ahead and answer those questions live. And then if you are on this webinar and you have a question, a legal, financial or tax question that you want answered, then just type it into the Q&A and we will go ahead and address it. And what I’m going to do. Since the world is all about kind of going digital, if you like what is presented on this webinar, I’m going to take you to a link and just give us a nice positive review. And I just know not to just the panelists. I want panelists and attendees to say that you like what you heard here and. We think that’d be awesome and also feel free to share this it’s wisdom webinar So if there’s a family member, friend, fellow retiree that you think would benefit, please share this because really this is for you just providing value in your life. And so with that, let me share my screen. Oh, and I was like, start with the positive focus, of course, and my positive focus a lot of times it’s my kids.

It’s all about family, right? My. I’m just impressed with both my kids, but really, my son. He’s taken to he’s doing like swim team now and. There is, I think, 23 kids in a swimming class, and of the 23 him and just another kid, they really were kind of knocking out their butterfly stroke. So it was kind of cool. He’s not the oldest kid in there. I think he’s kind of middle of the line, but this is his first time in organized swimming. Now we live in a lake and we’ve always had him in swim lessons, but it’s kind of cool to see him excelling at another sport. So with that, we’ll get into the questions and more, and I see your question, so I’ll get to that. But first, we’re going to start with the submitted questions. So I had a couple of variations of this question. I just kind of combined it. But really, the question is what’s going on with all the proposed kind of tax plans? And really, at this point, nothing. So we’ve been following this ever since President Biden has kind of made his proposal actually even before he came into office looking at what could potentially happen. And so we saw things like changes to the estate tax where the estate tax was dropping. The big one was the step up in basis where if you’re leaving non-qualified funds to the next generation, now the kids and beneficiaries are going to be killed on that.

He had talked about repealing the Tax Cuts and Jobs Act, repealing it. Maybe, just maybe repealing just a portion of the Tax Cuts and Jobs Act, which remember is passed by President Trump runs from 2018 to 2025, talked about even extending portions of the. Tax Cuts and Jobs Act. And a lot of this was to fund his $3.5 trillion infrastructure plan. So what he had to do basically is come up with where that three point five trillion dollars was going to come from to fund this plan. Now it’s ignoring the elephant in the room that we’re 28 trillion dollars already in debt. But all of these potential tax changes were to just address this new spending that the government wanted to do, ignoring like, OK, what about all the previous spending? And so really, for the last couple of months, we’ve been trying to kind of scramble to pay attention with what all these potential changes might mean. What are the steps we should take? What are the things that we should do in 2021? And again, this is changing daily, weekly even. But as of kind of this Monday, a lot of this looks dead on arrival. There’s still might get something passed, but at least the latest that’s got gotten rid of any changes to the estate tax, getting rid of any stuff of basis, gotten rid of a majority that changes Tax Cuts and Jobs Act and hasn’t really talked about extending the Tax Cuts and Jobs Act.

Well, capital gains talking about raising capital gains, that one’s got off the table, too. So again, we’d like to see what’s coming down the pike, but we’re not going to. I counsel my clients that a lot of times we’re not going to do something big and irrevocable until we know something’s passed. So what does that mean moving forward? There’s still time left this year. We’re running out of time, but there’s still time left, so I’m not sure if anything will happen this year. But I guess the big thing is still, we need to worry about this Tax Cuts and Jobs Act expiring. And as of right now, it’s still running from twenty eighteen to twenty twenty five and we’ve been harping on this ever since it passed. Basically, the simplest thing to understand is that your taxes are going to go up. Marginal tax rates are going to go up three to four percent whenever this expires. So and I share this quite often and a key data for 2020 one, I have a lot of clients where their adjusted gross income. For Mary clients, it’s about, let’s call it, $100000 plus or minus. That puts them in the twenty two percent tax bracket, which is going up to twenty five. You’re twenty four percent tax brackets going up to twenty eight. Same here. This is going to 25 for single. This is going to twenty eight. Twelve is going to 15.

So the big things that we’ve been focusing on and this just gives us another year to do this is look at money inside of your IRAs. So if you have pre-tax dollars IRAs and let’s say that your IRA is greater than $250000, then we need to come up with some tax planning options and we still have some time. So we still have some time because this is kind of the magic year as of right now, where we know taxes for sure are going to go up unless there’s a change. So this gives us another year to look at different tax brackets. So we have like your non-qualified funds, your tax deferred. Should be your IRAs. And. Then your tax free things like raw sale. Well, we know that it looks like we’re going to have another year to pull money hoops to pull money from the pre-tax IRAs and move them somewhere else. And so that’s really what we’ve spent the last month or so is working with clients on what is their tax plan. And if you’re not talking to someone and if you have an IRA larger than $250000 and you’re not exploring whether you should be doing any tax planning, it’s the biggest risk and biggest opportunity, I think, for most retirees. So just reply to that email, give us a call and we can sit down and figure out what is the best moves from a tax perspective. So really, it’s going to be the same things that we’ve been doing the last couple of years since 2018 is looking at moving money from those pre-tax accounts, maybe to something tax free.

And really, it comes down to two steps at the end of the day. First one is how much to move. And then the second step is where to put it. And it’s a little more complicated than it seems. Everyone defaults to the Roth conversion, but there’s a lot of reasons why moving to Roth. It doesn’t make sense. But everyone just kind of defaults to that, so that’s one option, but it’s not the only option. So really, when I boil down our tax planning to its most basic level and this is something that typically your CPA or whoever’s doing your taxes, they’re not really doing this. I just got off the phone with someone who talked to their CPA about doing this themselves, and then they were surprised at the today, and they had some negative ramifications because it wasn’t handled correctly. A lot of times CPA and your tax preparers, they’re looking at what happened last year and just running the numbers versus doing true tax planning. But really, our tax planning to simplify it, it’s just a two step process. How much to move and where to put it. How much move? There’s a kind of no brainer answer where you’re filling up your tax brackets, so for a majority of my clients who are on the 22 percent tax bracket, we’re filling up this tax bracket and then a lot of times we’re jumping into the next tax bracket because twenty four percent is still less than twenty five.

So for a majority of people, that’s a no brainer. I have some clients who are looking at things and just saying, You know what? We want to take care of this all in one year so that the rest of our retirement, we might be at a zero percent tax bracket. So every situation a little bit different. But I would say it’s still a no brainer to maximize typically that 24 percent tax bracket if you either are currently in the twenty two or you will be once you start taking Social Security in RMDs. So, yeah, that’s what’s latest with taxes, that’s something that we’re keeping an eye on. So as of right now, nothing is really new. So you spent a lot of time kind of spinning our wheels. But that’s what government does. So there we go. Here’s a question what is the optimal U.S. national debt that is our country’s best interest in the long term? Many people believe that our ballooning $28 trillion debt will hurt our economy, economy and quality of life for future. Yeah. So the question is really focusing on is this a good thing long term? And that’s above my pay grade, I will say, and again, not to get political, but I would say that’s that’s bad. That’s not good. And both sides have spent the money.

So don’t get me wrong there. But with interest rates, what if interest rates go up? What if the amount of debt kind of. Like, we can’t cover it. I think this is really scary to me, to be honest. Scary, not just for my generation, but future generations, and not enough people are talking about this. So really, I see. What are the three options? I think the mature thing, if like you were an individual and you had that much debt or had a lot of debt, what do you do? You cut spending, right? If you’re racking up credit cards, what’s the first thing you do? You stop. Spending as much. Right? So that’s the mature thing to do, but we haven’t seen that happen. And again, with the pandemic, that was a unusual situation. But even prior to the pandemic, as early as 2016, at least on my end, we’ve been concerned about this too. What are what else could they do, print more money to pay it right? There’s this joke of the one trillion dollar coin being made. What else could they? Another problem with printing money is inflation, and we already know that Social Security is going to 5.9, raising 5.9 percent next year. So that already is inflation in itself. Usually, it’s about two point six on average. So we’re almost doubling what your Social Security normally would be next year. So that’s kind of scary to print more money on top of that. Or third, again, it’s going to have to happen is raise taxes and there’s different ways they can do it.

They can raise it across the board. They can do stealth tax raises, which is what I call the secure act that passed in 2020. Or if they were to start taxing that they’re getting rid of step up in basis like people don’t really understand how that works. So really, I only see three options. And so to answer the question is there an optimal amounts of debt to carry? I’ll tell you, it’s probably not $28 billion. That’s pretty scary to me. Someone said I left a review on Google. Thank you. This was a good one. All right. All right. Moving on to the next one. Why should I keep my kids joints individually as trustees or what options do I have? All right. So let’s say you set up a trust and there’s a couple of roles that have to be filled with a trust. And so the first rule is the Grand Tour. That’s the person that creates the trust. Layman’s terms we call that the trust maker, that’s the person who can make changes to the trust. Second role is that of a trustee. So who’s in charge of the trust? Yes, if I sometimes talk about a trust as a suitcase or piggy bank who’s holding on to it, who can manage the investments inside of the suitcase? Or who makes decisions? And then third role is beneficiary. So who receives benefit of the assets in the trust? So normally when you set up a trust, you serve all three roles, right? And you’re always going to be the grand jury, you always a trust maker, but then God forbid, you get incapacitated.

Now someone else might step in as trustee. You pass away, someone else might step in as a trustee and then distribute the assets to the beneficiaries. So the question is really getting to the role of successor trustees. So after you serve, who’s going to be a backup? So initially when we’re talking about the role of a trustee, you would be the initial trustee. And the question is, who do we name as successor trustees and whether their children or anyone else? There’s really three ways that you can do it. So one option is you can have. One followed by another like successors, so you could have successors and so successors might be you first followed by child one and then if something happens to child one, then child two steps in. So I’d say that’s the most common, so God forbid something happens to you, child one serve, something happens child one, then child two would serve. So that’s probably the most common. Second, we could have joints. And I like to call this. And so in this situation, it’s you. And then child one. And. Child two. What this means is they have to work together, so they both have to sign off on it. They have to make decisions together.

They have to sign off on the checks. The nice thing about this is there’s a good check and balance. But sometimes logistically it can be a problem. And then third is we could have it. I call it joint. Or. So in this situation, you would serve as the initial trustee. And then we’d have child one. Or child to. And so what this means is they have independent authority to act, so if child wants and wants to take care of some things and child two wants to take care of other things, they can do it. The advantage here, here, the advantage here is logistics makes it easier. The advantage here is you have a good check and balance. And the advantage here is. A clear responsibility. Like, not too many cooks in the kitchen. So all three of these work, it’s just a matter of kind of what is best for your family dynamic, so you could have successors one followed by another, you could have a joint where they have to work together, or you could have a joint with independent authority to act. So that’s typically how we see these different roles, whether it’s not just like the role of the trustee, but even personal representative under the will. So who makes decisions and the will? Even financial powers of attorney, medical power of attorney? We can do it. Any one of these three ways, I’d say probably 75 percent of the time we do it this way and maybe.

And I’m kind of making these numbers up 13 percent this way and 12 percent that way. That adds up to a hundred, right? Yep, I’m good at math in my head. Huh. All right. That is that. All right. And then this question came in just as us getting started, so I had a chance to write it out. We’re trying to get a home equity loan on our property. Important point, it’s a second piece of property. In an LLC and the mortgage company will not lend to us via the LLC, whatever our options. Ok, so here’s the thing is understand that it’s very different for companies. To so let’s say we have a husband and wife, they own a home, and now they want to attach a mortgage to it. So that’s very straightforward for the mortgage company, where it gets a little more complicated is in situations where we do things like, all right, you have your home, but now we have a second piece of property. It’s in an LLC and now you own it, but it’s really owned by the LLC. Mortgage company is concerned that, OK, I might not be able to get access to that secured asset because of that limited liability company. Also, this is true with trusts as well. So if you put it into a trust or if it’s in a trust, mortgage company might be concerned that I can’t get, they can’t get access to it.

So. So first thing, find a different mortgage company. So especially if you’re working with credit unions, they don’t like to get very sophisticated. So when they see things like this, they’re like, we just don’t want to deal with it. You find other mortgage companies and they’ll be able to help you. Second. You can take the property out. So what we’ll do here is we need the property back out of your name. Now the mortgage company can attach to it and then you can just deed the property back in. It doesn’t trigger the do on sale clause because of a law. And I think it’s what is germane now. What is it? S. S. Something St. Germain Act. And I think it was 1993, like, I have it listed, I’m blanking on it. And we’ve we’ve actually sent us to mortgage companies saying, Hey, you can’t trigger a due on sale clause so you can take the property out and then deed it back or take the property out, secure the mortgage and then deed it back. Now they’re still entitled to. They still have that secured note on the property, like if you’re to sell it, you have to satisfy the note. But now it’s back in the LLC. And really the only downside of that is that, OK, you’re opening yourself up to liability while it’s still in your name again. Third, just find another way. Find another way to accomplish your goals, whatever, like whatever reason you’re trying to.

Get that mortgage now. Maybe it’s just taking a personal, you know, maybe it’s taking a loan from a foreign one K or something like that. But yeah, you can either find a different mortgage company or sometimes work with the existing mortgage company, just educate them on what’s going on. Take the property. But probably the easiest way and the way that we typically do it is we take it out of the LLC DTI LLC and then put it back in that LLC. So hopefully that was helpful. All right. A couple more questions coming in. And I have to run in six minutes, but I will answer these questions here. Uh, if I want to sell stock and wants to take advantage of not paying capital gains tax for people making under forty thousand a year, how much can I sell and remain under 40000? I was told by a taxpayer that if I sell fifty thousand, that would put me in a higher bracket and negate the zero percent capital gains tax I’m trying to avoid. Should I sell a smaller amount? Yeah. So what we’re getting at here, and to be honest, I don’t know the answer off the top of my head. I’m kind of blanking on it. So the question is getting to. But I’ll get an answer. With regards to. Capital gains, and if you want this key data for 2021 and we actually have a preliminary one for 2022 that has all these numbers because good luck trying to memorize all the numbers they change every year.

But what we’re trying to do is figure out, OK, long term capital gains. And so if you’re below $40000. Then you owe zero capital gains. For if you’re marginal, taxable income is falls below $40000, so the question and I don’t know the answer, I’ll tell you what my feeling is, but I’ll have to verify this. I don’t have everything memorized in my head and sometimes it gets jumbled. My head’s only so big. My mom would say it’s really big, but it’s only so big, so big that kind of have everything memorized. So the issue is all right. If I have less than $40000 in marginal income, does that mean I can have like a million dollars worth of capital gains and still be at the zero percent tax bracket? My feeling is yes, but I’ll have to double check on it. So Joe, if you could just do me a favor and email me that question, I will get you an answer. All right. And that’s thing sometimes I don’t know the answers off top of my head. All right. Any other questions? I left a review on Google, thank you, I appreciate that. All right. Going once, going twice, thank you, everyone. All right. Make it a great week. Wish my daughter luck. She has her last soccer game looking to go undefeated this weekend. Our game got rescheduled, so go Maddie. All right. Take care. Bye bye. Thank you.

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